Impact of “High Quality,Low Price” Appeal on Consumer Evaluations

Marketers frequently adopt a “high quality, low price” appeal in advertisements. However, the price–quality inference theory implies that this contextual appeal may not be well-accepted by consumers because it contains two contradictory cues: high quality and low price. This article investigates how consumers evaluate this appeal through two laboratory experiments. Study 1 shows that the appeal leads to favorable price perceptions and purchase intentions when the product price is high; it leads to high quality perceptions when the price is low. Study 2 shows that these effects are salient when consumers have a weak price–quality schema or a low need-for-cognition.     

Managing Service Expectations in Online Markets: A Signaling Theory of E-tailer Pricing and Empirical Tests

Expectations play a significant role in determining customer perceptions and satisfaction. Accordingly, retailers seek to manage customers’ service expectations. However, the tangible signals of service quality that are available to brick-and-mortar retailers (such as location, store appearance, and salespersons’ behavior) may not be available in online markets. Using a signaling model, we obtain conditions when Internet retailers (e-tailers) use price to manage their customers’ service expectations. In contrast to extant theory, we find that it is possible for both low and high service e-tailers to use price in signaling their service levels. Further, we develop an appropriate deductive test of our theory based on price-ending patterns as an artifact of the signaling process. Based on this test, we find evidence that e-tailers indeed manage service expectations using price. Interestingly, we also find preliminary evidence that suggests customers implicitly associate price-ending patterns with a retailer's expected service level. We discuss several other implications of our findings for researchers and managers.     

Price and quality decisions by self-serving managers

We present a theory of price and quality decisions by managers who are self-serving. In the theory, firms stress the price or quality of their products, but not both. Accounting for this, managers exploit any uncertainty about the cause of market outcomes to credit positive results to the dominant, “strategic” factor and blame negative results on the other—as doing so is psychologically rewarding. The problem with biased attributions, however, is that they prompt biased decisions. We motivate this argument with evidence from one experiment and then develop a model to understand the cost of the bias under different market conditions. Counter to intuition, we find that firms in a competitive setting can profit from the self-serving nature of their managers.     

Should firms display the sale price using larger font?

Prior work has shown that evaluations may be lower when retail price discounts are either small or large (vs. moderate), due to concerns about discount depth perceptions and/or product quality. Building from work on perceptual salience, we show that displaying the sale price in larger (vs. similar) font vis-à-vis the regular price makes the sale price more “salient”. In turn, when retail price discounts are either small or large (but, not moderate), such salience impacts how consumers process price discount information, mitigating concerns relating to discount depth perceptions and/or product quality, and so increasing evaluations. In effect, displaying the sale price using a relatively larger font increases consumers’ evaluations, somewhat mitigating the negative aspects of using small or large price discounts. We propose theory contributions towards research on display effects and pricing. Further, the proposed mechanism in this research note is easy-to-implement, and is expected to increase sales.     

Customer choices of manufacturer versus retailer brands in alternative price and usage contexts

This article offers a context-dependent theory of how price changes influence consumer purchase choice for fast moving consumer goods (FMCGs) for manufacturer (large household share) and retailer (small household share) brands. The theory proposes that the influence of price on demand is systematically very sensitive to context effects; more specifically, the theory includes the hypothesis that elasticity is much greater when the price change results in the manufacturer and retailer brands having the same price compared to when the price change keeps the manufacturer brand price above the retailer brand price. The implicit and/or explicit association with higher quality with the manufacturer versus retailer brand may be the main reason for buying the higher priced manufacturer brand. Decreasing the price of the manufacturer brand to equal the retailer brand's price takes away the primary reason for buying the retailer brand (i.e., saving money); increasing the price of the retailer brand to equal the manufacturer brand's price has the same effect. The empirical findings in the studies that this article reports support the hypothesis and confirm Scriven and Ehrenberg's [2004. Consistent consumer responses to price changes. Australas. Mark. J. 12(3), 21–39] major conclusion that relative order of price is more important than relative distance.     

Quality-based Price Discrimination: Evidence from Internet Retailers’ Shipping Options

This paper tests various implications of quality-based price discrimination theory in the context of internet book retailers’ shipping menus. Many internet retailers create quality variants of a homogeneous good by bundling it with several shipping options that differ by delivery time. This practice can allow retailers to extract further surplus from consumers through quality-based price discrimination. We find that the design of shipping menus offered by large retailers is consistent with main implications of quality-based price discrimination theory. Fringe sellers, however, do not appear to engage in price discrimination based on quality.     

