The impact of extraversion on the price - perceived quality relationship

(1)

The Impact of Extraversion on the Price –

Perceived Quality Relationship

Lando B. S. Krumsick 11199385

Final Draft: March 24, 2017

MSc. in Business Administration – Marketing Track University of Amsterdam (UvA)

(2)

2 Statement of Originality

This document is written by Student Lando Krumsick who declares to take full responsibility for the contents of this document. I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.

The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.

(3)

3

Abstract

Product price is one of the most important extrinsic factors to judge a product’s quality. Similarly extrinsic and intrinsic cues of a product to judge its quality are perceived differently by personality types. This study examined the pre-purchase evaluation with price as the indicator for perceived quality of four goods. Two non-durable goods and two durable goods with dissimilar price ranges, categorical differences and importance variances aimed to maximize the effect of price on perceived quality. Moderation of the personality trait extraversion was examined to understand the effect of price on quality of different personalities.

Data was collected from 217 respondents, who were divided into 2 groups. Both groups were exposed to a 10-item extraversion construct and then were introduced to 4 products to evaluate its quality based on the product name, description, a picture and a price. The two groups differed in manipulated prices of those products and found themselves in either a high price scenario or a low price scenario randomized for each product.

The results show the price- perceived quality relationship to be more effective in durables than in non-durables. No interaction effect was found between the extraversion personality dimension and the price- perceived quality relationship.

(4)

4

1. Introduction

Product evaluation behavior in the retail setting is a very peculiar construct to be studied in theory due to the fact that many factors of process time, setting, individual differences or human behavior, and product attributes influence the decision making process (Erickson & Johnson, 1985). Process time refers to purchase and post-purchase evaluation where pre-purchase also involves starting a product search before even entering a retail store through online search or advertisements. The setting explains the role retailers, product placement in shelves or proximity to the entrance or exit of the product, and retailer’s customer service procedures have to name a few (Nguyen et al, 2007). Factors like emotional state, personality, and attitudes are some to mention for individual differences. Rationalizing human behavior has been done for decades. However, it is still very hard to do due to the nature of people that change over time, across societies and follow different trends (Gohary & Hanzaee, 2014). It makes human behavior so unpredictable. And finally product attributes influence product evaluation (Zielke, 2008). Companies use specific approaches in packaging, branding and pricing to differentiate their product from competition (Bernues et al., 2003). All these factors build a complex construct that researchers try to simplify, research and conceptualize to be able to interpret and forecast product evaluation, which consequently leads to buying behavior. Ultimately buying behavior is so well researched due to the fact that it leads to product sales, which is the most simplified overall goal of any company. To be able to study this multidimensional phenomenon researchers have divided the construct into manageable and testable frameworks.

One of the most researched constructs in consumer’s product evaluation phase is the pricing of a product (Petroshius & Monroe, 1987). In a supermarket for example, a consumer might

(7)

7 have to decide between two different cream cheese offerings that are theoretically the same (i.e. ingredients etc.). The general assumption would be that the consumer would reach for the cheaper one of the products. However, more often than expected the consumer will take the more expensive product. Why does this happen? The consumer sees the higher price as an indicator for higher quality even if the two products were identical in ingredients and quality. The question is, does this phenomenon happen across other industries? Also important to ask is if this occurrence works the same way for different individuals. Now imagine the same scenario with an overall talkative and social person who sees more satisfaction in getting the product to be able to share it with others. The product search time of an introvert is lower than for an extrovert (Gohary & Hanzaee, 2014). Does the individual take less time therefore use different attributes to quickly evaluate the product quality? Instead of looking at ingredients of the cream cheese he/she might use less time-consuming attributes like price to evaluate quality. The product price is one of the most essential elements of the marketing mix for companies because it is the only measurable element that produces company revenue (Armstrong & Kotler 2013). Armstrong & Kotler (2013) also state that the customer’s product valuation determines the ceiling of the price and the product’s costs establish the floor of the price. In this concept, the competitor’s prices of competing products also help a company to set their prices. But this basic conception about pricing does not explain the reason why a person might be positively influenced in their buying behavior of a specific product nor does that clarify the oddly high prices set by companies.

For that matter, the following research question and sub questions will be evaluated and answered in this study:

Does the extraversion personality dimension moderate the effect of on the pre- purchase perceived quality in durable or non-durable goods?

