The Effect of Correlation between Price and Quality on Consumer Choice

According to the price-expectancy model of consumer choice, consumers evaluate products by comparing the actual price with a reference or expected price determined from (a) product's quality and (b) the price-quality correlation of the product category. Choices between hypothetical products of beer are used to test the model against a model without a reference price. Consistent with the price-expectancy model, product preferences varied with the subjective correlation between price and quality: the relative preference for higher priced/higher quality products over lower priced/lower quality products increased as the subjective correlation increased. For some pairs, the correlation between price and quality created a preference reversal across contexts: the higher priced/higher quality product was chosen over the lower priced/lower quality product in the higher correlational context, but the lower priced/lower quality product was chosen over the higher priced/higher quality product in the lower correlational context. An additional study provided evidence that the price-quality correlation affects reference price, rather than reference quality, formation. Copyright 1998 Academic Press.