An Investigation of the Use of Price-Quality Schema By Urban Chinese Consumers

ABSTRACT - The strength of belief in a price-quality relationship has been found to differentiate groups of U.S. consumers and affect behavior in the marketplace. This study investigates the price-quality inferences of urban consumers in the burgeoning market economy of the People's Republic of China. While U.S. studies have found three or four distinct groups based on price-quality evaluations, two Chinese groups are found: (1) schematics who believe in a positive price-quality relationship and are likely to pay more for products, and (2) aschematics who are less trusting of a price-quality relationship and are likely to pay lower prices for products. Other comparisons between U.S. and urban Chinese consumers in price-quality beliefs are noted. It appears that urban Chinese consumers are either early in their price-quality experience and have not separated into price-perceived quality groups such as those found in the U.S., or fundamental differences underlie how the two cultures evaluate price-quality relationships.

Citation:

Ann Veeck and Alvin C. Burns (1995) ,"An Investigation of the Use of Price-Quality Schema By Urban Chinese Consumers", in NA - Advances in Consumer Research Volume 22, eds. Frank R. Kardes and Mita Sujan, Provo, UT : Association for Consumer Research, Pages: 297-302.

Advances in Consumer Research Volume 22, 1995      Pages 297-302

AN INVESTIGATION OF THE USE OF PRICE-QUALITY SCHEMA BY URBAN CHINESE CONSUMERS

Ann Veeck, Louisiana State University

Alvin C. Burns, Louisiana State University

ABSTRACT -

The strength of belief in a price-quality relationship has been found to differentiate groups of U.S. consumers and affect behavior in the marketplace. This study investigates the price-quality inferences of urban consumers in the burgeoning market economy of the People's Republic of China. While U.S. studies have found three or four distinct groups based on price-quality evaluations, two Chinese groups are found: (1) schematics who believe in a positive price-quality relationship and are likely to pay more for products, and (2) aschematics who are less trusting of a price-quality relationship and are likely to pay lower prices for products. Other comparisons between U.S. and urban Chinese consumers in price-quality beliefs are noted. It appears that urban Chinese consumers are either early in their price-quality experience and have not separated into price-perceived quality groups such as those found in the U.S., or fundamental differences underlie how the two cultures evaluate price-quality relationships.

INTRODUCTION

A consistent finding in recent price-perceived quality research is that notable differences exist among U.S. consumers in the degree to which they believe in a positive relationship between price and product quality. This phenomenon has alternately been called "reliance on price as a predictive cue" (Etgar and Malhotra 1981), belief in a positive relationship between price and quality (John, Scott, and Bettman 1986), a "price reliance schema" (Lichtenstein and Burton 1989), and a "price-quality schema" (Lichtenstein, Ridgway, and Netemeyer 1993). U.S. consumers who believe in a strong relationship between price and quality are believed to rely heavily on price as a cue in determining product preference (Etgar and Malhotra 1981; John, Scott, and Bettman 1986; Lichtenstein, Bloch, and Black 1988; Peterson and Wilson 1985).

A gap in our understanding of the price-perceived quality relationship is the lack of an international perspective. Literature reviews of international marketing have noted the paucity of pricing research, with calls for research that investigates the relationship between price and other marketing variables (Cavusgil and Nevin 1981; Douglas and Craig 1992; Li and Cavusgil 1991). An international perspective could be particularly useful in examining the price-quality perceptions of consumers, since it could highlight cultural differences in individuals' consumption experience. Toward this end, the objective of this study is to examine the use of price quality schema by consumers in the People's Republic of China. With its rapidly emerging market economy, China is a particularly appropriate nation in which to investigate this topic. Due to the newness of the nation's economic reforms, China's 1.2 billion consumers have only recently had a significant number of choices in brands and retailers. This situation leads to the question of the extent to which Chinese consumers are developing price-quality heuristics in their evaluation of products.

This paper investigates the presence of price-quality schema in Chinese consumers in two major cities in Eastern China. First, recent U.S. research that analyzes the price-quality schema is reviewed. Based on these U.S. studies and the post-Mao economic environment of China, hypotheses are developed. Then the results of an empirical study are reported and discussed, lending insight into the operation of price-quality schema in urban China.

THE PRICE-QUALITY SCHEMA

Zeithaml (1988, p.5) has defined perceived quality as "the consumer's judgement about the superiority or excellence of a product." The relationship between perceived quality and price has been investigated by economists and consumer researchers for years. Although the relationship between price and perceived quality has generally been found to be positive (Monroe and Krishnan 1985; Rao and Monroe 1989), this relationship is neither universal nor robust (Peterson and Wilson 1985; Zeithaml 1988). Recent research has noted the complexity of the price-quality relationship, with calls for research that investigates how variables moderate the relationship (Monroe and Dodds 1988; Monroe and Krishnan 1985; Olshavsky 1985; Peterson and Wilson 1985; Zeithaml 1988).

