ABSTRACT - The conditions under which consumers use price to infer quality are examined. The generalization that brand name or point of purchase information replace price as an indicator of quality is challenged. Product line structure -- the existence of multiple quality levels under one brand name -- is found to be a predictor of price-quality effects. Show
Citation:Carl Obermiller (1988) ,"When Do Consumers Infer Quality From Price?", in NA - Advances in Consumer Research Volume 15, eds. Micheal J. Houston, Provo, UT : Association for Consumer Research, Pages: 304-310.
Advances in Consumer Research Volume 15, 1988 Pages 304-310 WHEN DO CONSUMERS INFER QUALITY FROM PRICE? Carl Obermiller, University of Washington ABSTRACT - The conditions under which consumers use price to infer quality are examined. The generalization that brand name or point of purchase information replace price as an indicator of quality is challenged. Product line structure -- the existence of multiple quality levels under one brand name -- is found to be a predictor of price-quality effects. INTRODUCTION Despite the ease with which the marketplace employs the dictum, You get what you pay for," and despite the existence of a sufficient body of academic study to justify casual references to research on the "price-quality relationship," we really don't understand the links between price and quality perceptions very well. There is no evidence of a strong relationship between objective quality and price (Curry, 1985; Gerstner, 1985; Riesz, 1978; Sproles, 1977), and studies of price effects on perceived quality have produced equivocal results and have been flawed by demand effects (Monroe and Krishnan, 1985). More recent research has turned from efforts to demonstrate general effects of price to identifying the conditions under which price is used to infer quality. Limiting conditions can be grouped into two broad categories: aspects of the individual consumer and aspects of the evaluation situation. The likelihood of judging quality from price appears to vary across individuals. Individual variation has been shown to depend upon the strength of a price-quality schema (Peterson and Wilson 1985), the ability to detect price differences (Zeithaml 1985), the ability to detect quality differences (Lambert 1972), and the strength of prior belief in quality differences (Obermiller and Wheatley 1984). In sum, quality is most likely to be inferred from price by consumers who have developed a price-quality heuristic and who believe that price and quality differ across alternatives. Research has also shown that consumers are more likely to rely on price information as a quality cue in situations where other cues are absent. A frequent criticism of P-Q research has been the unrealistic nature of single cue studies, but only a small number of studies have examined the effects of price in multi-cue contexts. Monroe and Krishnan (1985) meta-analyzed the six studies that simultaneously manipulated price and brand name. Their conclusion is that we have weak evidence for an interaction between price and brand name. Consumers infer high quality when both positive brand name and high price are present. The six studies are mixed, however, regarding consumers preferences for price vs. brand name information. Five of the studies found main effects of brand name, while only three found main effects of price. Monroe and Krishnan (1985) also found a store information X price interaction across studies. In a more recent study, Stokes (1985) found a brand name X price interaction but no interaction of package design and price. Several researchers have concluded that when brand name, store reputation, or physical composition information are available, consumers appear to rely on them rather than on price (Stafford and Enis, 1964; Wheatley and Chiu, 1977; Gardner, 1971). Thus, price appears to be used as a quality cue only when other cues are absent or ambiguous. SUMMARY PROPOSITIONS The following propositions are proposed as descriptive of the process by which consumers use price to judge product quality. The reader may also see Zeithaml (1987) for an independent but similar set of ideas. The propositions are, perhaps, self-evident to those who have given the problem some- thought; I include them in order to provide perspective for the empirical research. I make no claim that they constitute a major contribution in conceptualization or theory development.
