Do you always get what you pay for? How consumers mispredict product quality

"Highly consistent quality in one price range is enough for consumers to assume that quality can be predicted by price. Based on this belief, consumers assume high or low levels of quality in price ranges where quality is more variable or unknown," write authors Bart de Langhe (University of Colorado), Stijn M. J. van Osselaer (Cornell University), Stefano Puntoni (Erasmus University), and Ann L. McGill (University of Chicago Booth School of Business).

In a series of studies examining quality expectations for both high- and low-priced restaurants, the authors observed that predictions of food quality are based on what consumers have learned about the average level of quality at restaurants with similar prices. Interestingly, they found that the consistency of quality was also influential in these predictions. When low-priced restaurants consistently serve low-quality food, consumers predict higher quality at expensive restaurants, and when expensive restaurants consistently serve high-quality food, consumers predict lower quality for low-priced restaurants.

These findings have implications for luxury brands and high-end businesses. For example, even though a local diner may serve a $10 steak that may be just as good as a $30 steak at a high-end restaurant nearby, consumers might assume that the inexpensive steak is much lower quality and be willing to spend much more to dine at the more expensive restaurant.

"Our studies suggest that low-cost rivals can be beneficial for the perceived quality of higher-priced brands if the quality of those low-cost rivals is consistently low. In fact, this may increase the effectiveness of the price signaling strategies that lie at the heart of luxury branding," the authors conclude.