Price Check: Cost Doesn’t Signal Quality

While many consumers look to the price tag when calculating quality of a product, they may not get what they paid for, this according to new research from the University of Chicago Booth School of Business.

The study is written by Ann McGill of Chicago Booth, Bart de Langhe of the University of Colorado at Boulder Leeds School of Business, Stijn M.J. Van Osselear of the Cornell University Journalism School of Management and Stefano Puntoni of the Erasmus University’s Rotterdam School of Management.

For some products, like wines, there is greater variation in quality among lower-priced bottle, so it is  possible to get a good bottle of wine for a good price, though basing a decision on cost alone would suggest otherwise.  The opposite is true for detergents.

“What we find, though, is that consumers don’t pick up on this difference in consistency very well,” McGill says.  “As a result, if quality is consistent across higher-priced goods, consumers may err and predict that a lower-priced item is lower quality than it really is.”

The researchers conducted three studies to inspect how people perceive the relationship between price and quality under different conditions — when they had other information on quality in one price region, but not another, for example.

They noted that the price-quality relationship is learned two major ways — when price and quality information for many products are simultaneously listed together, for example on websites like Yelp, and about and about one product at a time, over time.

“The relationship between price and quality is rarely perfect,” they write.  “The price-quality relationship is characterized by random error around the regression line.  Often, this error is not constant across the price range.”

McGill says that if consumers learn that quality is consistently high at high prices, they will assume low-price options are worse than they are.

“We find the reverse also — if they learn that quality is consistently low at low prices, they may assume quality is consistently high at high prices, when that might not be the case,” she says.  “In some categories, some of the more expensive items might be great but some not so great.”

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