THE STUDY The applicability of these simple propositions struck me in the course of a recent purchase situation. I was trying to select a pair of tennis shoes from a mail order catalog. Shoes were categorized by brand name. Under familiar brand names, such as Nike and Reebok, were unfamiliar model designations (Aviators, GTs, 6500, among others) with varying prices. I had hoped to judge quality on the basis of brand name, but I found that I had to use price to estimate quality within brands. Moreover, the magnitude of the effect of price cues was large. Although I estimated higher quality for Nike than Footjoy, for example, that difference was small relative to the difference between $59 Nikes and $20 Nikes. Upon further observation, I discovered a host of products that exhibit what I term multi-level product line structure--more than one price (and quality) line under a single brand name. Many articles of clothing, automobiles, appliances, and food categories are merchandised with multiple brand forms under a single brand name. The distinctions among the forms may be promoted slightly (e.g. Nike Pegasus vs. Nike Vector); they may be identified only for production and sales presentation purposes (e.g. Michelin MXV, EPX, and X4A radial tires); or they may be identified only by physical composition information (e.g. Swanson's Salisbury Dinner vs. Swanson's Shrimp Dinner). *Note that multi-level product line structure differs from simple family branding. The former has a fairly explicit price and quality hierarchy; the latter does not. Although Hunt's Barbecue Sauce comes in several flavors, all under one brand name, it has a single-level product line structure. Even if different flavors have slightly different prices, the price differences reflect qualitative, not quantitative levels of quality. Product line structure provides a natural illustration of the preceding propositions. Multi-level product line structures should encourage price-quality inferencing; single-level structures should not. Differing quality levels may be indicated by point of purchase information, but brand name will provide insufficient information about multi-level products. Unlike previous research, which has attempted to draw generalizations regarding the mediating effects of brand name or product information, a consideration of product line structure conforms to the proposition that brand name and such can only completely replace price information under certain conditions. Data were collected to test the following research hypothesis: Brand name and POP information can act as indicators of brand quality. For single-line product structures, price will indicate quality only in the absence of such indicators; for multi-line product structures, however, price will have independent effects on quality perceptions, even in the presence of other indicators. DESIGN The study was a 2 (price) X 2 (brand name quality) X 2 (POP information) X 2 (product line structure), with 2 brands nested within product line structure, factorial design. Price, brand quality, and POP information were between subjects factors; product line structure was manipulated within subjects. Thus, subjects were presented with four products, all of which were of the same price level (high vs. low), the same brand name quality (high vs. low/unknown), and the same level of POP information (present, high quality vs. absent). The four brands represented two levels of product line structure (multiple vs. single quality lines), with two products at each level. Independent Variables Price: Prices were set to reflect high and low market levels. Baby shampoo was $2.25 vs. $1.25 (16 oz.). Tuna was $1.59 vs. $1.19 (6.5 oz.). Tea bags were $1.95 vs. $.95 (48 bags). Audio cassettes were $2.99 vs. $1.39 (90 minutes). Brand name quality: Quality of brand names was determined from a pretest focus group of similar subjects. Since the brands were fictitious, high quality brand names were selected from related product categories. Unknown/low quality brand names were selected from pretest suggestions. All pretest participants agreed upon the high quality brand names, but they were less certain of the low quality names; some were unfamiliar. There was a clear consensus, however, that unknown brand names were very likely to be lower in quality. The high quality brand names were Sassoon (baby shampoo), Pioneer (audio cassettes), Campbell's (tuna), and Starbuck's (tea bags). (Starbuck's is a premium coffee brand in Seattle.) Low/unknown brands were K-Rite (shampoo), Ace (audio cassettes), Scotch Lad (tuna), and Safeway Brand (tea bags). POP Information: The index card adjacent to the experimental brand contained one of two levels of information. In the "absent" condition, it simply identified the brand's product category--tuna, baby shampoo, etc. In the "present" condition, the information identified the product as high in quality. Attributes of high quality were identified in the pretest as follows:
Product Line Structure: Two levels of product line structure were represented--multi-line vs. single-line. A multi-line structure is defined to have two or more price lines and associated quality levels under one brand name. Single-line structures use a brand name for a single price and quality. The two multi-line products were tuna fish and audio cassettes. Tuna fish is typically available in several quality levels under the same brand name--packed in oil vs. water; chunk vs. solid; dark, white, fancy, or Albacore. Audio cassettes likewise are typically available in several forms under the same brand name--Types I-IV, including such variables as low vs. high density, chrome, ferrous, or metal coating, high bias, low noise, EQ, etc. The two single line products were tea bags and baby shampoo. Some variations of these products exist (tea flavors and presence of caffeine; shampoo scents), but prices did not differ and forms were not presented as different quality levels. Pretest focus group interviews confirmed that the subjects population perceived these products as representative of the appropriate levels of product line structure. Subjects The data were collected on the campus of the University of Washington. Tables were set up in the lobby outside a student center. Volunteers were recruited from library and restaurant patrons. Two hundred and four subjects, almost entirely students, participated in and completed the study. Procedure Subjects were either recruited or responded to a poster designating the tables and workers as a "Marketing Research Project" with a lottery of participants for a $25 gift certificate. After agreeing to participate, a subject was coded according to the experimental condition and assigned to the first available product table, where he was given a "Product Information Sheet," which described the product line structure and prevailing prices for that product category. The tables contained several brands of the product category and one experimental brand in a generic package (plain white labels on nondescript containers). The brand name, price, and POP information for the experimental brand were typed on an adjacent 3" x 5" card. The other brands of the product category were arranged in a semi-circle behind the experimental brand and had their original packages and were marked with their retail prices. The "background" brands were constant across experimental conditions; they were present to provide a constant reference for the experimental manipulations and to add a touch of reality to the evaluation situation. Subjects were instructed to examine the experimental brand and to evaluate it on a series of 12 rating scales. After completing the evaluation scales, subjects moved to another product table and repeated the procedure; then again for the remaining two product tables. At each [able, subjects evaluated a single experimental brand. After the evaluation phase, subjects turned in their evaluation forms and completed a simulated purchase form, which required them to choose between each experimental brand and one alternative. After the simulated purchase, subjects entered their names in the lottery box and departed with thanks. Due to the nature of recruitment, subjects were not debriefed, except for the winner of the gift certificate who was contacted after data collection was completed. Dependent Measures Perceived Quality: Subjects rated each experimental brand on twelve 7-point bipolar adjective scales. Three of the scales were common and were intended as measures of overall quality: high-low quality, desirable-undesirable, and beneficial-harmful. Subjects also rated the products on value scales and product-specific belief scales and responded to a forced choice simulated purchase. Additional results are reported elsewhere (Obermiller, 1987). RESULTS Analyses of variance were performed for each product category with price, brand name, and POP information as independent variables and perceived quality as the dependent variable. (The three quality scales were summed to form an overall quality measure-coefficient alphas exceeded .84 for all products.) For convenience, the results are presented separately for brand name and POP information effects; for the complete anova results, see Obermiller (1987). The research hypothesis predicts that consumers will make greater use of price as an indicator of quality in the presence of brand name or POP information for multi-line products relative to single line products. The data for brand names are illustrated in Figures 1A and 1B. The single line products both showed price X brand name interactions (Tea: ] (1,196)=10.86, p<.001; Shampoo: F(1,196)=3.45, p=.065) in which perceived quality was low for low quality brands regardless of price and low for lower priced high quality brands but high for higher priced, high quality brands. Simple main effects of price for low quality brands were non-significant for both products; simple main effects of price for high quality brand names were significant (Tea: (t(1,51)=5.91; Shampoo: t(l,51)=3.35); and differences between high and low quality brand names at low price levels were non-significant. The interactions suggest that for single line products, consumers use both brand name and price information, with a low value of either sufficient to lower perceptions of quality. The two multi-line products both showed main effects of brand name and price but no price X brand name interaction (Tuna: F(1,109)=12.85, p<.001 for price; F(1,196)=25.96, pc.001 for brand name. Cassettes: F(1,196)=28.07, p<.001 for price; F(1,196)=20.52, p<.001 for brand name.) Again, consumers appear to use both price and brand name information, but each factor had its independent effect. Even when brands were known to be high or low quality, price differences were associated with differences in perceived quality. There were no interactions of product with either brand name or price, so products were collapsed across product line structure levels. Figure 2 illustrates the effects of price and product line structure for both high and low quality brand names. It was hypothesized that for high quality brand names in single line products, price would have no effect because it would provide redundant information; whereas for multi-line products, price would provide additional quality information. The data for high quality brand names do not support the hypothesis. Price does have an independent effect for multi-line products (t(1,51)=3.39), but there is also an independent effect of price for single line products (t( ,51)=5.0 ). The data for low quality brand names, however, do support