(8)

8 Subquestions:

1. What is perceived quality? 2. What is the product price?

3. How does product price influence perceived quality of a product? 4. How does the buying behavior differ between introverts and extroverts?

5. Does the extraversion dimension induce differences in the perception of a product’s quality?

6. Do different products (non-durable/ durable) have an effect on

extraversion/introversion’s assessment of quality through product price?

(9)

9

2. Literature Review

This chapter discusses the most relevant findings from current and most dominant literature about the price- perceived quality relationship and presents the hypotheses of this study. To begin with, the key concepts that provide the theoretical footing of the relationship are discussed. Subsequently, the chapter continues with a contingency map of the price- perceived quality phenomena, which will lay the foundation for my hypotheses. The extraversion/ introversion schematic will be introduced and connected to the price- perceived quality relationship. The chapter ends with the proposed research model to identify the hypotheses graphically.

2.1 Price- Perceived Quality Relationship

Consumers tend to use the price of a product to infer its quality, hence they sometimes consider products that cost more as being of higher quality than less-expensive ones (Brucks, Zeithaml & Naylor, 2000; Gerstner, 1985; Noël & Hanna, 1996; O’Neill & Lambert, 2001; Herbst et al, 2013). This phenomenon has been widely conceptualized, studied and named the price-perceived quality relationship, schema or effect (Zeithaml, 1988; Peterson, 1970; Dodds et al, 1991). It is well researched that the price influences perceived quality of a good or service (Monroe & Kent, 1976) contradicting the aforementioned concept that quality is represented by the product price; the higher the price of a product is, the higher the actual quality becomes. While this may be the case to certain degree depending on brands, products and industries, studies have shown that consumers overestimate the relationship (Herbst et al, 2013; Agarwal & Teas, 2002; Kardes et al, 2008; Lichtenstein & Burton, 1989).

(10)

10 Additionally, it is well conceptualized that the price-quality relationship varies greatly in its effectiveness on different types of individuals as well as certain situational cues (e.g. Boyle & Lathrop, 2009). Therefore, the mentioned relationship should also show a variation of effectiveness on personality types due to the fact that certain personality traits make an individual behave or evaluate in differing ways (Guido et al, 2007), which is the basis for predicting consumer behavior and anticipating decision-making processes (Brancaleone & Gountas, 2007). Over the years psychologists have tried to determine a conceptualization of personality traits. Five traits or categories have been profound to be the most important determinants of personalities (Maltby, Day, & Macaskill, 2010).

Costa and McCrae (1985, 1992a, 1992b, 1995) have introduced an assessment of personality dimensions with these five factors and it is called the Big Five Model of Personality. The five dimensions are Neuroticism, Extraversion, Openness (to experience), Conscientiousness, and Agreeableness. One of the most studied personality dimensions of these five as well as deemed to be one of the most important ones, is the consumer’s introversion or extroversion dimension (Chang, 2001; Eysenck & Eysenck, 1976; Boddy et al, 1986). They vary in terms of behavior orientation (e.g. Eysenck, 1967), personal values (Furnham, 1984), environmentally influenced attitudes (Marjoribanks, 1989) and differences in shopping behavior (e.g. Guido et al, 2007). To understand the differences of shopping behavior between extroverts and introverts, the study will go into more depth in this personality differentiation (see 2.5 Extraversion).

To extend the knowledge about the well-studied price- perceived quality effect the two variables price and perceived quality have to be conceptualized further. An analysis of the personality dimensions has to be done to find out the degree to which individuals with certain personality traits might observe the effect of price as an indicator for quality differently.

(11)

11 2.2 Product Price

As aforementioned, the product price is one of the most essential elements of the marketing mix for companies because it is the only measurable element since it produces company revenue (Armstrong & Kotler, 2013). On the other hand, Erickson and Johansson (1985) state that from the consumer’s point of view, the price represents a financial burden, and higher prices negatively affect purchase probabilities (i.e., negative role of price). There are two views on price in the marketing field. From a managerial perspective it can be seen as an indicator for value building, hence purchase creating for brands (Monroe 1985 and 1987; Zeithaml 1988). But from the consumer’s perspective it is seen as the sacrifice one has to make to obtain a product (Zeithaml, 1988). Jacoby & Olson (1977) first conceptualized a distinction between objective price and perceived price. Objective price is the actual price of a product. However, the perceived price embeds the cognitive anchoring of the price as expensive or inexpensive. Price is also defined as an extrinsic attribute when judging a product or service of its quality in opposition of intrinsic product attributes, which are related to the physical aspects of a product (e.g. color, flavor, form and appearance). Extrinsic cues are more generalizable and not product specific, therefore applicable to a wider range of products. Examples include price, brand name, store name, country of origin (Janakiraman et al, 2006) and packaging and production information (Bernues et al., 2003).

