Assessing the Relationship Between Perceived and Objective Price-Quality: a Replication

ABSTRACT - A study is reported that attempts to replicate results of recent research concerning the level of correspondence between consumers' price-quality perceptions and objective price-quality relationships present in the marketplace. The study employs a dissimilar, alternative measure of price-quality perceptions from the one used in previous research examining this relationship. Results support previous findings by indicating that the relationship between price-quality perceptions and objective price-quality is positive, but not large. Findings also are consistent with previous results that indicate that this relationship is moderated by product type (durable and nondurables).

Citation:

Scot Burton and Donald R. Lichtenstein (1990) ,"Assessing the Relationship Between Perceived and Objective Price-Quality: a Replication", in NA - Advances in Consumer Research Volume 17, eds. Marvin E. Goldberg, Gerald Gorn, and Richard W. Pollay, Provo, UT : Association for Consumer Research, Pages: 715-722.

Advances in Consumer Research Volume 17, 1990      Pages 715-722

ASSESSING THE RELATIONSHIP BETWEEN PERCEIVED AND OBJECTIVE PRICE-QUALITY: A REPLICATION

Scot Burton, Louisiana State University

Donald R. Lichtenstein, University of Colorado

[The authors express their gratitude to an anonymous reviewer for his/her suggestion concerning an alternative measure of perceived price-quality used in this paper. For purposes of comparison, this paper includes a portion of the results from Study 3 reported in Lichtenstein and Burton (1989).]

ABSTRACT -

A study is reported that attempts to replicate results of recent research concerning the level of correspondence between consumers' price-quality perceptions and objective price-quality relationships present in the marketplace. The study employs a dissimilar, alternative measure of price-quality perceptions from the one used in previous research examining this relationship. Results support previous findings by indicating that the relationship between price-quality perceptions and objective price-quality is positive, but not large. Findings also are consistent with previous results that indicate that this relationship is moderated by product type (durable and nondurables).

Two research streams of significant interest in pricing research concern (1) the relationship between price and quality perceptions and (2) the relationship between price and "objective" quality. Both of these research streams have been of interest to pricing researchers for many years (Leavitt 1954; Morris and Bronson 1969). Research pertaining to the price-perceived quality relationship suggests that the use of price as an indicator of product quality is considered to be widespread (Etgar and Malhotra 1981; Gerstner 1985), but that its effect varies significantly across individuals and products being judged (Peterson and Wilson 1985; Zeithaml 1987).

Objective quality previously has been defined as the "unbiased measurement of quality based on characteristics such as design, durability, performance, and safety" (Riesz 1978, p.19). Research pertaining to the relationship between price and "objective" quality suggests that while the association between price and objective quality for some product categories is high, across product categories the overall relationship is low, and in some cases, negative (cf. Geistfeld 1982; Gerstner 1985; Morris and Bronson 1969; Oxenfeldt 1950; Riesz 1978, 1979). For example, Oxenfeldt (1950) reported an average correlation between price and objective quality of .25, with correlations ranging from 0.82 to -0.81, for a sample of 35 product categories that included durable goods, clothing, and food. Riesz examined 685 durable and nondurable product categories and found an average correlation of .26. In a follow-up study, Riesz (1979) found an average correlation of .09, with a objective-price quality correlations ranging from .88 to -.65 for 679 packaged food product categories. Gerstner (1985) reported an average correlation for 59 nondurable products of only .01 with a range of .73 to -1.00, and an average correlation for durable products of .19, with a range of .66 to -.73.

Such findings have led price-objective quality researchers to conclude that "results indicate that price and [objective] quality do correlate, but at a level so low as to lack practical significance" (Morris and Bronson 1969, p.33). Similarly, Riesz (1979, p.246) states that "consumer reliance on price as an indicator of product quality is an unwise purchasing strategy."

In a recent study, an attempt was made to integrate the price-objective quality research stream with research on consumers' subjective price-quality perceptions (Lichtenstein and Burton 1989). Because this integration permits an assessment of the consistency between the price-quality perceptions of consumers and price-objective quality relationships present in the marketplace, it potentially has some important implications for both consumer researchers and policy-makers.

In this recent study, single-item measures were used to assess price-quality perceptions for different product classes. There is some concern about using a single-item measure for such a complex relationship because of failure to capture the full domain of this construct and the questionable reliability of such a single-item measure. The objective of the present research is to attempt to replicate results obtained in the Lichtenstein and Burton (1989) study using a measure of perceived price-quality that is very different from the one employed in this previous study. Specifically, this dissimilar measure is used in an attempt to replicate results concerning (1) the overall relationship between consumers' price-quality perceptions and price-objective quality relationships, and (2) whether the relationship between price-perceived quality and price-objective quality varies across the type of products being judged (i.e., durable or nondurable).

