Price and its Relation to Objective and Subjective Product Quality: Evidence from the Austrian Market

The correlation between price and product quality is usually found to be low, but still, consumers use a rule of thumb that higher prices indicate higher quality. In the present study, data from the Austrian consumer magazine Konsument from 2004 to 2007 were analysed, and price-quality correlations were computed. Results confirm former studies as the overall price-quality relation was positive and statistically significant but small (r=.30). It was especially small in the food and beverages sector as well as for cosmetics and for inexpensive products generally. Consumers' subjective beliefs about a price-quality link and product complexity were also analysed. Results show that consumers believe that a high price signals high quality, but that these beliefs are not well calibrated, i.e., not corresponding to the product categories where actually higher price-quality correlations can be found. In sum, the results confirm for the Austrian market that price is a poor signal of quality, and that consumers are hardly aware of the particular product sectors where this signal is more valid.