Based on this evaluation of pricing, the thesis will focus on the objective price of a product to fundamentally incorporate the perception of quality and to underline the abstract extrinsic cue a product price represents.

(12)

12 2.3 Perceived Quality

The product’s quality has been researched apprehensively over the decade and has been difficult to analyze due to fundamentally opposing definitions of quality. Zeithaml (1988) has identified multiple views of previous studies where objective and perceived quality have not been differentiated efficiently due to the fact that managers and consumers have opposing views on what quality is. Quality indicators vary deeply between individuals, product category, purchase involvement as well as other indicators that might lead to differences in shopping behavior (e.g. Zeithaml, 1988). This “quality variation” is reflected in Clemenz et al (2012). Individuals with various personality traits experience quality of a product differently and structural models of objective and subjective quality formation processes do not represent a commonality (e.g. the model proposed by Grunert, 2005). The perception of quality can be further separated into pre-purchase and post-purchase perceived quality (Monroe & Krishnan, 1985). Customers focus on different product attributes when making a purchase decision. As O’Neill & Lambert (2001) have already theorized, there is a difference in attributes or cues used to evaluate a product’s quality before and after the purchase. The pre-purchase perceived quality of a product is therefore the evaluation of value by looking at various indicators for quality. O’Neill & Lambert (2001) continue to elaborate on the difference between pre-purchase and post-purchase evaluations, which is most generally seen in extrinsic and intrinsic attributes respectively. Extrinsic, sometimes called search attributes, are usually identified in pre-consumption quality, hence pre-purchase evaluations. Intrinsic attributes, however, can typically be identified when consuming a product. Beverages with see-through glass packaging for example, can be evaluated with intrinsic attributes even in the pre-purchase state, where juice color, density, and percentage of juice act as such. In packaged goods or durable goods where you cannot see the quality before usage, extrinsic

(13)

13 attributes are usually used to ease the evaluation process. Wright (1975) came up with the “affect-referral” process, which can explain the tendency to simplify the assessment of product attributes to reach a perception of quality and ultimately make the purchase decision. It states that consumers might use extrinsic cues (summary information) over intrinsic cues (product-specific attributes) to simplify a decision. To extract a thorough understanding on enhanced perceived quality before the purchase is made this thesis will focus on pre-purchase perceived quality and therefore the abstract evaluation of the product that is mostly predicted by extrinsic product attributes (Quintal & Phau, 2013).

2.4 Price- Perceived Quality: Map of Contingencies

The price- perceived quality relationship has been doubted in its generalizability. The extent of the effect varies highly across individuals (e.g. Shapiro, 1973) as well as products (e.g. Gardner, 1971) and cultures (e.g. Monroe & Krishnan, 1985). To identify the cues of variance, Monroe & Krishnan’s (1985) map of contingencies can be used as an overview model. Three groups of eventualities that affect the use of price as an indicator for quality make up the discrepancies of the effect: informational factors, product category factors, and individual factors. These three categories build a thorough foundation for classifying the important distinctions one has to make before analyzing the effect further.

Informational Factors

Informational factors, the first group of the map of contingencies, consist of cues of the product’s quality that are accessible by the consumer and, for instance known brand names that infer the reputation of the firm, or the level of advertising that represents brand beliefs.

(14)

14 Those cues are generally preferred as a measurement of quality over price. These factors arguably get more easily accessible. Therefore they increase in importance due to technological changes, or advancements, since the article was written in 1985. Information is easily accessible through the Internet and digitalization for anybody in our society (Boyle & Lathrop, 2009). A meta-analysis about the price-perceived quality relationship over time by Volckner & Hofmann (2007) also suggests a trend towards ineffectiveness of the relationship. This might be due to the better overall quality of products, lower prices for that quality due to increased efficiency in production as well as rising wealth levels (Boyle & Lathrop, 2009). Information substitutes, aforementioned as extrinsic attributes, such as brand names, price and reputation become increasingly relevant when diagnostic information, or intrinsic attributes, become harder to find (Krauter & Kaluscha, 2003). Overall the access to product information has increased due to consumer reports as well as the Internet across the globe (Boyle Lathrop, 2009). Therefore we can argue:

H1: The price perceived quality effect is becoming less effective.

