Warranty as a Signal of Quality: The Moderating Effect of Consumer Knowledge on Quality Evaluations

Abstract

Prior research has shown that consumers use warranties as a signal of quality. This article explores whether prior knowledge moderates consumers' utilization of warranty information in evaluating product quality. In particular, we examine how prior knowledge impacts the relative use of warranty information when consumers are already aware of firm reputation. Indeed, we find that the extent to which warranty information is used in quality evaluations varies with prior knowledge. We report the results of two experiments, which somewhat surprisingly suggest that, for experts, a better warranty leads to perceptions of higher quality, regardless of firm reputation. Novices on the other hand, tend to perceive a better warranty as a signal of higher quality only when the firm is reputable but not when its reputation is low.