Subject
The price-perceived quality relationship.

Type of Report
Meta-analysis of previous research.

Objective
To integrate a body of research that identifies factors which drive the price-perceived quality relationship; further, to study whether methodological variables might explain differences across studies.

Method
Reviews 36 previous studies, identifying the effects of cues for price, brand name, and store name on buyers’ evaluations of product quality. Criticisms from the research stream identify possible effects of methodological variables and produce four hypotheses which are subsequently tested.

Audience
Marketing researchers will value the report for the order it brings to a field of inquiry and the suggestions it makes for designing studies; academics will be attracted to the hypotheses about methodological effects. Practitioners will benefit from the potential implications for pricing strategies.

Main Points
Few would deny that consumers seem to use price as an indicator of quality. The literature is replete with studies demonstrating just that. But empirical attempts to verify a strong correlation between price and quality have not produced consistent results. While the relationship has been found to be generally positive, it has varied widely across product-markets–far more widely than it “ought” to.

The present report reviews a large body of studies of the price-perceived quality relationship in an attempt to identify methodological explanations for the inconsistent statistical results. It focuses on four: number of cues used, type of design, size of the price manipulation, and relative price level of the stimulus.

The remaining sections of this summary highlight the meta-analytic results of cumulating findings from the previous studies.

Single versus Multiple Cues
The effect of price on perceived quality is moderately large and statistically significant. The effect of brand name on perceived quality is slightly larger and statistically significant. However, the effect of store name on perceived quality is small and not statistically significant. There very likely is a reinforcing effect if multiple cues signal quality in a consistent direction.

Type of Research Design
Within-subjects designs generate significantly larger effects than between-subjects designs, but this does not mean that within-subjects designs are unsuitable for price research. It simply means that researchers must take heed of the differences when developing their conclusions. It also highlights the importance of reference prices in enhancing the price-perceived quality effect

Size of the Price Manipulation
The relative strength of the price manipulation in a study significantly affects the obsened price-perceived quality relationship. This finding helps explain why statistical findings across the body of price-perceived quality research have been inconsistent. Judgments of quality based on price information are necessarily comparative: Perceived differences in prices lead to relative judgments thatproduct quality varies significantly.

Relative Price Level of the Stimulus
The meta-analysis did not uncover a consistently significant association between price level and size of the effect, perhaps because there are very few studies using products that are relatively high priced and infrequently purchased. More research using moderately priced and relatively expensive products is necessary to establish whether the priceperceived quality relationship differs by relative price level.

Overall, existing price-perceived quality research is relatively narrow in scope. It has concentrated on relatively low priced, frequently purchased goods–where it has shown a moderate level of association between price and perceived quality. But there have not been enough studies for higher priced, less frequently purchased goods to enable generalizations. Services have not been sufficiently studied, nor have business and institutional buyers.

Commentary
Professors Rao and Monroe reflect:

“The research reported in this paper represents a five-year effort to explain conflicting results concerning whether and when consumers tend to associate price with product quality. Because of the diversity of approaches used to examine this phenomenon, there has been little agreement about its existence. However, the results reported in this paper suggest that this variation in previous price-quality research findings is explainable by the type of research design and the particular prices chosen for the research.

“Dwelling on this second reason, the prices used in the research, provides some important implications for marketing management. It seems that the wider the price differences are between products in the marketplace, the more likely that consumers will associate product quality with price. In other words, the greater diversity there is in prices in the marketplace, the more likely it is that consumers will expect that higher-priced producLs will be of greater quality. In such situations, it is unlikely that efforts to position a product as lower in price but higher in quality will succeed, because consumers will tend to use price as a signal of product quality. Similarly, introducing a new product into such a market or attempting to build market share with a low-price strategy will probably not succeed.

“Today, many firms are discovering that the key to pricing success is to set price according to how consumers perceive value rather than on some variation of a cost-plus approach. Hence, an understanding of the role of price in the formation of value perceptions is critical. Consequently, price perception research is a legitimate and necessary area of marketing research. The area of price-perceived quality is but one of a number of areas of investigation that we and other researchers are working on. The research program that we are pursuing includes the role of product and market knowledge on consumers’ perceptions of quality and value, the degree to which comparative price advertising affects consumers’ perceptions and willingness to buy, how consumers form reference prices and how these references prices affect perceptions, and other interesting and important questions. The research program is also being expanded to include not only lower-priced packaged goods but also higher-priced durable goods.”

About the Authors
Akshay R. Rao is Assistant Professor of Marketing at the Curtis L. Carlson School of Management, University of Minnesota. Kent B. Monroe is the Robert O. Goodykoontz Professor of Marketing at the R. B. Pamplin College of Business, Virginia Polytechnic Institute and State University