This study focuses on consumers' global assessments of the relationship between price and quality. Consumers view price as both an indicator of sacrifice and as an indicator of quality (Lichtenstein, Ridgway, and Netemeyer 1993; Monroe 1990). The degree to which consumers consider price as a surrogate for quality and/or sacrifice varies markedly by both the individual (e.g., Rao and Monroe 1988) and the product (e.g., Peterson and Wilson 1985). In particular, research has found a group of consumers that believes in and relies on a strong positive relationship between price and quality, regardless of the product type. Lichtenstein, Ridgway, and Netemeyer (1993, p.236) call this individual factor the "price-quality schema," defined as "the generalized belief across product categories that the level of the price cue is related positively to the quality level of the product." This definition will be used for the present study. A consumer who believes that "you get what you pay for" could be said to possess a price-quality schema. The consumer who has low trust in a relationship between price and product quality might be called "aschematic" (Lichtenstein and Burton 1988; Peterson and Wilson 1985).

U.S. studies that have classified individuals according to their price-quality perceptions have found distinct schematic groups (Etgar and Malhotra 1981; Lichtenstein and Burton 1989; Peterson and Wilson 1985). In addition, market behavior is affected by schema membership, with individuals who believe in a positive price-quality correspondence preferring higher-price products (John, Scott, and Bettman 1986); relying heavily on price as a cue to quality in relation to other cues (Etgar and Malhotra 1981; Peterson and Wilson 1985); demonstrating higher price acceptability levels (Lichtenstein, Bloch, and Black 1988); and exhibiting relatively lower ability to recall prices accurately (Lichtenstein, Ridgway, and Netemeyer 1993). However, virtually all price-quality schema research has been conducted with U.S. consumers, and our knowledge in this area remains culturally bound.

THE ECONOMIC ENVIRONMENT OF CHINA

The current economic transformation of China is unprecedented in size and speed: never before have so many people experienced economic change at such a breakneck rate. Since December, 1978, when the economic reforms championed by Deng Xiaoping were approved by the 11th Central Committee of the Communist Party, China's GNP has grown by almost 9% a year (Beijing Review 1993), reaching 13% in 1993 (Chen 1994). The economic reforms have brought an end to the exclusive control of  the commercial sector by the state, resulting in sweeping changes under an economy officially defined as a "socialist market economy." Price constraints have been gradually lifted since 1978, with three-fourths of prices now set by the market (Jiang 1992; Li 1993). "Free markets," composed of independent vendors, and, more recently, private and collective stores, have begun providing alternatives to the state-run stores. Formerly without brands and not packaged, products are now produced by both private and state manufacturers, offering branded and advertised options for consumers.

In short, for the first time in forty years, urban Chinese consumers are experiencing choices in both price levels and product quality, and price-quality schema may be forming as a result. Unfortunately, along with expanded choice, market reforms have allowed inflation. Reports of annual inflation up to 20% in some cities in 1993 (Beijing Review 1994) suggest that price-quality beliefs of Chinese consumers will differ from those of U.S. consumers where prices are more stable. With no prior research on price-quality schema in Chinese consumers, one tact is to hypothesize patterns that are similar to those known for U.S. consumers. Empirical findings can then highlight cross-cultural similarities or dissimilarities. In sum, the newly-emerging market environment of China provides a dynamic setting to study the phenomenon of price-quality schema.

HYPOTHESES

U.S. studies have shown that the price-quality schema is a belief that guides the shopping behavior of some U.S. consumers across products and situations (Lichtenstein and Burton 1989; Peterson and Wilson 1985), and existing studies have not found demographic variables to account for this factor in consumers (Etgar and Malhotra 1980; Lichtenstein and Burton 1989). However, as Dickson and Sawyer (1990, p.51) state, "shoppers are very heterogeneous in terms of their attention and reaction to price and price promotions." Tellis and Gaeth (1990, p.36) suggest that consumers may exhibit this difference because, "their past experience may be consistent with a positive price-quality relationship, they might rationalize that the higher price results from firms spending more to supply quality, or they might trust the market..." Arguably, in the burgeoning market economy of China, operation of a price-quality schema should differentiate Chinese consumers. Therefore, just as distinct clusters of consumers based on the strength of the price-quality schema have been found in the U.S., so may distinct clusters of individuals exist in the China.

H1: Urban Chinese consumers can be meaningfully grouped based on the presence or absence of a price-quality schema.

