Monday, January 31, 2011

Given Many Choices, Consumers Will Pay More For High Quality And Less For Low Quality

From Columbia Business School Ideas at Work "The Discriminating Consumer: Product Proliferation and Willingness to Pay for Quality" by Sheena Iyengar, Marco Bertini, and Luc Wathieu:
In a series of experiments, the researchers showed that consumers do become more sensitive to quality when facing a dense field of choices — one in which there are a large number of products within a given range of qualities. Shoppers presented with 21 types of chocolate were prepared to pay 33 percent less for a low quality chocolate and 40 percent more for a high quality chocolate relative to those presented with only five different types. The results of further experiments where consumers chose from an assortment of wines or astronomical binoculars revealed that manipulating the perceived density of a choice set could similarly affect shoppers’ sensitivity to quality. The researchers also analyzed sales data from hundreds of lots sold through an auction house over a two-year period, finding that the same phenomenon holds true in the field.

In all cases, consumers were consistently willing to pay more for higher quality products and less for lower quality products. And, when given fewer choices, consumers were far less willing to pay for quality and gravitated toward lower quality, less costly items. They also reported weighting quality as more important when facing larger choice sets.
Read the complete Ideas at Work article here.

A PDF of the researchers' paper is available here.

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