Signal Of Product Quality Research Articles

How do reviews from professional critics interact with other signals of product quality? Evidence from the video game industry

AbstractExperience goods are characterised by information asymmetry and a lack of ex ante knowledge of product quality, such that reliable external signals of quality are likely to be highly valued. Two potentially credible sources of such information are reviews from professional critics and ‘word of mouth’ from other consumers. This paper makes a direct comparison between the relative influences and interactions of reviews from both of these sources on the sales performance of video game software. In order to empirically estimate and separate the effects of the two signals, we analyze a sample of 1480 video games and their sales figures between 2004 and 2010. We find evidence to suggest that even after taking steps to control for endogeneity, reviews from professional critics have a significantly positive influence on sales which outweighs that from consumer reviews. We also find evidence to suggest that reviews from professional critics also interact significantly with other signals of product quality. Consequently, we contend that professional critics adopt the role of an influencer, whereas word‐of‐mouth opinion acts more as a predictor of sales in the market for video games. Copyright © 2015 John Wiley & Sons, Ltd.

Bundling and Quality Assurance

We consider a repeated moral hazard model of product quality choice by a multiproduct firm selling experience goods with imperfect private monitoring. When consumers receive imperfect private signals of product quality, consuming two products from the same firm improves monitoring. Monitoring by consumers has a positive externality on other consumers, but consumers ignore this when making their purchase decisions. Product bundling improves product quality by constraining consumers to purchase both goods and monitor more effectively. The social and private value of bundling is even larger if (1) consumers can only attribute a negative signal to a pair of complementary products and not to a specific product, and (2) if one of the two goods is a durable and the other is a complementary nondurable.

Consumer confusion in German food retailing: the moderating role of trust

Purpose – Due to the rising number of product, service, and shopping possibilities available to consumers, food shopping has become increasingly more complex. As a result, consumers can become confused, and this state of confusion may influence their purchase behaviour (e.g. may cause them to not buy a product) and the personal needs they have in a shopping environment (e.g. certification to signal product quality, salesperson consultation for assistance in decision making, or governmental regulation). However, trust can reduce complexity, and may thereby moderate the influence of consumer confusion for negative outcomes. The purpose of this paper is to identify outcomes of consumer confusion and to investigate the moderating role of broader-scope trust on the negative outcomes of this confusion. Design/methodology/approach – A conceptual model was developed to study potential negative outcomes of consumer confusion. In order to assess consumer confusion and the degree of negative outcomes, a telephone survey method for the questionnaire was applied, querying 516 participants who regularly bought food products. Findings – The results clearly suggest that consumer confusion evokes various negative outcomes that are of relevance for food retailing. The intensity of the influence of consumer confusion on several of those negative outcomes could be decreased by broader-scope trust. Further, an interaction effect linked to gender was observed. Originality/value – To the best of the knowledge, this is the first international journal publication on the moderating role of trust on the outcomes of consumer confusion.

The Interaction of Signals: A Fuzzy Set Analysis of the Video Game Industry

Customers continuously evaluate the credibility and reliability of a range of signals both separately and jointly. However, existing econometric studies pay insufficient attention to the interactions and complex combinations of these signals, and are typically limited as a result of difficulties controlling for multicollinearity and endogeneity in their data. We develop a novel theoretical approach to address these issues and study different signaling effects (i.e., word-of-mouth, brand reputation, and distribution strategy) on customer perceptions. Using data on the US video games market, we apply a fuzzy set qualitative comparative analysis (fsQCA) to account for cause-effect relationships. The results of our study address a number of key issues in the economics and management literature. First, our results support the contention that reviews from professional critics act as a signal of product quality and therefore positively influence unit sales, as do the discriminatory effects of prices and restricted age ratings. Second, we find evidence to support the use of brand extension strategies as marketing tools that create spillover effects and support the launch of new products.

Can advertising creativity affect product perceptions and retailer evaluations?

Purpose – This paper aims to investigate the impact of advertising creativity on consumer perceptions of product quality, value, retailer brand attitude and purchase intention. Design/methodology/approach – Two experimental studies were conducted. Study 1 shows the impact of creativity (high/low) for two product categories (mineral water and chewing gum) and one known retailer. The findings are replicated and extended in Study 2 for four categories (mineral water, chewing gum, batteries and detergent) and two known retailers. Findings – The results show that advertising creativity positively signals perceived product quality, which increases perceived value. These effects fully mediate a positive impact on retailer brand attitude and purchase intentions. The positive effect of advertising creativity on perceived product quality is mediated by perceived advertisement effort. Practical implications – This study introduces advertising creativity as a way for retailers to increase perceived product quality and value. The results show that advertising creativity increases perceived effort on behalf of the sender, which positively influences purchase intentions. Originality/value – The current study shows that advertising creativity can work as a signal of product quality, which has positive effects for retailers.