U.S. studies have found that individuals with strong price-quality schema are more willing to pay a higher price for a product due to their belief that "you get what you pay for" (Lichtenstein, Bloch, and Black 1988; Peterson and Wilson 1985). Therefore, when asked what price they would most likely pay for a product, those with a stronger belief in a price-quality relationship should generally cite a higher price. This U.S. pattern leads to the second hypothesis:

H2: Urban Chinese consumers possessing a price-quality schema are likely to pay higher prices for products than those with a weak price-quality schema (assuming price-quality schema groups are found).

RESEARCH METHOD

Research Instrument

The development of the research instrument required an initial qualitative phase aimed at establishing construct equivalence (Berry 1980; Douglas and Craig 1983). A focus group of Chinese respondents who had recently arrived in the U.S. tested the appropriateness of constructs and stimuli. Since all participants in the focus group were bilingual, the discussion vacillated between Chinese and English. This qualitative phase confirmed that contemporary Chinese consumers did discern price and quality differences in products sold in China. At the same time, the focus group served to generate a list of products that were commonplace and exhibited price and quality variations in today's Chinese markets.

Consistent with Peterson and Wilson (1985) and Burton and Lichtenstein (1988), the research instrument asked respondents to evaluate a list of fourteen products on the statement "The higher the price, the higher the quality." Based on focus group findings, very few products from the Burton and Lichtenstein (1988) and Peterson and Wilson (1985) studies were included, since most of these products (i.e. suntan lotion, paper towels, frozen french fries, oil popcorn popper) were inappropriate for Chinese consumers. Fourteen durable and nondurable products available to urban Chinese consumers on the open market were identified and used as stimuli.

Additional information collected included the price respondents would be most likely to pay for each product, purchase experience, shopping preferences, and demographics. Following cross-cultural research guidelines, the questionnaire was written in English, translated into Chinese, then back-translated into English (Brislin, Lonner, and Thorndike 1973).

Data Collection

The questionnaires were administered by Chinese university faculty and graduate students to convenience samples of university students and adults consumers in two urban areas in China, Beijing (population 10.8 million) and Nanjing (population 2.8 million), in the summer of 1993. University students and adults consumers were surveyed to allow comparisons to U.S. studies involving both U.S. students (Etgar and Malhotra 1980; Lichtenstein and Burton 1989; Peterson and Wilson 1985) and adult consumers (Lichtenstein and Burton 1989).

A total of 290 questionnaires was collected: 72 Beijing university students; 75 Beijing adult consumers; 74 Nanjing university students; 69 Nanjing adult consumers. The overall adult consumer sample was 58% female, 60% in the 25-45 age bracket, and 75% university educated. Due to the nonrandom selection of the sample, a series of statistical tests (after scale refinement, described below) was conducted to determine if demographic factors would confound the findings. No significant differences were found in price-quality perceptions associated with education level or age in the adult consumer sample, and gender in both samples. Consequently, the internal validity of the study did not appear to be compromised by the sample composition.

Scale Refinement

The 14-product instrument was subjected to item analysis and purification, with a series of factor analyses and reliability assessments conducted on the central construct (Bearden, Netemeyer, and Mobley 1993; Churchill 1979). The final scale form was found to represent two separate dimensions: durable products and nondurable products. The durables price-perceived quality scale consisted of four products: 35 mm camera, man's watch, washing machine, and bicycle (Cronbach's alpha=.84). The nondurables price-perceived quality scale also contained four products: toilet paper, beer, ball-point pen, and laundry detergent (Cronbach's alpha=.77). The items eliminated from the analysis included soap, cigarettes, soda, toothpaste, gold ring, and television. Most of the eliminated items have dual functions in China as products that are used every day and luxury items that can be presented as gifts, a characteristic that undoubtedly contributed to their weak factor loadings.

TABLE 1

CLUSTER MEANS AND STANDARD DEVIATIONS FOR PRICE-QUALITY PERCEPTION

FINDINGS

Cluster Solution

Following a method parallel to U.S. studies (Lichtenstein and Burton 1988; Peterson and Wilson 1985), cluster analysis was conducted to determine if urban Chinese respondents could be grouped according to the presence or absence of a price-quality schema. The criterion variables used for the cluster analysis were the average price-quality perceptions for the four-product durables scale and the four-product nondurables scale. Adult consumers and university students were clustered independently using a two-stage procedure. First, a hierarchical method (Ward's method; squared Euclidean distances) was used to select a cluster solution and identify seed points. Then, a nonhierarchical cluster technique (parallel threshold procedure) was used to calibrate the results (Hair et al. 1992).

