THE EFFECT OF CORRELATION BETWEEN PRICE AND QUALITY ON CONSUMER CHOICE

According to the price-expectancy model of consumer choice, consumers evaluate products by comparing the actual price with a reference or ex pected price determined from (a) product's quality and (b) the price-q uality correlation of the product category. Choices between hypothetic al products of beer are used to test the model against a model without a reference price. Consistent with the price-expectancy model, produc t preferences varied with the subjective correlation between price and quality: the relative preference for higher priced/higher quality pro ducts over lower priced/lower quality products increased as the subjec tive correlation increased. For some pairs, the correlation between pr ice and quality created a preference reversal across contexts: the hig her priced/higher quality product was chosen over the lower priced/low er quality product in the higher correlational context, but the lower priced/lower quality product was chosen over the higher priced/higher quality product in the lower correlational context, An additional stud y provided evidence that the price-quality correlation affects referen ce price, rather than reference quality, formation. (C) 1998 academic Press.