HYPOTHESES

In the research conducted by Lichtenstein and Burton (1989), a principal question concerned the "accuracy" of consumers price-quality perceptions. This question of how accurately consumers perceive price-objective quality relationships pertains to (1) whether consumers perceive a price-quality relationship when there actually is a positive relationship, and (2) whether they perceive no price-quality relationship when the actual relationship is zero or negative. Weighing evidence both pro and con, Lichtenstein and Burton (1989) hypothesized that, overall, there would be a positive correlation between perceived and objective price-quality relationships. They noted that consumers often lack the effort required to obtain information about quality (Alpert 1971; Gerstner 1985; Zeithaml 1987), and consumers sometimes may only be able to assess quality in a very cursory manner. Also, the mere survival of brands in the marketplace that offer poor quality in relation to their price suggests that consumers are less than perfect in their evaluations of relationships between price and quality. On the other hand, quality variations are often recognizable, and, in general, consumers are viewed as rational processors of information who should not be regarded as totally uninformed about issues pertaining to price and quality. Lichtenstein and Burton argued that, taken in sum, these points suggested that there is likely to be a positive, but not strong relationship, between perceived and objective price-quality relationships. In their first hypothesis they postulated that "there is a positive relationship between perceived and objective price-quality relationships." Results in which single-item measures of price-quality perceptions were used supported their hypothesis. A principal objective of this study pertains to how results using an alternative price-quality perceptions measure will compare to those reported by Lichtenstein and Burton (1989).

A second hypothesis of interest in the Lichtenstein and Burton (1989) study pertained to differences in the accuracy of price-quality perceptions across product types. It was hypothesized that consumers' price-quality perceptions for nondurables are more accurate than their perceptions for durables. The rationale for such a hypothesis was drawn from integrating the results from price-perceived quality studies and price-objective quality studies. Findings across price-objective quality studies have consistently indicated that price is not a good predictor of product quality for durables or nondurables (Gerstner 1985; Riesz 1978, 1979); however, price-perceived quality studies have demonstrated that consumers expect much stronger price-quality relationships for durable than for nondurable goods (Gardner 1970; Leavitt 1954; Monroe and Krishnan 1985). Lichtenstein and Burton suggested that this greater reliance on price for durables than for nondurables should lead to more erroneous perceptions. Specifically, it was hypothesized that "the correlation between price-perceived quality and price-objective quality will be higher for nondurable goods than for durable goods." Results reported by Lichtenstein and Burton (1989) that employed single-item measures of consumer price-quality perceptions supported this hypothesis.

METHOD

Product Classes

The criteria for selection of the 18 product categories used in this study included: (1) an equal split between product types (i.e., 9 durable and 9 nondurable product categories), and (2) for both durable and nondurable product categories, three products have a positive price-objective quality correlation shown to be stable over time (i.e. consistent across the two most recent ratings by Consumer Reports), three have a (near) zero price objective quality correlation shown to be stable over time, and three have a negative price-objective quality relationship shown to be stable over time. Correlations between price and quality ratings for over 100 product categories rated at least twice by Consumer Reports within the last 10 years were computed to find product categories that met these criteria. Based on these analyses, 18 product categories meeting the above criteria were selected.

Measures

Measure of Perceived-Price Quality. The measure of perceived price-quality for the eighteen product classes examined in this study was operationalized in the following manner. Respondents were asked to assume that there were 10 brand alternatives in each product class, five of which were high priced and five of which were low priced. For the five high-priced alternatives, respondents were asked how many were of high quality and how many were of low quality. Then, the respondents were asked for the five low-priced alternatives how many were of high quality and how many were of low quality. A small pretest indicated that this procedure could be easily understood by respondents. These responses were used as cells in a 2 X 2 contingency table (i.e., high and low levels of price and quality), and individual-level phi correlations were then calculated for each of the 18 product classes (Nunnally 1978). The formula used to calculate the phi correlations was: (A * D) - (B * C) / SQRT ((A + B) * (C + D) * (A + C) * (B + D)), where A, B, C, and D are the cell frequencies in the 2 X 2 contingency table.

