Does Higher Price Signal
presents articles focusing on managerial
applications of management practices,
theories, and concepts
D P S Verma and Soma Sen Gupta
With differentiated products, consumers may not be aware of the quality and features of the products they buy. They are often unable to make a quality comparison among various brands. Moreover, they often gather little information even when the financial commitment involved is substantial. A popular belief is: ‘You get what you pay for.’ Therefore, consumers tend to believe that high price is an indicator of better quality. Although many studies conducted on price-quality relationship have supported this belief, there are other studies that have found the relationship to be product-specific and weak in general.
This study seeks to examine the relationship between the price of the product and the buyers’ perception of quality in respect of durable, semi-durable, and non-durable products in the Indian context. Three products were selected for the purpose of the study: colour television as a durable product; T-shirt as a semi-durable product; and toothpaste as a non-durable product. Data were collected from the primary sources with the help of a non-disguised, pre-structured questionnaire.
In particular, the authors sought to explore answer to two questions: (1) Does high price have a positive influence on the buyers’ perception of product quality? (2) Is there a significant difference in the buyers’ perception of the quality of products falling in different price ranges?
The major findings of the study are as follows:
For a durable product, like colour television, setting the price too low will negatively affect the quality image of the product and the consumer would be reluctant to buy a low-priced brand as it might lower his image in the society. Pricing it reasonably high will give the product a high-quality image. However, the marketer should take care of the competitors’ pricing policies and the buyers’ purchasing power.
The target market for T-shirt in India consists mainly of the young, especially the college students, having limited purchasing power. They prefer local, or little known, but trendy brands of T-shirts rather than expensive ones. Also, they would opt for a T-shirt of a reputed brand if it is within their purchasing power. However, reducing the price of the T-shirt may dilute its brand image. Hence, the marketer of the T-shirt should think of market segmentation strategies and select the appropriate target segment(s) and price the product accordingly. For toothpaste, brand reputation is a critical factor and the marketer should price the product according to the reputation enjoyed by the brand. However, the price-quality relationship for this product has been found to be weak in comparison to colour television and T-shirt. The marketer, therefore, should be wary of charging a very low price as it would create an inferior quality image in the mind of the buyer.
The findings have important marketing implications for pricing, market segmentation, target marketing, and product positioning.
VIKALPA • VOLUME 29 • NO 2 • APRIL - JUNE 2004
ricing is an important decision area of marketing. It is the only element of the marketing mix that generates revenue; all the other elements
involve cost. In spite of its importance, however, pricing
has been an area of little theoretical understanding and
even less operating precision (Shapiro, 1968).
Price is also one of the most important marketplace
cues. The all-pervasive influence of price is due, in part,
to the fact that the price cue is present in all purchase
situations and, at a minimum, represents to all consumers, the amount of economic outlay that must be sacrificed in order to engage in a given purchase transaction...
References: Andrews, Robert I and Valenzi, Enxo R (1991). “Combining
Price, Brand and Store Cues to Form an Impression of
Dawar, Niraj and Parker, Philip (1994). “Marketing Universals: Consumers’ Use of Brand Name, Price and
Physical Appearance, and Retailer Reputation as Signals of Product Quality,” Journal of Marketing, 58(2), 8195.
Dodds, William B, Monroe, Kent B and Grewal, Dhruv
Erickson, Gary M and Johansson, Johny K (1985). “The Role
of Price in Multi-Attribute Product Evaluations,” Journal of Consumer Research, 12(3), 195-99.
Gabor, A and Granger, C W J (1966). “Price as an Indicator
of Quality: Report on an Inquiry,” Economica, 33(1), 4370.
Gardener, David M (1971). “Is there a Generalized Price-
Gerstner, Eitan (1985). “Do Higher Prices Signal Higher
Quality?” Journal of Marketing Research, 22(2), 209-15.
Lambert, Zarrel V (1970). “Product Perception: An Important Variable in Price Strategy,” Journal of Marketing,
Lambert, Zarrel V (1972). “Price and Choice Behaviour,”
Journal of Marketing Research, 9(1), 35-40.
Leavitt, Harold J (1954). “A Note on Some Experimental
Findings about the Meaning of Price,” Journal of Business, 27(2), 205-10.
Lichtenstein, Donald R and Burton, Scot (1989). “The
Relationship Between Perceived and Objective PriceQuality,” Journal of Marketing Research, 26(4), 429-43.
Lichtenstein, Donald R, Ridgway, Nancy M and Netemeyer, Richard G (1993). “Price Perceptions and Consumer
Shopping Behaviour: A Field Study,” Journal of Marketing Research, 30(2), 234-45.
McConnell, J Douglas (1968). “The Price-Quality Relationship in an Experimental Setting,” Journal of Marketing
Research, 5(3), 300-34.
Mehta, Subhash C, Parasuraman, A and Ambarish Kumar,
Monroe, Kent B and Krishnan, R (1988). “The Effect of Price
on Subjective Product Evaluations,” quoted in Rao,
Rao, Akshay R and Monroe, Kent B (1988). “The Moderating Effect of Prior Knowledge on Cue Utilization in
Product Evaluations,” Journal of Consumer Research,
Rao, Akshay R and Monroe, Kent B (1989). “The Effect of
Price, Brand Name, and Store Name on Buyers’ Perceptions of Product Quality: An Integrative Review,” Journal of Marketing Research, 26(3), 351-57.
Render, Berry and O’Connor, Thomas S (1976). “The Influence of Price, Store Name and Brand Name on
Perceptions of Product Quality,” Journal of Academy of
Schiffman, Leon G and Kanuk, Leslie Lazar (1996). Consumer Behaviour, 5th edition, New Delhi: Prentice-Hall
of India, 193.
Scitovsky, Tibor (1945). “Some Consequences of the Habit
of Judging Quality by Price,” Review of Economic Studies,
Shapiro, Benson P (1968). “The Psychology of Pricing,”
Harvard Business Review, 46(4), 14-25.
Shapiro, Benson P (1973). “Price Reliance: Existence and
Sources,” Journal of Marketing Research, 10(3), 286-87.
Shivdasani, H K (1972). “Psychology of Pricing: PricePerceived Quality Relationship,” Indian Management,
Tellis, Gerard J, and Gaeth, Gary J (1990). “Best Value,
Price-Seeking and Price Aversion: The Impact of Information and Learning on Consumer Choices,” Journal of
Zeithaml, Valarie A (1988). “Consumer Perceptions of Price,
Quality and Value: A Means-End Model and Synthesis
Please join StudyMode to read the full document