Volume 29 Number 1 June 2004

Loss Aversion for Quality in Consumer Choice

Suzanne Fogel, Dan Lovallo and Carmina Caringal

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.

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Keywords

LOSS AVERSION; CONSUMRE CHOICE; ASYMMETRIC COMPETITION.

Contact Details Suzanne Fogel Department of Marketing DePaul University 1E. Jackson Boulevard, Chicago, IL 6064. E-mail: sfogel@depaul.edu Dan Lovallo Australian Graduate School of Management UNSW, Sydney, NSW 2052. E-mail: daniell@agsm.edu.au Carmina Caringal Australian Graduate School of Management UNSW, Sydney, NSW 2052. E-mail: carminac@agsm.edu.au

The authors would like to thank Daniel Kahneman for his helpful suggestions on an earlier draft. All errors remain our own.

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