the hypothesis: a non-significant ( (1,51)=1.25) increase in perceived quality due to price for single-line products and a significant (t(1,51)=3.75) price effect for multi-line products. The data for POP information are illustrated in Figures 3A and 3B. The effects of POP information were similar for the two single line products. For tea (F(1,196)=4.78, p=.03) and for shampoo (F(1,196)=0.09, p=.003), POP information had small main effects on perceived quality and no interaction with price. For both products there were significant main effects of price (Tea: F(1,196)=26.31, p=.001; Shampoo: F( 1,196)=1.06, p= .009). Neither multi-line product showed significant main or interactive effects of POP information (though both effects were marginal for tuna with p's=.11). For both products, again, there were significant main effects of price (Tuna: F(1,196)=12.85, p=.001; Tapes: F(1,196)=28.06, p=.001). DISCUSSION This study was premised on the notion that consumers inter quality from brand cues in an orderly fashion. Five propositions, based on previous research and straightforward reasoning, were developed to account for the use of price information in particular. Previous research that had examined the effects of price on perceived quality has concluded that price effects are largely eliminated by the presence of "better" indicators-brand name especially. A naturally-occurring variation along product line structure was proposed as a means of testing the orderliness of price-quality effects and identifying limiting conditions on the generalization that brand name or other indicators mediate the price-quality relationship. FIGURE 1A PERCEIVED QUALITY OF SINGLE LINE PRODUCTS BY PRICE AND BRAND NAME FIGURE 1B PERCEIVED QUALITY OF MULTI-LINE PRODUCTS BY PRICE AND BRAND NAME The results of the study do not entirely support the hypothesized differences between single-line and multi-line product structures. For multi-line products, price was hypothesized to supply independent information about quality. The data conform to this expectation. When products were structured such that different quality levels existed under a single brand name, subjects perceived an association between price and quality, regardless of the nature of the brand name. The data for single-line products were not entirely as hypothesized. Subjects were expected to judge quality from brand name and ignore price since only one quality level existed for each brand. When brand names connoted low or unknown quality, price differences had no effect, as expected. When brand name quality was high, however, price had a significant independent effect. FIGURE 2 PERCEIVED QUALITY OF HIGH AND LOW QUALITY BRAND NAMES BY PRICE AND PRODUCT LINE STRUCTURE Two explanations might be offered for the surprising results. First, tea and shampoo may not represent the single-line product structure construct. (It was, in fact, discovered, shortly after the experiment that Starbuck's had begun marketing several price points of tea bags; the subject population, however, indicated little awareness of the change.) Three things argue against this invalid construct explanation: ( l ) Product line structure was reinforced in the "Product Information Sheets". (2) The results of low quality brand names for tea and shampoo were as predicted. (3) The convergence of results for tea and shampoo argues against idiosyncratic departures from construct validity. A second explanation is, perhaps, theoretical rather than methodological. Although the data clearly confirm the relative valences of the brand names, subjects may have been more certain of the information inherent in the low quality versus the high quality brand names. Safeway Tea and K-Rite Shampoo (both store-brand names) may be clear, certain indicators of lower quality, rendering price an irrelevant cue. Sassoon Shampoo and Starbuck's Tea, while relatively more positive, may send less certain signals; in which case, subjects may have relied on price as a confirming cue. The suggestion that the valence of brand name reputation may be independent of the certainty or confidence of that judgment is not an entirely new idea. Olson and Jacoby (1972) suggested that all cues to product quality have both "predictive" and "confidence" values. Most research, however, has ignored the probability that, although price, brand name, even package information may predict quality, consumers may have little confidence in such predictions. It is arguable that the student subjects in this study were less expert shoppers of tea and shampoo and, therefore, less confident in the meanings of Sassoon and Starbuck's relative to the more general brand names, Safeway Brand and K-Rite. Future research on the effect of brand names may need measures of confidence in brand reputation or some control on the expertise of subjects across brand name conditions. The effects of point of purchase quality information in this study are perplexing. It is not surprising that POP information had only small effects; they were, at least, all in the expected direction. What is confusing is that price had relatively large effects, even in the presence of the same information that price differences might imply. The price difference reflected the market range associated with the quality difference identified in the POP information (the price difference in the two tunas, for example, corresponded with the difference in prices of fancy white tuna in water vs. dark tuna in oil.). Yet, across the four products the average POP effect is less than half the size of the average price effect (.95 vs. 2.0). It is possible that the procedure made price information more salient than POP information. Although one could read the package information on the reference brands, it was much easier to note their prices. While