Product category factors

The second group identifies certain product categories as more prone to price signaling quality than others. Cues like prevailing product category beliefs, price variations, or the category price range, and expected product quality variation within a category influence the relationship. For instance, in product categories, where there is a high-expected quality variation, the price as an indicator for quality is more effective. The category price range also has a potential effect on price satisfaction. Zielke (2008) states products that build the upper price range within a category have a negative impact on price level perception, which is the

(15)

15 perception of prices without taking quality differences into account, but has a positive impact on the perceived quality and value (Petroshius and Monroe, 1987).

Additionally, multiple studies propose a difference between food, fast-moving consumer goods (or non-durables), durable goods and services that explicitly varies the price perceived quality relationship (Volckner & Hofmann, 2007; Boyle & Lathrop, 2009; Riesz, 1978; Rao & Monroe, 1989). Lichtenstein & Burton (1989) mention several reasons why durable goods might represent a higher price- perceived quality relationship. One reason might be that consumers have less product knowledge due to a lower purchase rate and therefore a longer average time gap since the last product purchase was made. They also mention evaluation difficulties due to product complexity. These reasons can be indications for using an extrinsic cue, specifically the product’s price, to evaluate its quality. The meta-analysis by Rao and

Monroe (1989) proposes that the positive price-perceived quality relationship can be

generalizable for lower priced and frequently purchased, or non-durable, goods. Volckner and Hofmann (2007) also concluded that the price- perceived quality effect is more effective in non-durables than in durables. Brucks & Zeithaml (2000) agree that non-durable goods seem to present a positive relationship, however, for durable products it is still rather unclear. According to the most recent study of the price-quality relationship’s effectiveness by Boyle & Lathrop (2009) the maximum effectiveness has shifted from non-durable to durable goods. They have used the same products in their study as Lichtenstein & Burton (1989). The studies made by Boyle & Lathrop (2009) and Lichtenstein & Burton (1989) analyzed the price-perceived quality relationship with a more abstract approach, meaning that they asked participants about the product categories instead of actual products. Based on these findings we can conclude:

(16)

16 H2: The price as an indicator for quality is more effective in durable than in non-durable goods.

Individual differences

The last group of contingencies within the relationship represents cues that vary across individuals. Price awareness, product knowledge, purchase and product involvement are some cues that match the conditions of this group (Boyle & Lathrop, 2009). Product importance played a big role in Lichtenstein & Burton’s (1989) study. They argued that individuals see some products as more important than others due to preferences and interests of individuals.

All these factors could moderate the effectiveness of the relationship to a certain degree. Another area of contingencies this group evaluates is cultural differences. People in certain cultures have less access to information, or less money to be able to extent their knowledge within a product category (Monroe & Krishnan, 1985). Besides cultural differences globally there are also dissimilarities across individuals in their shopping behavior and one can even state that personality traits might lead to differences in the effect. A study by Herbst et al (2013) introduces the moderating effect of social evaluative influences on the price quality relationship. They have studied the effect that judgmental implications of friends, family and others have on the person evaluating the quality of a product. When judged by others a person is less likely to overvalue the quality ratings based on the price and therefore lessens the effect of the relationship. This study is peculiar because it does not take into account specific personality traits that might be affected differently by the moderating effect. To build a fundamental view on this assumption I will elaborate on the personality trait concept and go further into detail about the specific dimension of extraversion. Herbst’s et al (2013) study

(17)

17 that does not take into account that his sample might have had a mix of introverted and extroverted subjects who would experience different degrees of pressure in social evaluative influences.

2.5 Extraversion

Boddy et al (1986) has distinguished that introverts compared to extroverts perform better under negative rather than positive reinforcement respectively. Eysenck (1977) suggested that introverts and extroverts have motivational differences. Introverts are motivated by avoiding costs therefore tend to perceive things in a more negative light to decrease a likely cost whereas extroverts are oriented toward being awarded, hence they tend to view things in a more positive light to enhance their sense of reward. Extroverted consumers have a broad underlying group of traits containing activity, sociability and the tendency to experience positive emotions like pleasure and Joy (Costa & McCrae, 1992). Introverted individuals, however, represent the opposite: social isolation and risk avoiding (Mowen & Spears, 1999). A number of studies have shown an incremental difference of shopping behavior between introverts and extroverts.