The cluster solutions were chosen based on uniformity of cluster sizes and change in agglomeration coefficients (Hair et al. 1992). A two-cluster solution provided the most interpretable results for both the adult consumer and university student sample (see Table 1). U.S. studies have found three- and four-cluster solutions (Etgar and Malhotra 1980; Lichtenstein and Burton 1988; Peterson and Wilson 1985), defining consumer segments along a continuum of price-quality perceptions. However, neither type of Chinese consumer group exhibited acceptable identification beyond two subgroups.

As can be seen in Table 1, in both samples, respondents in Cluster 1 reported significantly higher mean price-quality perceptions than did respondents in Cluster 2 for the durable products scale, the nondurable products scale, and all eight products taken individually (p<.001 for all cluster pairs). The mean response for "the higher the price, the higher the quality" for Cluster 1 of both samples corresponded to "agree" for the durables scale and "somewhat agree" for the nondurables scale. Cluster 2 of both samples, on the other hand, recorded a mean price-quality perception of "neither disagree nor agree" for durables and "somewhat disagree" for nondurables. Thus, the results support Hypothesis 1, and we have labeled the two clusters "schematics" and "aschematics" respectively.

While the mean responses for the schematic clusters of adult consumers and university students are similar, the number of university students classified as schematics is higher (see Table 1). Since the university students have significantly less purchase experience than the adult consumers (p<.001), this finding is consistent with U.S. studies finding that individuals with less purchase experience are more likely to judge a product by its price (Rao and Monroe 1988; Rao and Sieben 1992).

TABLE 2

MANOVA RESULTS BY SUBSAMPLE AND PRODUCT GROUP

To test Hypothesis 2, the mean price of the "price most likely to pay" for the durable and nondurable products defining the price-perceived quality scale was compared for the subgroups. The sample size decreased from 290 to 210 due to missing data. A MANOVA for each sample was conducted to compare the mean price differences of the cluster groups for the four durable products and the four nondurable products. To correct for abnormal distribution of values and heterogeneity of variance-covariance matrices, logarithm transformations were applied to all price variables (Hair et al. 1991). The responses exhibited large variances, perhaps due in part to the escalated inflation rates in urban China and the diverse reference products of respondents. Nevertheless, the MANOVA results showed evidence of significant differences for all group mean comparisons (see Table 2). Consistent with Hypothesis 2, schematics recorded a higher mean price than aschematics for all of the products investigated (see Table 3).

In an attempt to develop a fuller description of the clusters, statistical tests were conducted to discriminate the clusters on demographic variables (gender, age, income, education, city). No demographic variables were found to differentiate the consumers within their respective clusters. This result is consistent with U.S. studies that have been unable to define profiles for their U.S. clusters using demographic and socioeconomic variables (Etgar and Malhotra 1981; Lichtenstein and Burton 1988).

DISCUSSION

This study begins to explore the pervasiveness of price-quality schema in consumers by investigating its presence in urban Chinese consumers. China affords an interesting laboratory for the study of price-quality schema because its consumers are experiencing a transition from State-control where product prices and quality levels were set without the interplay of market forces to a market-driven economy. Only recently have urban Chinese been afforded an array of choices in products based on market price and product quality; however, the price-quality relationship is tenuous due to unstable markets and high inflation. Despite this turmoil in Chinese markets, the study's findings indicate that in China, as has been found in the U.S., a group of consumers tends to operate under the price-quality schema of "you get what you pay for."

Despite the apparent methodological limitations of this research, there are interesting similarities and departures apparent in this study from price-quality beliefs found in U.S. consumers. As for similarities, a definite price-quality schematic group exists in urban Chinese consumers, and the finding persists across university students and adult consumer populations as has been found in the U.S. The schematic Chinese consumers are willing to pay more than aschematics for both durables and nondurables as has been documented in U.S. studies. Also as found in U.S. consumers, Chinese consumers with less purchase experience are more apt to possess a price-quality schema.

At this time, the major differences between the two cultures appear to be a matter of degree. Whereas U.S. studies have documented the existence of three or four distinct groups based on beliefs in a positive price-quality relationship, the Chinese sample in this study yielded only two groups: schematics and aschematics. One speculation for this difference is that Chinese markets are in flux, and Chinese consumers are early in their learning experience of whatever price-quality relationships underlie their market choices. The schematics may sense a general price-quality relationship, while the aschematics do not. On the other hand, Chinese consumers may be exhibiting a unique manifestation of price-quality evaluation. Certainly, these issues provide challenges for future research endeavors in cross-cultural price-quality schema.

TABLE 3

CLUSTER MEANS AND STANDARD DEVIATIONS FOR "PRICE MOST LIKELY TO PAY"

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