ABSTRACT
Three asymmetries reveal hidden returns to quality best appreciated by first understanding dominance: A dominates B if A is superior to B on at least one dimension (e.g., quality) and inferior on none (e.g., price). Example: when A offers more quality than B while charging the same price, meaning there is no price-quality trade-off and essentially no one chooses (the dominated) Brand B.
Asymmetric Price Competition. Various studies find that discounting a higher-quality (HQ) brand’s price attracts more consumers from a lower-quality (LQ) brand than discounting an LQ brand’s price attracts from an HQ brand. At least two benefits from improving disadvantages (e.g., HQ’s price) contribute: (1) improving on the dimension more important to our competitor’s customers, and (2) enabling dominance over our competitor. Imagine an orange juice brand, HQ, which charges $3.34 and offers 66/80 quality, and its competitor, LQ, which charges $2.99 and offers 56/80 quality. If HQ discounts price, the dimension more important to LQ’s customers, to $2.99, it dominates LQ by offering more quality while charging the same price. LQ, however, 74cannot dominate HQ by reducing its price even to $0.00 because the price/quality trade-off remains and HQ consumers may still (rationally) prefer HQ. When trade-offs exist across competitors, dominance can be produced only by improving and erasing disadvantages, the dimensions valued most by our competitors’ customers, and price discounts tend to pull consumers up in quality more than down.
Asymmetric Attraction Effects. Numerous studies show that if we add (to the brands above) a third brand (MQ) at 61 quality and $3.34 price (HQ’s price), it will increase HQ’s share and reduce LQ’s share because HQ but not LQ dominates MQ (i.e., HQ’s objective superiority over MQ increases HQ’s appeal). Our meta-analysis of attraction effects found that most arose primarily when the target (dominating) brand was at higher quality but not when it was at lower quality, meaning in our example that LQ would benefit relatively little if we added an LQ2 brand at 56 quality and $3.19 price. Consumers are again moved to higher quality more easily than lower quality (though this general effect did reverse in a more impoverished area).
Asymmetric Line-Extension Effects. Imagine that we have a middle-quality brand such as Foster’s beer and add a moderately higher-quality line extension (HQE; Fosters Select) or lower-quality line extension (LQE; e.g., Fosters Grog). Across anumber of brands and product classes, we find that HQEs improve overall brand evaluation significantly more than LQEs damage it, the latter effect often being minimal. The asymmetry arises largely because consumers see HQE’s as more relevant to brand evaluation than LQEs, with HQEs considered positive and LQEs neutral. HQE’s also improve perceived brand expertise, innovativeness, and prestige more than LQEs damage them.
