Monday, February 18, 2013

Price, quality, and value

Whenever you are thinking about buying something, price plays a role in your decision process.  Consider going to a big box retailer like Bed, Bath, and Beyond and standing in front of the wall of blenders.  Chances are, you are not a blender expert, and so you have to come up with some way to make your choice.  You use price in two ways to help you out.

First, you use price to help you judge quality.  Chances are, a very inexpensive blender is also a low-quality blender.  It may have fewer settings and be made of cheaper materials.  An expensive blender is generally assumed to be a high-quality blender with lots of features and solid construction.

Second, you make a judgment about whether the product is a good value.  We generally don’t want to overpay for something, and so we like to feel as though we are getting a good value for our money.

An interesting paper by Torsten Bornemann and Christian Homburg in the October, 2011 issue of the Journal of Consumer Research explores the role of distance on the way that people use price to judge quality and value.

I have written frequently in this blog about the role of distance in thinking.  Generally speaking, when something is far from you in space or time, then you think about it more abstractly than when something is near to you.  Bornemann and Homburg suggest that distance focuses you more on the role of price in predicting quality than on the importance of value. 

In one study, the manipulation focused on distance in time.  Participants were given a description of a new e-reader.  They were either told that the product was coming out in 2 days or in 6 months.  Some people were told that the e-reader was relatively inexpensive (about $120), while others were told that it was relatively expensive (about $250).  Participants evaluated whether the product was likely to be good quality, whether it was a good value, and whether they were interested in purchasing it.

When people read about a product that was coming out in a few days, the price had little impact on their judgments of quality.  When people read about a product coming out in 6 months, though, they thought the product would be much higher quality when it was expensive than when it was inexpensive.

For judgments of value, though, the pattern was different.  When the product was coming out in 6 months, price had little impact on people’s judgments about whether it was a good value.  However, when the product was coming out in 2 days, people felt that it was a much better value when it was inexpensive than when it was expensive.

Ultimately, people were least interested in buying the product when it was coming out in 2 days and was very expensive.  The focus on the high price in this situation drove people away from wanting to buy it.

The authors obtained a similar effect using a social measure of distance.  In this case, participants were college students and they were either giving their own opinion about a product or predicting the opinion of the typical student.  When giving their own opinion, price primarily influenced their perception of value.  When predicting the opinion of the typical student, though, price affected judgments of quality.

In the end, though, you probably want to consider both quality and value when making a choice.  When you’re standing in front of the wall of blenders, you can do that by taking your choice in stages.  Start by treating the choice as if you are picking the best blender for a friend.  That will allow you to focus your evaluation on the quality of the products.  After you feel you understand the quality, then go back and focus on the one you would really like to buy.  That way, you can let your focus on value happen after you have already thought about quality.