Although this measure has some limitations (which are addressed in the Limitations section of this paper), it was quite different from the one used to assess price-quality perceptions in the four studies reported by Lichtenstein and Burton. In those studies perceived price-quality was operationalized by respondents' level of agreement with the following statement: "The higher the price of the product, the higher the quality of the product" (7=strongly agree, 1=strongly disagree) for each product category. This measure, which was also used in a previous study on price-quality perceptions (Peterson and Wilson 1985), has the advantage of being quite direct. However, it may under-represent this complex construct as well as introduce random measurement error for any single response (Churchill 1979).

Measure of Objective Price-Quality. Measures of the relationships between price and objective quality were calculated from Consumer Reports data. Arguments have been stated both for and against the use of Consumer Reports' ratings as a basis for measures of objective price-quality relationships. An overview of these arguments concerning objective price-quality measures is offered in the Limitations section of this manuscript.

Spearman rank-order correlations were used to test hypotheses. Given the use of rank-order correlations, positive (objective) price-quality correlations were recoded to a 3, correlations near zero were recoded to a 2, and negative correlations were recoded to a 1. This recoding scheme was used because many of the product categories have very similar objective price-quality correlations, and small correlational differences would be accentuated given the use of rank-order correlations. Thus, tests using these recoded values were considered the more conservative and appropriate approach.

Description of the Sample

Respondents in the study were junior and senior undergraduate business majors at a major state university. Sample size for this study was 128. All data were collected in a classroom setting. (This sample and data collection method are consistent with that used by Lichtenstein and Burton (1989) in Study 3 where respondents were also junior and senior undergraduate students and questionnaires were completed in a classroom environment.)

RESULTS

Table 1 shows the mean phi correlations calculated from responses to the questions concerning perceived price-quality in this study. As shown in Table 1, the mean phi correlation for the durable products (.354) was larger than the correlation for the nondurable products (.281). This difference is consistent with results reported in previous perceived price-quality research which has shown that consumers expect stronger price-quality relationships for durable products (Leavitt 1954; Monroe and Krishnan 1985; Peterson and Wilson 1985). Results are also consistent with those offered by Lichtenstein and Burton, where across all studies respondents perceived stronger relationships for durables than for nondurables.

One advantage of this measure demonstrated in Table 1 is that it permits a direct assessment of the specific price-quality correlations as perceived by respondents. For example, relatively few respondents expected negative price-quality relationships for any of the product classes examined. (The highest percentage of respondents perceiving a negative correlation was 10% for the product class of tea bags.) However, for some product classes there were rather large differences concerning positive correlations ranging from .31 to 1.0. For instance, for the product classes of stereo speakers and ten speed bicycles, two-thirds of the respondents thought that price-quality correlations exceeded .30; for laundry bleach and fabric softeners fewer than one-third anticipated correlations above .30. For the set of (nine) durables examined in this study, on average, 58% of the respondents expected correlations to be greater than .30, while 45% perceived correlations to be above .30, on average, for the set of nine nondurables.

Results showing how findings using this measure compare to those using the single-item measures of perceived price-quality employed by Lichtenstein and Burton (1989) are presented in Table 2. The last three columns in Table 2 are of principal interest. The third column shows the average objective price-quality correlations calculated from the two most recent ratings for these product classes in Consumer Reports, and the coding of these correlations as positive (3), near zero (2), or negative (1); the fourth column shows the mean price-quality ratings using the single item price-quality measure (as reported in Study 3 of Lichtenstein and Burton (1989); and the fifth column shows the mean phi correlations for the perceived price-quality measures employed in this study.

A quick comparison between the mean phi correlations (column 5) and the mean ratings for the single item measure of perceived price-quality (column 4) reveals a positive relationship between the two measures. In fact, the Pearson correlation between the mean perceived price-quality ratings and the mean phi correlations is .83. Thus, across these two samples, the price-quality ratings and correlational measures appear to tap into the same underlying construct.

This high correlation between these two measures bodes well for assessing the consistency of results of hypotheses involving this phi correlational measure and the price-objective correlations (column 3) and previous findings of Lichtenstein and Burton (1989) using the single-item perceived price-quality measures. A comparison of results pertaining to these tests of hypotheses are shown at the bottom of Table 2.

The first hypothesis offered by Lichtenstein and Burton (1989) postulated a positive correlation between perceived and objective price quality relationships. As predicted, these correlations, although not large, were positive for both the phi correlation measure (Spearman r = .29, p < .15) and the single item measure (Spearman r = .18, p < .25). Thus, results across the two measures of perceived price-quality are relatively consistent and provide general support for H1.

