Academic journal article Multinational Business Review

Price/quality Associations within the Consumer Goods Market in the United Kingdom

Academic journal article Multinational Business Review

Price/quality Associations within the Consumer Goods Market in the United Kingdom

Article excerpt

Although price-quality associations for consumer products have been found to be nonexistent or very weak in the United States over the past three decades, few empirical data are available on the extent of those correlations within and across different product categories. Furthermore, the lack of empirical price-quality studies with international data highly restricts generalizations about this relationship. This study was designed to fill this gap and to point out relevant variations of pricequality correlations between different product categories within the consumer goods market in the United Kingdom. The results indicate that within this market, rather strong positive average price

quality correlations exist both for the whole market and especially for homogeneous shopping goods and durable goods. Although U.K. consumers must still be wary of utilizing price alone as a proxy for quality, the author concludes that the risk of employing price as a benchmark is lower for the two goods classes mentioned above and should be completely eliminated when brand information, warranties, and previous experience are combined with price information.

INTRODUCTION

The price and quality of a product are two of the most important strategic variables within the marketing mix. A thorough knowledge of their interdependence is not only valuable for the product manager who sets prices and determines product design. In some instances, it can also help those consumers who might take price as an exclusive or additional cue for evaluating the quality of a product.

The theoretical foundation for this price-quality relationship was laid by Tibor Scitovsky (1944/1945), who suggested that there is a tendency among consumers to associate higher prices with higher quality. This notion that consumers use price as an exclusive or additional variable to predict product quality could be empirically con-firmed in many experimental studies (McConnell, 1968, Lambert, 1970, Olshavsky et al., 1972, and Shapiro, 1973).

It should be noted, however, that the importance of price in the consumer's decision making process does also to a large extent depend on situative (i.e., search time) and consumer-related (i.e., familiarity with products or brands) factors (French, 1972, Bettman, 1973, Huston et al., 1983, and Finlay et al., 1984). Empirical evidence suggests that the use of price as a quality indicator is especially popular when consumers are unfamiliar with the brands or products being evaluated (Venkataramen, 1981 and Peterson, 1970). Also, the amount of search time, which consumers take to obtain information about a given product, seems to be inversely related to the extent by which price is used as a predictor for product quality (Gardner, 1970). Based upon this body of research, any generalization that consumers base their perception of product quality solely on price should be rejected because its effects have been shown to be both weak and unpredictable.

POTENTIAL RATIONALE FOR A PRICEQUALITY ASSOCIATION

The rationale of consumers using price as a mirror image of product quality are often based on two major assumptions which would theoretically justify this relationship: First, price could be the concrete manifestation of the cost (and therefore quality) of the com-ponents and labor that went into the final product as well as the sophistication of the design and the manufacturing process. The underlying notion of a proportional cor-respondence between production cost and product quality was left unquestioned for a long time but has recently been seriously challenged by manufacturing experts. Crosby (1979), Hayes (1981), Hayes et al. (1984), and Womack et al. (1990) present compelling empirical evidence to support their claim that improvements in product quality do not necessarily need to increase product costs when advanced quality-control and manu-facturing techniques are being used.

Furthermore, if total costs (which include costs that have nothing to do with quality like the often considerable expenses for selling and promotional activities) are taken into account, the association between price and product quality based on manufacturing cost should blur completely. …

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