Menu price endings that communicate value and quality

This paper investigates the extent to which restaurant marketers use the price endings .00 and .09 to communicate quality and value images, and whether consumers use those price endings as information cues when choosing where to dine out. The experimental data shows that marketers probably rely on price cues and that consumers use those cues. Moreover, many other researchers have found that there is a perceived relationship between prices ending in 0 and overall quality, and prices ending in 9 and overall value. This paper discusses three theories that might explain why consumers associate the price endings 0 and 9 with quality and value: the Schemer Schema Intuitive theory, the Persuasion Knowledge Model, and signaling theory. Those theories suggest that consumers learn from the behavior of marketers and that consumers use their intuition, persuasion knowledge, and coping behavior to interpret, evaluate, and adapt to the marketers' pricing practices.     

Quality signaling via strikethrough prices

Why do firms often advertise their current price together with their past price? Although consumers expect high quality products to have high prices, such firms may optimally charge lower prices when faced with low production costs. Thus in markets in which quality is difficult to ascertain and costs often fall over time, for example technology products, high quality firms may face a challenge of signaling their quality through current price alone. In this paper we develop a price signaling model in which uninformed consumers draw inference not only from the current price but also the prior period's price (the “strikethrough price”) if the firm chooses to disclose it. We find that a high quality firm benefits from using strikethrough pricing when the prior probability of high quality is relatively low while the probability of costs falling is relatively high.     

质量、顾客满意和价格容忍度关系的实证研究

顾客满意已经成为新世纪企业管理理论和实践研究的热点问题。本文从顾客价格容忍度的角度研究顾客满意为企业带来的效益，并进一步比较不同品牌的产品，顾客满意对价格容忍度影响的差异。实证研究表明，顾客满意、产品质量和服务质量对价格容忍度均有显著的正向影响：品牌的服务质量越高，顾客满意对价格容忍度的影响越大。     

Price–quality relationship in the presence of asymmetric dynamic reference quality effects

The purpose of this study is to examine the relationship between price and reference quality and their combined effect on profits. An analytical modeling approach aimed at solving the optimal solution for the profit maximization problem under these conditions is developed, enabling the exact path of the optimal price and quality over time to be depicted. Based on separating the effects of price and reference quality on demand, this analysis also provides insight into the contribution of these two effects to the steady-state solution through elasticities. Our results show that a monotonic inverse relationship exists between price and quality, such that a steady-state level is obtained where the quality?Cprice ratio is lower when reference quality effects exist than when such effects do not exist. In other words, consumers obtain higher quality for a higher price but with a lower price per unit of quality. Overall, accounting for reference quality effects will increase a firm??s profits.     

The effect of product touch information and sale proneness on consumers' responses to price discounts

Since price discounts are costly and can negatively affect consumers' perceptions of quality, it is crucial to identify the factors that make them effective in stimulating purchase behavior. Drawing on cue utilization theory, we examine price discount effectiveness in affecting consumers' reliance on the sale cue based on the provided product touch information as an intrinsic cue and individual consumer differences in sale proneness. Two experimental studies indicate that price discount information, product touch information, and sale proneness interact to determine consumers' responses. Perceived quality is the underlying mechanism behind the observed effects. For nonsale-prone consumers, product touch information favorably influences responses to large price discounts by addressing product quality concerns and enhancing purchase confidence, but has no effect for regularly priced or low discounted products. For sale-prone consumers, product touch information is not effective in increasing their responses regardless of the discount size. A qualitative study provides support for these results and highlights the role of perceived quality and purchase confidence. The research contributes to behavioral pricing, cue utilization theory, and sensory marketing and suggests that marketing managers should provide consumers with product touch information when implementing high discounts for products for which prepurchase touch is important.     

Price and Quality Strategies for Services:

Developing effective price and service quality strategies requires an understanding of the effect of price and service quality on buyers' attitudes, intentions and purchase decisions. Consumer Involvement is an important variable that may interact with price and service quality, and is the focus of this research. This paper examines the influence of involvement, price and service quality on attitudes and intention to purchase automobile insurance and long-distance telephone services.     