the difference in availability of price vs. package information reflects the marketplace, subjects may have been less apt to compare the more detailed information in the experimental procedure. Another explanation is that, despite the pretesting to identify important attributes, POP information reflected only part of the quality information implied by price. This study has added to our understanding of the price-quality relationship by identifying product line structure as a variable that may make price meaningful. So long as marketers offer multiple levels of quality under a single brand name, they invite consumers to rely on price information, even though brand or POP information may be available. The strong price effects for single-line products, despite the presence of other indicators of quality, suggest the need for more work. If we are to make progress in understanding the meaning of price to consumers, we must simultaneously investigate the meanings of brand name, package information, and other product cues. FIGURE 3A PERCEIVED QUALITY OF SINGLE LINE PRODUCTS BY PRICE AND POP INFORMATION FIGURE 3B PERCEIVED QUALITY OF MULTI-LINE PRODUCTS BY PRICE AND POP INFORMATION REFERENCES Curry, David F. (1985), "Measuring Price and Quality Competition," Journal of Marketing, 49 (Spring), 106-111. Gardner, David (1971), "Is There a Generalized Price/Quality Relationship?," Journal of Marketing Research, 8 (May), 241-243. Gerstner, Eitan (1985), "Do Higher Prices Signal Higher Quality?", Journal of Marketing Research, 22 (May), 209-215. Lambert, Z. (1972), "Price and Choice Behavior," Journal of Marketing Research, 9 (February), 35-40. Monroe, Kent B. and R. Krishnan (1985), "The Effect of Price on Subjective Product Evaluations," in J. Jacoby and J. Olson (eds), Perceived Quality (Lexington, MA: Lexington Books), 209-232. Obermiller, Carl (1987), "The Mediation of Price-Quality Inferences by Brand Name, POP Information, and Product Line Structure," working paper. Obermiller, Carl and John Wheatley (1984), "Beliefs in Quality Difference and Brand Choice,: in Elizabeth C. Hirschman and Morris B. Holbrook (eds.), Advances in Consumer Research, Vol. XII. Olson, J. and J. Jacoby (1972), "Cue Utilization in the Quality Perception Process," in M. Venkatesan (ed.) Proceedings of the Third Annual Conference of the Association for Consumer Research (Iowa City: Association for Consumer Research), 167-179. Peterson, Robert A. and William R. Wison (1985), "Perceived Risk and Price-Reliance Schema as Price-Perceived-Quality Mediators," in J. Jacoby and J. Olson (eds.), Perceived Quality (Lexington, MA: Lexington Books), 247-268. Riesz, P. (1978), "Price versus Quality in the Marketplace, 1961-1975" Journal of Retailing, 54:4, 15-28. Sproles, George B. (1977), "New Evidence on Price and Quality," Journal of Consumer Affairs, 11 (Summer) 63-77. Stafford, J.E. and B.M. Enis (1969), "The Price-Quality Relationship: An Extension," Journal of Marketing Research, 6 (November), 456-458. Stokes, Raymond C. (1985), "The Effect of Price, Package Design, and Brand Familiarity on Perceived Quality," in J. Jacoby and J. Olson (eds.), Perceived Quality (Lexington, MA: Lexington Books), 233-246. Wheatley, John and J. Chiu (1977), "The Effects of Price, Store Image, and Product and Respondent Characteristics on Perceptions of Quality," Journal of Marketing Research, 14, 181-186. Zeithaml, Valarie A. (1985), 'The New Demographics and Market Fragmentation," Journal of Marketing, 49 (Summer) 64-75. Zeithaml, Valarie A. (1987), "Defining and Relating Price, Perceived Quality, and Perceived Value," Marketing Science Institute Research Program Working Paper, Report No. 87-101. ---------------------------------------- Authors Carl Obermiller, University of Washington VolumeNA - Advances in Consumer Research Volume 15 | 1988 Share ProceedingFeaturedHow Regional Diasporic Consumer Experiences Produce Transnational Imaginary Mark Buschgens, RMIT University Read More FeaturedNarrative Transportation and Cognitive Responses: The Other Side of the Story Rebecca Krause, Northwestern University, USA Read More FeaturedSocial Class and Prosocial Behaviors Yan Vieites,
Brazilian School of Public and Business Administration, Brazil Read More What influence does pricing have on the customers?A price that is neither too high nor too low sends a positive message to the customer about the quality of the product and the value of their purchase. Not only does a “reasonable” pricing strategy positively affect customer satisfaction, but it will also make things easier when and if you need to increase prices.
What do you mean by cost based pricing?Cost-based pricing is a pricing method that is based on the cost of production, manufacturing, and distribution of a product. Essentially, the price of a product is determined by adding a percentage of the manufacturing costs to the selling price to make a profit.
Who determines the price of a product in a company?In a competitive market, sellers compete against other suppliers to sell their products and buyers bid against other buyers to obtain the product. This competition of sellers against sellers and buyers against buyers determines the price of the product. It's called supply and demand.
Which of the following is a new product pricing strategy that is most likely to gain market share for the product early in that product's life cycle?Penetration pricing
With this strategy, companies set a low price initially to encourage product sales and increase market share. Doing this attracts new customers more quickly and easily than other strategies allow.
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Consumers who have no past experience with a product are more likely to judge it by its price.
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