The Effect of Local Consideration Sets on Global Choice Between Lower Price and Higher Quality

Abstract

A set of alternatives under consideration is often divided into subsets (or local sets) by some external (e.g., product display format at the store) or internal (e.g., a decision rule) factor. We propose that the manner in which a global set of alternatives varying in price and quality is divided into local sets can have a systematic effect on consumer choice between a lower price alternative and a higher quality alternative. Three such effects are investigated: (1) Consumers who first choose from pairs of products ({A, B}, {B, C}, {A, C}) and then choose from the set of all three products ({A, B, C}) are more likely to prefer the cheapest alternative than consumers who only choose from the complete set; (2) The choice share of a low-price, low-quality brand is greater when alternatives varying in price, quality, and features are displayed by brand (i.e., each display presents different models of one brand) as compared to a display by feature level (i.e., each display presents comparable models of different brands); and (3) Consumers considering a pair of two-option local sets, each consisting of different brands and feature levels (e.g., a feature enhanced model of a low quality brand vs. a basic model of a high quality brand), are more likely to select a feature enhanced model from the global set (of four options) than those who consider the same alternatives in other local set configurations or consider only the global set. These predictions were supported in seven studies, which also provided insights into the boundaries of the effects (focusing on the paired-comparison effect). We discuss the theoretical and practical implications of the findings.