Price signaling: does it ever work?

Price signaling: does it ever work? Alpert et al. ′s (1993) study on the relationship between objective product quality and price is both interesting and important. It continues the tradition of “borrowing” relevant theories from other disciplines to explicate problems faced in marketing. However, some issues raised regarding price signaling and quality need to be discussed further. In addition to information asymmetry, other conditions are necessary to ensure signaling equilibrium. A signal must be both information revealing and such that it cannot be mimicked. These conditions are, however, absent in the Alpert et al. (1993) study, leading to the conclusion price, as cited in the study, was not a signal of quality, rather it was an important strategic tool. Hence, the important lessons from the study are: we must exercise caution when “borrowing” theories from other disciplines to explicate marketing problems; and we are reminded that for a marketing strategy to be effective and successful, it is essential that the strategic elements be consistent and cohesive. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Consumer Marketing Emerald Publishing

Price signaling: does it ever work?

Journal of Consumer Marketing, Volume 12 (1): 5 – Mar 1, 1995

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Publisher
Emerald Publishing
Copyright
Copyright © 1995 MCB UP Ltd. All rights reserved.
ISSN
0736-3761
DOI
10.1108/07363769510080988
Publisher site
See Article on Publisher Site

Abstract

Alpert et al. ′s (1993) study on the relationship between objective product quality and price is both interesting and important. It continues the tradition of “borrowing” relevant theories from other disciplines to explicate problems faced in marketing. However, some issues raised regarding price signaling and quality need to be discussed further. In addition to information asymmetry, other conditions are necessary to ensure signaling equilibrium. A signal must be both information revealing and such that it cannot be mimicked. These conditions are, however, absent in the Alpert et al. (1993) study, leading to the conclusion price, as cited in the study, was not a signal of quality, rather it was an important strategic tool. Hence, the important lessons from the study are: we must exercise caution when “borrowing” theories from other disciplines to explicate marketing problems; and we are reminded that for a marketing strategy to be effective and successful, it is essential that the strategic elements be consistent and cohesive.

Journal

Journal of Consumer MarketingEmerald Publishing

Published: Mar 1, 1995

Keywords: Economics; Information; Prices; Product quality; Signs; Strategy

References

  • Asymmetric information and risky debt maturity choice
    Flannery, M.J.

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