Price as a Signal of Product Quality: Some Experimental Evidence

AbstractWe use experimental data to disentangle the signaling and budgetary effects of price on wine demand. The experimental design allows us to isolate the two effects in a simple and intuitive way. The signaling effect is present and nonlinear: it is strongly positive between 3 euros and 5 euros and undetectable between 5 euros and 8 euros. We find a similar nonlinear price–quality relationship in a large sample of wine ratings from the same price segment, supporting the hypothesis that taster behavior in the experiment is consistent with rationally using prices as signals of quality. Price signals also have greater importance for inexperienced (young) consumers. (JEL Classification: D11, D12, D82)

Effects of product type and contextual cues on eliciting naive theories of popularity and exclusivity

This research shows in a series of studies that exposing consumers to functional products evokes the naive theory of popularity, whereas exposing them to self-expressive products induces belief in the naive theory of exclusivity. The research further demonstrates that when the naive theory elicited by product type is matched by the appropriate contextual purchasing cues regarding the interest of others, it results in greater purchase intentions than when those cues are mismatched. The research specifies that the matching effect for functional products is mediated by consumers' perceptions of product quality, whereas mediation for self-expressive products occurs through consumers' self-perceptions regarding the extent to which the product conveys uniqueness. Finally, the research illustrates that an explicit signal of product quality (e.g., a favorable rating in Consumer Reports) attenuates the effect associated with the contextual cues regarding the interest of others.

Signaling Product Quality through a Trial Period

Signaling Product Quality through a Trial Period

The Impact of Likes on the Sales of Movies in Video-on-Demand: A Randomized Experiment

Peer ratings have become increasingly important sources of product information, particularly in markets for information goods. However, in spite of the increasing prevalence of this information, there are relatively few academic studies that analyze the impact of peer ratings on consumers transacting in “real-world” marketplaces. In this paper, we partner with a major telecommunications company to analyze the impact of peer ratings in a real-world video-on-demand market where consumer participation is organic and where movies are costly and well known to consumers. After experimentally changing the initial conditions of product information displayed to consumers, we find that, consistent with the prior literature, peer ratings influence consumer behavior independently from underlying product quality. However, we also find that, in contrast to the prior literature, there is little evidence of long-term bias as a result of herding effects, at least in our setting. Specifically, when movies are artificially promoted or demoted in peer rating lists, subsequent reviews cause them to return to their true quality position relatively quickly. One explanation for this difference is that consumers in our empirical setting likely had more outside information about the true quality of the products they were evaluating than did consumers in the studies reported in prior literature. Although tentative, this explanation suggests that in real-world marketplaces where consumers have sufficient access to outside information about true product quality, peer ratings may be more robust to herding effects and thus provide more reliable signals of true product quality than previously thought.

The Signaling Effect of Critics -- Evidence from a Market for Experience Goods

Experience goods are characterized by information asymmetry and a lack of ex ante knowledge of product quality, such that credible and reliable external signals of product quality are likely to be highly valued. Due to their independence and expert reputations, professional critics therefore have the potential to significantly influence buyer behavior and hence product demand. In order to empirically verify the influence of critic reviews on market success, we analyze a sample of 1,480 video games and their sales figures between 2004 and 2010. We find strong evidence to suggest that reviews from professional critics have a significant effect upon sales and serve as a signal that helps consumer to overcome uncertainty and support the decision making process. The influence of professional critics on sales is also found to substantially outweigh that of word-of-mouth reviews from other consumers.

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Rationing Capacity in Advance Selling to Signal Quality

We consider a seller who can sell her product over two periods, advance and spot. The seller has private information about the product quality, which is unknown to customers in advance and publicly revealed in spot. The question we consider is whether the seller has an incentive to signal quality in advance and, if so, how she can convey a credible signal of product quality. We characterize the seller's signaling strategy and find that rationing of capacity in the advance period is an effective tool of signaling product quality. We find that the high-quality seller can distinguish herself by allocating less capacity than the low-quality seller in the advance period. We show that this signaling mechanism exists whenever advance selling would be optimal for both the high-quality and low-quality sellers if quality were known by the consumers. Interestingly, the seller's ability to ration (rationing flexibility) sometimes disadvantages the seller; this effect is independent of product quality. This paper was accepted by Yossi Aviv, operations management.

Observational Learning and Social-Network Word-of-Mouth: Evidence from Groupon

This study explores how herding, social media word-of-mouth (WOM), and their interaction effects drive product sales. While herding helps updating consumers’ beliefs about the product quality, social media WOM can also have an advertising effect. Using a panel data set consisting of about 500 deals from Groupon, we find both herding and Facebook-mediated WOM has a direct impact on sales, whereas Twitter-mediated WOM does not. More importantly, we theorize the interaction effect between herding and social media WOM and show they are complements in driving product sales. To uncover the underlying mechanisms, we find the herding effect is more salient for experience goods than for search goods, but the effect of Facebook-mediated WOM does not significantly differ between the two product categories. The comparison suggests that signaling product quality is the underlying mechanism of herding, while the effect of Facebook-mediated WOM is primarily through advertising, rather than signaling.

