When Do Higher Prices Increase Demand? The Dual Role of Price in Consumers' Value Judgments (original) (raw)

Price as a signal of product quality: Some experimental evidence

2011

We separate the budgetary and non-budgetary effects of price on demand using choice data from wine tasting experiments in which consumers tasted wines of different quality accompanied by fictitious price information. The non-budgetary effect is present and nonlinear: it is strongly positive between e 3 and e 5, and undetectable between e 5 and e 8. We find a similar nonlinear price-quality relationship in a large sample of wine ratings from the same price segment, supporting the hypothesis that consumer behavior in the experiment is consistent with rationally using prices as signals of quality. Price signals also have greater importance for inexperienced (young) consumers.

Effects of Quality and Price Appeals on Consumers’ Internal Reference Prices and Quality Perceptions

Modern Economy, 2014

Marketers frequently appeal to consumers through "high quality" and "low price" cues that are placed together in retail advertisements. We call this type of approach the "high quality and low price" (HQLP) appeal. Few studies have investigated how HQLP appeal influences consumers' evaluations. In this paper, we analyze the effects of HQLP appeal on internal reference prices and quality perceptions in two retailer contexts: expensive and inexpensive stores. The results showed that consumers' evaluations are influenced by both the HQLP appeal and the retailer context. For an expensive store, the appeal generated similar levels of expected price and willingness-to-pay (WTP), higher purchase intention for the expected prices, and lower quality perception. The inexpensive store generated an expected price lower than WTP, higher purchase intention for the expected price, and higher quality perception. Therefore the HQLP appeal works better for an inexpensive store than an expensive store.

Benchmarking consumer perceptions of product quality with price: An exploration

Psychology & Marketing, 1996

This empirical study illustrates an extension of the magnitude estimation measurement procedure, coupled with a repeated-measures design, to assess a consumer's perceptual link between product quality and price. Respondents rated 14 competitive chocolate candy bars, with a given average price of 50¢, on two separate sensory measures to evaluate quality and price. The results indicate that consumer judgments about product quality influence the price they are willing to pay. These findings support the validity of the magnitude estimation procedure for product quality and price assessments, providing marketing management with a standardized benchmark to compare competitive products. Extending this experimental methodology to small groups provides an inexpensive approach for marketers to quantify otherwise qualitative focus-group investigations. © 1996 John Wiley & Sons, Inc.

The Insights on Perceived Price-Quality

INTERNATIONAL RESEARCH JOURNAL OF …, 2012

It is always coming with price that contributes to dynamics on perceived price-quality. This research employs four theories namely absolute and relative price differences (Theory-1), a "free" product (Theory-2), consumer perception of price unfairness (Theory-3), and consumer perception of price as an indicator of product quality (Theory-4). They are integrated and synchronized to provide interpretation framework. Using Consistency Test and phenomenological approach the author rationalizes participants' responses around the issues of price and benefit to get some insights on perceived price-quality.

The effects of perceived scarcity on consumers’ processing of price information

Journal of the Academy of Marketing Science, 2007

This research examines how perceived scarcity influences consumers' processing of price information. To explain the effects of scarcity, a conceptual framework which incorporates both the motivational and the interference effects of scarcity on information processing is developed. The results from two studies show that under scarcity, consumers' perceptions of quality and monetary sacrifice exhibit different response patterns, depending on the relative price level and consumers' motivation to process information. We provide insights into how these perceptions of quality and sacrifice are integrated to form perceptions of value. Additional analyses of thought measures provided further understanding of the underlying processes that influenced the evaluation of price information under scarcity.

Loss Aversion for Quality in Consumer Choice

Australian Journal of Management, 2004

A reference price is an internal price that consumers are believed to use to compare actual prices. Reference effects for price have been demonstrated in many settings. Reference effects for quality also have been demonstrated using scanner data. Here we present experimental evidence. Firstly, it is shown that high quality goods will be valued more by consumers who consider trading down in quality than by those who consider trading up in quality. Secondly, we show that when all prices fall, more switching up in quality from the reference brand will occur than switching down in quality when all prices rise, and that when all prices fall, consumers will switch to higher quality up to, but not beyond, the price regularly paid.

A Selective Hypothesis Testing Perspective on Price-Quality Inference and Inference-Based Choice

Journal of Consumer Psychology, 2005

Consumers often rely heavily on price as a predictor of quality and typically overestimate the strength of this relation. Furthermore, the inferences of quality they make on the basis of price can influence their actual purchase decisions. Selective hypothesis testing appears to underlie the effects of information load and format on price-quality inferences. Results of 5 experiments converge on the conclusion that quality inferences are more heavily influenced by price when individuals have a high need for cognitive closure, when the amount of information presented is high (vs. low), and when the information presented is rank ordered in terms of quality rather than presented randomly. Furthermore, because consumers are willing to purchase more expensive brands when they perceive a high price-quality correlation, these variables can also influence their purchase decisions. Consumers frequently make judgments based on limited information or knowledge, relying on preconceived beliefs and expectations. One such belief is that a strong relation exists between price and quality. In this article, we examine both situational and individual differences in consumers' use of price to infer quality. In addition, we demonstrate that consumers' perceptions of the relation between product price and quality affect their choice behavior. Consumers' a priori beliefs about the general relation between price and quality can exert a powerful influence on their subjective perceptions of the actual relation that exists in any particular instance (

A Reference-Dependent Model of the Price–Quality Heuristic

Journal of Marketing Research, 2014

People often use price as a proxy for quality, resulting in a positive correlation between prices and product liking, known as the “price– quality” (P–Q) heuristic. Using data from three experiments conducted at a winery, this article offers a more complex and complete reference-dependent model of the relationship between price and quality. The authors propose that higher prices set higher expectations, which serve as reference points. When expectations are met or exceeded, we observe the familiar P–Q relationship. However, when price is high and quality is relatively low, the product falls short of consumers’ reference point and the P–Q relationship is reversed; thus, people evaluate a low-quality product with a high price more negatively than a low-quality product with a low price. Using the results of a field experiment, the authors discuss implications for pricing considerations and profitability.