Guido et al. (2007) indicated that introverts tend to have a utilitarian shopping behavior, a behavior that assumes the consumer to be rational and problem-solving, thus they stress functional and product-centric thinking. The perception of quality of introverted individuals is related to utilitarian product attributes (Dhar & Wertenbroch, 2000). Shopping motivation comes from a predistinguished need for a product and therefore utilitarian consumers generally use less time shopping due to a certain work mentality (Hirschman & Holbrook, 1982), are task-oriented and of rational manner (Carpenter & Moore, 2009). Guido et al.

(18)

18 (2007) also states that extroverts are more likely to be hedonic, thus unstructured, mentally, affective and experience-based (Kim & Han, 2011) stimuli driven, pleasant and fun (Nguyen, Nguyen, & Barrett, 2007). Hedonic shopping behavior needs a certain degree of enjoyable and pleasurable aspects and they regard emotional and psychological values of shopping experience (Gohary & Hanzaee, 2014). Gohary, A., & Hanzaee (2014) also found that extroverts paid more attention to the benefits and fun-loving, passionate, active and positive emotion in the shopping task. There is also an affiliation of hedonic and utilitarian products with affective and cognitive decision-making respectively (Langan et al, 2016). Affective decisions are renowned by the presence of more intense feelings during the decision making process and are therefore more commonly associated with hedonic products (Homburg et al., 2006). Nonetheless, cognitive decisions tend to reflect a need for utilitarian products, as consumers think that acquiring the information needed to make a decision is more important (Shiv & Fedorikhin, 1999; Voss et al., 2003). In Zielke’s (2008) study about asymmetric effects in the formation of retail price satisfaction, price satisfaction was defined as a follower of for instance price level, price value or products that build the upper price range within a category and is an affective reaction, resulting from cognitive and affective mental processes. As previously mentioned, the predecessor of price satisfaction (i.e. upper price ranged products) positively influences the quality perceptions (Petroshius and Monroe, 1987) therefore it is reasonable to assume that extroverts, who generally tend to act in an affective manner in a purchase situation, tend to be more influenced by price as an indicator for quality.

This shows that the behavioral distinction between introverts and extroverts in their shopping behavior is valid to be researched further. No study has been made regarding the extraversion personality trait and the extrinsic product attributes, specifically the product’s price, a consumer needs to evaluate to reach a conclusion about the quality perceived in a product in

(19)

19 the purchase process. Langan et al (2016) also state that hedonic and utilitarian products are differentiated accordingly due to intrinsic, or product specific, cues. Nevertheless we can argue:

H3: Extroversion positively moderates the price- perceived quality relationship.

H4: Extroverts (introverts) are more (less) likely to be influenced by price as an indicator for quality.

The distinction between extroverts and introverts is not as clear as researchers would like it to be. This is reflected by the implicit personality theory conceptualized by Rosenberg & Sedlak (1972). It describes the extent to which consumers attribute specific behaviors to stable traits, i.e. entity theorists, rather than to contextual factors, i.e. incremental theorists (Puzakova et al, 2013). The entity theory therefore holds that personality qualities are fixed and are consistent. It relies on the assumption that everyone is a certain kind of person and that there is not much you can do to change it (Levy et al, 1998). On the other hand the incremental theory beholds the opposite: personality qualities can be changed, improved and are dynamic (Puzakova et al, 2013). The implicit personality theory therefore builds an unstable foundation for the moderation effect proposed in this study. Extraversion and introversion as a personality dimension would be more relevant from a managerial standpoint if the consumer is constant and shows basic and steady personality qualities to be able to generalize the effect price has on perceived quality with respect to extroverts versus introverts. Therefore in this study we assume a stance towards the entity theory to be able to rationalize the effect.

(20)

20 2.6 Research Model

In the prior sections five hypotheses were established. The first one represents the feasibility of the main model that has been conceptualized and studied before. The main model refers to the direct relationship between objective product price and pre-purchase perceived quality. The expected influence of extraversion and its moderating effect that might differ between non-durable and durable goods is shown above.

Figure 1 Research model Hypothesis

H2: The price as an indicator for quality is more effective in durable than in non-durable goods.

(21)

21

3. Data & Method

This chapter consists of the empirical part of the study. The first section identifies the characteristics of the collected sample. The second section discusses the variables used and their corresponding reliabilities. Lastly, a description of the statistical approach that was taken will be presented to identify the testing method of the discussed relationships.

