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Exclusivity as a Signal of Quality in a Market with Word-of-Mouth Communication

Author

Listed:
  • Ashoori Minoo

    (Department of Managerial Studies, Purdue University-Northwest, 2200 169th St, Hammond, IN46323, USA)

  • Schmidbauer Eric

    (Department of Economics, College of Business Administration, University of Central Florida, 4336 Scorpius St., Orlando, FL32816, USA)

  • Stock Axel

    (Department of Marketing, College of Business Administration, University of Central Florida, 4336 Scorpius St., Orlando, FL32816, USA)

Abstract

In some markets consumers seek exclusive consumption experiences, yet in these markets businesses sometimes market their goods widely and at low prices during an introduction period. We use a two-period game-theoretic model to provide a signaling explanation for this phenomenon. In our model, exclusivity-seeking consumers must infer product quality from its price and level of exclusivity in the initial stage. After purchase consumers communicate the true learned quality through word-of-mouth (WOM) so that the entire market becomes informed, including a group of new consumers whose size depends on the number of introductory purchasers and the strength of WOM. We show that a high-quality seller signals by marketing widely when the desire for exclusivity is intermediate and WOM is strong.

Suggested Citation

  • Ashoori Minoo & Schmidbauer Eric & Stock Axel, 2020. "Exclusivity as a Signal of Quality in a Market with Word-of-Mouth Communication," Review of Marketing Science, De Gruyter, vol. 18(1), pages 99-115, September.
    • Handle: RePEc:bpj:revmkt:v:18:y:2020:i:1:p:99-115:n:6
    DOI: 10.1515/roms-2020-0022
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    References listed on IDEAS

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