The Quality of Price as a Quality Cue

Journal of Marketing Research (JMR)

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Published 11/1/2005

Author: Akshay R. Rao

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Executive Summary
This article provides a commentary on the work of Shiv, Carmon, and Ariely (2005), who demonstrate that merely changing the price of a product can change its objective performance because consumers expect a high-priced product to perform better than a low-priced product. Much like a “placebo effect,” this result suggests that factors other than the physical properties of the product can affect its efficacy. Specifically, the authors demonstrate that participants perform worse at a cognitively demanding task (puzzle solving) after consuming a low-priced mental acuity–enhancing product than after consuming a high-priced, physically identical option.

These comments on Shiv, Carmon, and Ariely’s work summarize the extant literature on price–quality relationships from both behavioral and economic perspectives. The author notes that thus far, the focus has been exclusively on quality perceptions as observed by consumers or on quality evaluations provided by third-party experts (e.g., Consumer Reports). Shiv, Carmon, and Ariely’s article is the first to demonstrate actual differences in product performance and is based on a compelling theory of placebo effects, according to which the low-priced option leads to lower performance because people’s expectations of performance are (nonconsciously) depressed.

The author of this commentary raises four issues that are worthy of further scrutiny. First, what is the physiological link between expectations and performance? The author suggests that emerging neurophysiological techniques, such as functional magnetic resonance imaging, will allow for an assessment of the process that leads to the observed effects. Second, where do price–quality beliefs come from (particularly because the relationship between price and objective quality is weak), and how are they sustained? Advertising to children and adolescents is probably an influential source for such beliefs. Third, what is objective quality if chemically identical products yield different levels of performance as the result of extrinsic differences? To what extent can a person sacrifice objective quality for perceptions of high quality and achieve the same level of performance? Fourth, what are the social welfare implications of this research? On the one hand, it raises the specter of marketing manipulation; on the other hand, it raises the possibility that firms will reduce or even discontinue technical research and development because objectively inferior products with appropriate extrinsic cues can yield relatively high levels of performance. Each of these issues represents an avenue for further research.

Biography
Akshay R. Rao is Chair and General Mills Professor of Marketing in the Carlson School of Management at the University of Minnesota. He has a bachelor’s degree in Economics (honors) from Madras University in India, an MBA from Xavier Institute in India, and a doctoral degree in Marketing from Virginia Tech. A winner of the 1987 Robert Ferber Award and the 2000 Harold H. Maynard award, he has published on the topics of pricing and brand management in various scholarly journals, such as Journal of Consumer Research, Journal of Business, Journal of Marketing Research, and Marketing Science, as well as managerially oriented journals, such as Harvard Business Review and Sloan Management Review. For the 1993–1994 academic year, he was a visiting professor at Massachusetts Institute of Technology, and in 2000–2001, he was a visiting professor at the Hong Kong Institute of Science and Technology. He currently serves on the editorial review board of Journal of Marketing and Journal of Consumer Psychology.

J Marketing Research, Volume 42, Number 4, November 2005
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Journal of Marketing Research (JMR)