3.1 Sample

A non-probability sampling technique is used. A combination of volunteer sampling and convenience sampling led to a more diverse sample than convenience sampling by itself. Through the self-selection method an advertisement on forums administered volunteer sampling. Convenience sampling respondents were acquired through personal e-mail and Facebook. This experimental design aims to reach as many respondents as possible, however, a minimum of 100 responses per survey (200 in total) are needed to ensure plausibility of the analysis. The result of the population dimensions presented 217 respondents, 91 (41.9%) males and 126 (58.1%) females. The mean age was 24.56 years with a standard deviation of 4.03 and a range from 17 to 60 years of age. This outcome does not represent the population well, however, it can be interesting for future research that might specify on certain age groups when studying the phenomenon. The education of the sample showed 16 people (7.4%) that completed up to secondary school, 23 people (10.6%) that went to college but did not earn a degree, 127 respondents (58.5%) that have their bachelor’s degree, and 49 people (22.6%) that have received their master’s degree. Monthly income after taxes showed that 180 people (82.9%) have less than 2000 EUR to spend and 37 people (17.1%) are in between 2000 and 3000 EUR or above.

(22)

22 This represents a Dutch consumer market with a higher tendency to the student body that this survey mostly penetrated. However, all these candidates are consumers in the Netherlands. The response rate is hard to determine due to the survey distribution via online forums and Facebook. But the completion rate of the survey was 82% (217 completed versus 47 not completed).

3.2 Measurement of variables Perceived Quality

Price- perceived quality was assessed by a combination of questions taken from multiple sources. By the level of agreement with the statement used in the study by Dodds et al (1991) “the product (e.g. toothpaste) appears to be of: 1 = very poor quality, 7 = very good quality” (from here on out “quality” variable) the perception of quality can be measured for each proposed product. For three of the four products the statement “this product seems to be durable: 1 = strongly agree, 7 = strongly disagree” was implemented (short “durability” variable). This measure came from Zeithaml (1988) about how quality in durable goods is evaluated. Durability is one of the four factors that make up the categories for the evaluation of the product to predict its quality. Since two products in this study are durable goods it seemed important as a control variable. The perception of the respondents was necessary to understand how impactful their categorical decision could be.

(23)

23 Price

Prices will be manipulated to either a high price or a low price for each of the products. A pretest (see section 3.3) will determine these. A variable that is introduced to measure how effective the pre-test highest and lowest product prices were to the sample, will measure if the prices were high enough or low enough by agreement with the statement: “I think the price of the product is: 1=very low, 5=very high”. This variable will be called price (control).

Price- Perceived Quality Relationship

Respondents' level of agreement with the statement, "The higher the price of the product, the higher the quality of the product" (1 = strongly disagree, 7 = strongly agree) for each product category was the measure to determine the price-quality relation from the consumer’s standpoint (Lichtenstein & Burton, 1989). This statement is used to figure out the product category differences in the concept and will be referred to as either PQR or price- quality relationship variable.

Extraversion

Extraversion was measured with Goldberg’s (1992) factor 1 (surgency or extraversion) 10-item scale to determine the level of extraversion that the respondents identify with (Goldberg et al, 2006). This 10-item scale has a high internal consistency reliability (Cronbach’s alpha = .87) with only 10 questions to be able to keep the survey shorter achieving a higher completion rate. Five of the ten items were reverse coded meaning that a low score indicates a relatively high level of extraversion. An example item is “I don’t like to draw attention to

(24)

24 myself”. A 5-point Likert scale ranging from 1 (strongly disagree) to 5 (strongly agree) was used.

Control Variables

Results of the current study are controlled by four demographical variables, gender (nominal variable: male = 1, female = 2), monthly income (after taxes) (1 = below 2000 EUR, 2 = between 2000 EUR and 3000 EUR, 3 = above 3000 EUR), education (1 = less than secondary school, 2 = some college, but no degree, 3 = Bachelor’s degree, 4 = Master’s degree, 5 = Doctorate degree) and age (ratio variables) to evaluate the resemblance to the population. These items were included in the last section of the questionnaire and were used to test correlations as well as acceptable sample demographics for this study. Product importance was also a factor taken into account by Lichtenstein & Burton (1989). It acted as a control variable in quality since they believed that product relevance might influence the price- perceived quality relationship and was measured through the agreement with the statement, "The product is important to me" (1 = strongly disagree, 7 = strongly agree). It was similarly adapted for this study.

