Pricing for a credence good: an exploratory analysis

Abstract

PurposeThis paper aims to explore the role of observable product characteristics and label wording in consumers' valuations for credence goods, products for which key characteristics may not be fully evaluated even after purchase. The objective is to draw conclusions with relevance to pricing policy.Design/methodology/approachHedonic price equations are estimated for a dietary supplement called black cohosh, taken by women for relief from menopausal symptoms.FindingsConsumers respond in expected ways to label words that directly indicate product characteristics: for example, paying more for a product labeled as suitable for vegetarians. But surprising results occur for some nonspecific label words (e.g. “guaranteed” is associated with lower prices), suggesting that consumers view these words as indirect signals with respect to unobservable qualities. Additionally, consumers pay more for packages containing more units (e.g. tablets) even when the time supply of product is held constant; this outcome is consistent with the notion that sheer quantity reassures consumers about value and could indicate a reaction to uncertainty in the overall value proposition.Research limitations/implicationsThe study relies on list prices in place of transacted prices, so consumers' true valuations may not be reflected with complete accuracy. The study should be repeated in the future using scanner data on actual product transactions.Practical implicationsThe indirect signals transmitted by label words and other observable attributes play a key role in consumers' valuations for credence goods, and so are highly relevant to pricing strategy.Originality/valuePrevious studies have considered willingness‐to‐pay for label‐indicated credence qualities, but have not looked at the role of indirect signals/indicators.