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Loss Aversion for Quality in Consumer Choice

Author

Listed:
  • Suzanne Fogel

    (DePaul University, Department of Marketing, 1E. Jackson Boulevard, Chicago, IL 6064.)

  • Dan Lovallo

    (Australian Graduate School of Management, UNSW, Sydney, NSW 2052.)

  • Carmina Caringal

    (Australian Graduate School of Management, UNSW, Sydney, NSW 2052.)

Abstract

A reference price is an internal price that consumers are believed to use to compare actual prices. Reference effects for price have been demonstrated in many settings. Reference effects for quality also have been demonstrated using scanner data. Here we present experimental evidence. Firstly, it is shown that high quality goods will be valued more by consumers who consider trading down in quality than by those who consider trading up in quality. Secondly, we show that when all prices fall, more switching up in quality from the reference brand will occur than switching down in quality when all prices rise, and that when all prices fall, consumers will switch to higher quality up to, but not beyond, the price regularly paid.

Suggested Citation

  • Suzanne Fogel & Dan Lovallo & Carmina Caringal, 2004. "Loss Aversion for Quality in Consumer Choice," Australian Journal of Management, Australian School of Business, vol. 29(1), pages 45-63, June.
    • Handle: RePEc:sae:ausman:v:29:y:2004:i:1:p:45-63
    DOI: 10.1177/031289620402900109
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    References listed on IDEAS

    as
    1. Mayhew, Glenn E & Winer, Russell S, 1992. "An Empirical Analysis of Internal and External Reference Prices Using Scanner Data," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 19(1), pages 62-70, June.
    2. Urbany, Joel E & Dickson, Peter R, 1991. "Consumer Normal Price Estimation: Market versus Personal Standards," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 18(1), pages 45-51, June.
    3. Daniel S. Putler, 1992. "Incorporating Reference Price Effects into a Theory of Consumer Choice," Marketing Science, INFORMS, vol. 11(3), pages 287-309.
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    Cited by:

    1. Mohit Goswami, 2018. "Establishing predictive relationships between price and select product, market, and consumer related dimensions: an investigation within indian consumer electronics market," OPSEARCH, Springer;Operational Research Society of India, vol. 55(2), pages 361-380, June.
    2. Justine Hastings & Jesse M. Shapiro, 2012. "Mental Accounting and Consumer Choice: Evidence from Commodity Price Shocks," NBER Working Papers 18248, National Bureau of Economic Research, Inc.
    3. Mikael Priks, 2010. "Does Frustration Lead to Violence? Evidence from the Swedish Hooligan Scene," Kyklos, Wiley Blackwell, vol. 63(3), pages 450-460, August.
    4. Yanyan He & Juan Zhang & Qinglong Gou & Gongbing Bi, 2018. "Supply chain decisions with reference quality effect under the O2O environment," Annals of Operations Research, Springer, vol. 268(1), pages 273-292, September.

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