The Price Quality Effect:

Generally, price represents nothing more than the money a buyer must transfer to the seller, as part of the purchase agreement.

For a few products, however, price means much more.

These products fall into three (3) categories: https://twitter.com/thepricingdude/status/1313256080936439811

image products
exclusive products
products of unknown quality

If we decided to lower the price of a Maserati,
it would lose the important attributes of prestige.

Brands that offer prestige can often command much higher prices in those product classes than similar products without such brand images.

Often, perception of quality at prices reduces price sensitivity, even when consumers seek neither prestige nor exclusivity with the product.

This occurs when potential buyers cannot ascertain the objective quality of a product from observation or past experience.

Studies have shown consumers use price-quality as a cue,

even when the objective quality of a brand is unaffected by its price to the degree which:

i. Belief quality differs within product class
ii. Perception that low quality imposes risk of a large loss

iii. Lack of additional information enabling them to evaluate quality before purchase

The more consumers must rely on price to judge quality the less price sensitive they will become.

Using price as a quality cue occur is an extremely important case when introducing new products to a market.

With more experience, the buyer can better evaluate whether or not the price is justified by the perceived benefits.

Doing so will increase their price-sensitivity.

What are your thoughts?

Any examples you can think of?

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Thank you!