When Shelf-Based Scarcity Impacts Consumer Preferences

Shelf-based scarcity in the form of relative stocking level depletion significantly affects consumer preferences (van Herpen et al. 2009). While both popularity and quality inferences are induced by stocking-level depletion, this paper demonstrates that popularity (rather than quality) inferences are the primary driver of the effect. Shelf-based scarcity is shown to have an impact in the presence of other signals, such as brand names and quality ratings, which indicates its effect may be widespread. However, its effect on preferences is greatly decreased by the presence of strong prior preferences and/or price promotions, indicating that shelf-based scarcity is likely to affect choices when consumers lack strong prior preferences and under conditions where price promotions are either not present or are similar across alternatives.     

The impact of free and exaggerated prices on perceived quality of services

Previous research in the price-quality area has largely limited its focus to the normal price range and has concentrated on physical goods almost entirely. This study examines the effect of offering a service for free and at an exaggerated price on the perception of its quality. Consistent with the theory developed in this paper, the experimental results suggest that when the tested services are offered for free and for exaggerated prices, they are perceived as lower in quality than when they are offered in a normal price range.     

Risk‐taking propensity in supplier choice: Differences by sex and decision frame in a simulated organizational buying context

Past research concerning decision framing has found that buyer's choices tend to be risk averse for decisions framed as a gain and risk seeking for choices framed as a loss. Attribution theory suggests that women may be less likely to take risk than men when faced with similar decision‐making problems. The present study sought to determine whether there would be differences between men and women with respect to their supplier choices based on how the purchasing decision was framed. Two experiments were conducted: one using a price‐based purchasing scenario and the other using a price‐based and a quality‐based purchasing scenario. For the price‐based scenario women tended to make more risky supplier choices than men when the purchasing decision was framed as a loss, and less risky supplier choices than men when the purchasing decision was framed as a gain. No differences between the sexes were found for the quality‐based scenario. © 1999 John Wiley & Sons, Inc.     

Using a hedonic price model to test prospect theory assertions: The asymmetrical and nonlinear effect of reliability on used car prices

This paper investigates prospect theory implications in used goods markets. In particular, it develops a hedonic price model that addresses the price structure of the used car market in the light of prospect theory. The proposed hedonic price model provides empirical evidence in support of prospect theory predictions for explaining used car prices after controlling for observed product differentiation. It is demonstrated that consumers are risk seeking when used car reliability is below the expected reference value and risk averse when used car reliability is above the expected reference value. The model also illustrates how car quality affects residual values and how buyers evaluate used cars.     

The Effects of Awareness and Quality Risk on the Price-Quality Relationship Among Services

Abstract

This study extends price-perceived quality research into the context of services. Quality risk, price, and awareness were manipulated in a 3 × 2 × 2 factorial design. The results of the experiment indicate that price and awareness interact in the formation of perceived service quality evaluations. In high awareness conditions, price is used as a cue to quality, but the price-quality relationship does not hold in low awareness situations.     

De-targeting to signal quality

It is important for firms to signal the high quality of their products to consumers in experience goods markets. Conventional wisdom suggests that a high price can be a signal of high quality. However, we argue that the role of price in signaling quality could be weakened when firms resort to the intensive use of targeting in advertising, which could attenuate the informational content of a high price. As a consequence, a high quality firm needs to distort its price more to signal its quality. However, when different levels of targeting are available, a high quality firm may find it optimal to signal its quality with a lower level of targeting.     

What does the Chinese market need? An empirical study of the determinants of Chinese imports, 1996–2008

This study provides an in-depth analysis of the determinants of import demand in China through a multilevel approach. Using disaggregated data over 1996–2008 and a dynamic panel model, we find that the Chinese import market is predominantly characterized by quality competition. However, the nature of the competition varies across different industries. In line with theory, quality plays an important role in industries that are characterized by the potential for quality improvement and product differentiation, whereas price is key in industries in which quality and product differences are rather small. Moreover, private consumption expenditure is more influential than other categories of expenditures. Additionally, variables that can influence the relative price of import products, such as the exchange rate, tariffs and the domestic price index, also have an impact on import demand.     

The effect of product visibility upon the relationship between price and quality

Previous studies have suggested that the relationship between price and quality for certain types of consumer goods often is not positive. Investigators have hypothesized that the experience of value, or the relationship between quality and price, may be less relevant for product categories in which a consumer's self-worth may be elevated through the act of purchase. Brands within such product categories would appear to be particularly susceptible to image building strategies involving the use of premium pricing to infer high quality. This study examined the relationship between price and objective quality from 1961 through 1978 for 878 brands of 54 products within three broad product categories of toilet articles, cosmetics, and clothing. Generally, the relationship for products within these categories was weak which suggests that marketing managers of some brands may well be basing prices on intangible as well as tangible values.