A second hypothesis of Lichtenstein and Burton (1989) concerned the moderating role of product type on the accuracy of price-quality perceptions; it was hypothesized that the correlation between perceived and objective price-quality would be greater for nondurable than for durable products. Results across both the single-item and phi correlation measures of perceived price-quality support H2; the rank-order correlation between objective price-quality and the single-item perceived price-quality measure was .58 for nondurable products and .05 and for durable products. For the phi correlation measure, these respective relationships were .47 and -.05. Thus, results across the two alternative measures of perceived price-quality were consistent and increase confidence in results pertaining to both hypotheses.

TABLE 1

PRECEIVED PRICE-QUALITY CORRELATIONS ACROSS PRODUCT CLASSES

TABLE 2

REPLICATION OF RESULTS PERTAINING TO THE RELATIONSHIP BETWEEN PERCEIVED AND OBJECTIVE PRICE-QUALITY

DISCUSSION

The purpose of the research was to attempt to replicate some of the results reported by Lichtenstein and Burton (1989) using a dissimilar alternative measure of perceived price-quality. It has been argued that greater value should be placed on replication studies in marketing research (Sawyer and Peter 1983). Given the newness of the attempt to integrate the objective and perceived price-quality research streams, the potential importance of this integration, and the use of single-item measures of price-quality perceptions in the previous research effort, a replication using this alternative measure was viewed as worthwhile.

Specifically, this study used a phi correlation measure to (1) assess the accuracy of consumers' price-quality perceptions and (2) determine if the accuracy of these perceptions is moderated by the type of products being judged. Results using the alternative phi correlation were consistent with those reported by Lichtenstein and Burton (1989), t where single-item perceived price quality measures were used. As suggested by the previous findings, there appears to be a positive, but not strong, correlation between the perceived and objective price-quality relationships (Spearman r = .29 using the phi correlation measure). Also, given that these perceived and objective price quality relationships were greater for nondurables than durables (.47 and .05, respectively), results suggest that consumers may hold more accurate price-quality perceptions for nondurable products than for durable products. Some limitations of the study, implications of the results, and directions for future research are addressed in the remainder of this section.

Limitations

In this study, we wanted to assess the comparability of results using a very different measure from the single-item measures of perceived price-quality previously employed (cf., Peterson and Wilson 1985; Lichtenstein and Burton 1989). While the individual-level phi correlation measure is viewed as being quite different, this measure has some limitations. First, use of this measure may result in the violation of some statistical assumptions. For example, the within-cell responses are not independent and the fixed row marginals and marginal totals (i.e., row marginals equal 5 and marginal totals for each product class equal 10) affect the number of possible correlations and thus the shape of the underlying distribution. Such problems lead to questions concerning the normality of this underlying distribution. Also, any column marginal equal to zero results in an inadmissable algebraic operation, leading to a greater number of missing values than would be obtained from most other measures. These problems may limit the usefulness of this measure in most contexts, but given the-goal of this research (i.e., to see if these results were comparable to those using the single-item measures), these problems were not considered devastating.

Other measures of price-perceived quality relationships could have been employed. For example, Lichtenstein, Bloch, and Black (1988) asked respondents to evaluate a $75 pair of running shoes in relation to a $35 pair of running shoes across four individual product attributes. However, employing such a measure here would have been problematic for a couple of reasons. First, requiring respondents to rate 18 product categories across multiple attributes would have represented a demanding task. Second, questions about how to combine individual attributes to be comparable to a single price-quality measure would have also presented problems. Future research may examine the equivalency of such measures on a reduced set of product categories.

To assess the accuracy of price-quality perceptions, some measure of the "true" relationship between price and quality must be used. Objective quality ratings from Consumer Reports were used to evaluate the accuracy of price-quality perceptions. The validity of the concept of "objective quality ratings" rests on the premise that attributes and attribute weightings used by expert raters (e.g., Consumer Reports) to judge quality reflect tastes and preferences across consumers. The validity of any general quality rating scheme may be questioned because individual tastes and preferences vary across consumers (Hjorth-Anderson 1984).

In response to the position of Hjorth-Anderson, Curry and Faulds (1986) contend that as long as the attribute weights used between different possible rating schemes are ranked similarly, and attributes within a brand are positively correlated, rating scales are not affected substantially by the absolute values of the weights. There is also much support among other researchers for use of Consumer Reports ratings as appropriate measures of objective quality (Gerstner 1985; Oxenfeldt 1950; Riesz 1978). While further discussion of this issue is beyond the scope of this paper, interested readers are encouraged to refer to the arguments of Hjorth Anderson (1984, 1986), Curry and Faulds (1986), and Sproles (1986).