Building brands through brand alliances: combining warranty information with a brand ally

PurposeWhile previous research has shown a positive influence of a brand ally or a warranty, published research has not explored the effects of using multiple types of quality signals. The purpose of this paper is to explore the joint effect of a default‐independent signal (i.e. a brand ally) combined with a default‐contingent signal (i.e. a warranty) on the focal brand's evaluations.Design/methodology/approachThis paper reports the findings of a 2 (ally: none vs one) × 2 (warranty: no vs yes) between‐subjects factorial design in which 174 subjects were randomly assigned to experimental conditions.FindingsThe study's findings indicate that, individually, both brand alliance and warranty were a significant signal of product quality. However, the use of multiple types of signals, as opposed to one signal, did not add incrementally to consumer's perceived quality evaluations of a focal brand. In addition, risk reduction mediated the effects of brand ally and/or warranty on the focal brand's evaluations.Originality/valueRecently, researchers have started to explore the influence of multiple brand alliance signals on consumer evaluations of brand. However, only the same type of signal has been examined. Signaling theory suggests that other marketing mix elements are marketplace signals of quality. This study contributes to the literature by investigating the role of multiple types of quality signals in brand building.

Equity-Based Incentives and Effective Signalling Strategies

We investigate how the manager of a publicly traded firm may distort operational decisions to signal product quality when he/she receives equity-based incentives offered by shareholders. We show that the shareholders' optimal incentive contract induces the manager to engage in wasteful actions. However, the cost of such actions can be drastically reduced by optimising the equity-based incentive contract. The price-signalling strategy is nearly as good as the multidimensional strategy, whereas the inventory-signalling strategy is costly for the shareholders. We also quantify how various parameters could affect shareholder wealth and the optimal equity-based incentive contract.

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Can Brand Extension Signal Product Quality?

This paper asks whether brand extension can serve as a signal of product quality given that it costs less than a new brand. (Existing literature has assumed either that brand extension is cost-neutral or that it costs more.) I show that it can as a perfect Bayesian equilibrium, but the argument is unconvincing. For one thing, the separating equilibrium is not unique; a pooling equilibrium also exists in which brand extension signals nothing. For another, the separating equilibrium relies on off-equilibrium beliefs that are poorly motivated in the model. I propose a refinement of the perfect Bayesian equilibrium that resolves both issues. Empirical off-equilibrium beliefs require that consumers' off-equilibrium beliefs be justifiable on the basis of their prior beliefs and product performance observations. With empirical off-equilibrium beliefs, two necessary conditions for brand extension to signal product quality are identified: (i) consumers must perceive old and new products of the firm to be positively correlated in quality, and (ii) at least some consumers must identify with brands and not the firm behind the brands. Even with these conditions in place, the signaling argument is fragile: firm observability of past performance diminishes brand extension's signaling capability; an arbitrarily small probability of failure for good products eliminates it. My results suggest that, going forward, the case for brand extension must rest on foundations other than signaling product quality.

Research Note—Performance-Based Advertising: Advertising as Signals of Product Quality

Performance-based advertising is becoming increasingly popular in the online advertising industry, where advertisers pay the publisher only when the advertisement generates an “action” (e.g., a click-through or a purchase). This paper illustrates that adopting this emerging advertising scheme has profound impacts on one fundamental function of advertising—signaling product quality. We identify several important dimensions that affect the signaling function of performance-based advertising relative to its traditional counterpart (impression-based advertising). These include: (1) information—total advertising expenditure is determined after the demand is realized, so it is unobservable to consumers when making purchase decisions; (2) ad performance—the measured “performance” (e.g., recorded click-throughs) includes actions generated by first-time buyers (i.e., advertising performance) and actions generated by repeat buyers (i.e., product performance), which increases the cost of signaling through advertising; (3) demand uncertainty—the merchant pays only when a response to the advertisement is generated, which reduces the merchant's advertising uncertainty. We build a model of performance-based advertising by explicitly incorporating these factors, and we derive the conditions under which switching to performance-based advertising will (a) disable or strengthen the signaling function of advertising, (b) help or hurt the merchant, and (c) lead to a higher or lower advertising expenditure.

Commentaries and Reply to “Can Brand Extension Signal Product Quality?” by Sridhar Moorthy

This series of discussions presents commentaries and a rejoinder on the economic perspectives on branding arising from Moorthy [Moorthy S (2012) Can brand extension signal product quality? Marketing Sci. 31(5):756–770].