De-targeting to signal quality |
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| Affiliation: | 1. Erasmus School of Economics, Erasmus University Rotterdam, The Netherlands;2. Coller School of Management, Tel-Aviv University, Israel;1. Department of Information Management, College of Management, National Taiwan University, 1, Sec. 4, Roosevelt Rd., Taipei 10617, Taiwan;2. School of Hotel Administration, Cornell University, 244 Statler Hall, Ithaca, NY, USA;1. School of Business, Insper Education and Research Institute, Rua Quatá 300, Vila Olímpia, São Paulo 04546-042, SP, Brazil;2. Department of Marketing, Fowler College of Business, San Diego State University, San Diego, CA 92182-8239, United States of America;3. John C. Narver Chair in Business Administration, Michael G. Foster School of Business, University of Washington, PACCAR Hall, Box 353226, Seattle, WA 98195, United States of America |
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| Abstract: | 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. |
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