In testing hypotheses in this replication, a traditional statistical significance criterion (i.e., p < .05) was not used. Because sample size is equal to the number of product classes (n=18), the power associated with statistical tests of hypotheses is low. Sawyer and Peter (1983) have argued that there is often an over-reliance on statistical significance to the exclusion of descriptive statistics of effects size and the use of study replications. In this replication study using an alternative measure of price-perceived quality, similar results were found to those reported by Lichtenstein and Burton (1989) where four different samples of respondents were used. Given these generally consistent results across five studies, in our opinion strict reliance on a .05 level of significance would fall into this category of "over-reliance on statistical significance." Also, similar procedures are generally followed in price objective quality research where small sample sizes lead to levels of significance below conventional standards (cf., Curry and Riesz 1988.) However, other researchers may wish to test these postulated relationships across a larger set of product categories where there would be greater statistical power.

Implications for Marketers and Consumer Advocates

Taking all other market factors as constant, the findings from this study suggest that production of a low cost, low quality durable product which is sold at a high price may be the basis of a successful marketing strategy. Considering evidence that suggests that consumers do not generally engage in much search, even for expensive items (Gerstner 1985), and assuming that segments that routinely use price as an indicator of durable good quality are of sufficient size, the large profit margins per unit sold may make the high price - low quality option an especially attractive strategy for certain consumer segments. Furthermore, it may be argued that as long as the product is not below some minimum quality- threshold (i.e., the product performs its basic function for some reasonable period of time), consumer purchasers may interpret the product's performance as "confirming" prior beliefs (cf. John et al. 1986).

While the above scenario ignores the complexities of the competitive marketplace, it nevertheless presents a grim picture of marketers operating in a "let the buyer beware" environment. Results indicate that consumer advocates may wish to play a more active role in disseminating information concerning studies on the relationship between price and objective quality. Similar suggestions have been made previously. For example, Beales et al. (1981) have suggested that more research is warranted on how information from unbiased, third-party sources can be formatted and disseminated to consumers at low cost (including nonmonetary as well as monetary costs). This, itself, may likely require additional research on supplying information in a format consistent with consumer decision-making, and/or research on modes of disseminating the information (e.g., advertising, retail stores, newspaper articles, computer "bulletin boards"). The recommendations of Beales et al., considered in conjunction with findings from this research, suggest that because of the variance in the relationship between price and quality across product categories (for both durables and nondurables), consumers should be made aware that using a stored rule (i.e., high price is always associated with high quality) to assess price-quality relationships will not result in consistently accurate perceptions. Consumer advocates and policy-makers may encourage consumers to evaluate price and quality on an individual product category basis, and inform consumers that if quality received for the price paid is important, information from test report magazines should be obtained.

Areas for Future Research

The impact of product knowledge on the propensity to make price-quality inferences is an area worthy of empirical investigation. Rao and Monroe (1988) recently provided evidence that highly knowledgeable consumers used price as an indicator of quality to a greater extent than did moderately knowledgeable consumers for a product that had a positive price-objective quality relationship. However, no product classes possessing negative price-objective quality relationships were employed. Although logic would dictate that the use of price as an indicator of quality by more knowledgeable consumers was based on knowledge rather than on an inference, it has yet to be empirically demonstrated that consumers with product knowledge hold more accurate price-quality perceptions than consumers without such knowledge. In fact, although hypothesized in the context of their specific experimental design, consumers with low knowledge actually held the most accurate price-quality perceptions for the product category. Presumably, this was because they were operating on a price-quality inference and the product used in the study happened to have a positive objective price-quality relationship. Future research may use similar designs but include products possessing negative price-objective quality relationships to aid in the interpretation of results.

Research may examine other potential moderators of price-quality perceptions and price-objective quality relationships. Measures of the number of brands researched and tried, social relevance of the purchase, product and purchase involvement, perceptions of product similarity, and perceived risk, may impact the propensity to use price as an indicator of quality (Alpert 1971), and further, the accuracy of price-quality perceptions. Also, the ability of consumers to assess price quality relationships accurately under controlled conditions where they are provided with detailed information about prices and objective quality of various brands in specific product classes would be of interest. Such future research appears warranted because of the potential implications of results for both marketers and policy-makers interested in consumer welfare.

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