3.3 Statistical procedure

This research was of explanatory nature. Therefore a quantitative research design was used. To answer the proposed research question, a cross-sectional data collection method in form of a survey acted as an experimental design frame to gather the data. Two between-subjects designed surveys were dispensed online. A 2 factorial research design, high and low product price with a general extraversion section, will make up the different groups to amplify

(25)

25 variance between the independent and the moderator variable. Respondents will be randomly assigned to one of these surveys. In the following sections a pre-test will be described and then the main survey.

Pre-test

The first step involved a pre-test that asked for the respondents’ opinions about the highest and lowest acceptable price in open-end questions (e.g. what is the lowest price at which you would still buy the product- the price below which you do not trust the quality; what is the highest price you would be prepared to pay taken directly from Chapman & Wahlers, 1999) for two durable and two non-durable product categories to be able to identify the highest and lowest acceptable prices within these. The four product categories were selected based on previous studies made (Lichtenstein & Burton, 1989; Chapman & Wahlers, 1999; Gardner, 1971) as well as some of the criteria stated by Lichtenstein & Burton (1989). The first criterion requires an equal split between durables and non-durable products. This amplifies the generality of the study across categories. The next one is a certain relevance or importance of the product categories to the sample. A vacuum cleaner and a bicycle were selected as durable goods. Vacuum cleaners are part of the electronics category, which participants in the age category are generally familiar with, however, product knowledge is not overly present due to the low purchase rate of the product. The two non-durable goods were sneakers and toothpaste. Toothpaste was used as a product in Gardner’s (1971) study whose sample was college students and represents a high purchase rate. Sneakers (athletic shoes) were used in previous studies and built a good product that the age group relates with. And lastly, a high variation of price ranges across the product categories (Monroe & Krishnan, 1985) is desired to measure for instance possible dissimilarities in the respondent’s

(26)

26 demographics, where income is the most dominant determinant that could influence a biased opinion of price as an indicator for quality. Two demographic questions (age, gender) were asked first in this pretest.

Questionnaire

Subjects were given a questionnaire that first asked 10 questions about extraversion. The next step involved a random assignment to two continuing paths in the questionnaire. Both paths contained the same four products (two non-durables and two durables). Each one of those was presented with an actual description of the product taken from a catalog and typed in the questionnaire as has been done by Chapman & Wahlers (1999). Additionally, there was a picture of the product and a manipulated price, either high or low, based on the mean and median of highest and lowest acceptable prices established in the pre-test. The procedure of the questionnaire is depicted below (Table 1).

Table 1: Survey procedure

Extraversion/ Introversion 10 Questions

Group 1 Group 2

Toothpaste: low price

(Name, picture, description, price)

4 Questions (quality, product importance, price control, price-quality)

Toothpaste: high price

4 Questions (quality, product importance, Price control, price-quality)

Sneakers: high price

(Name, picture, description, price)

5 Questions (quality, durability, product importance, price control, price-quality)

Sneakers: low price

(27)

27 (Name, picture, description, price)

5 Questions (quality, durability, product importance, price control, price-quality) Bicycle: high price

Bicycle: high price

This experiential questionnaire showed the exact same information to the respondents with except differing prices between subjects. This ultimately leads to a consistent measurement of price as an indicator for the quality of the products. Each product introduction was followed by either four questions (for toothpaste) or five questions (for sneakers, vacuums, and bikes) (for an example and product list see Appendix 1 and 2).

(28)

28

4. Results

Below, first the sample in the pre-test and main questionnaire are described and analyzed. Afterwards the correlation matrixes, (see Table 3 to 6) will be presented and then discussed. Subsequently the moderation analysis follows and finally the findings will be discussed aiming at the hypothesis of this study specifically.

4.1 Sample

Pre-test

The pre-test was administered March 6, 2017 and closed on March 8, 2017. Respondents were contacted via Facebook and the response rate was 100%. Each person contacted filled out the short survey to establish an overview of high and low prices in each preselected product category. The total amount of respondents were 25 people, however outliers and completion issues led to 20 effective responses. Male and female distribution were equal in number (10 males, 10 females), the mean age was 25 years and each of the product’s high and low price were accumulated to a mean (In EUR: Toothpaste: low=0.75, high=3.50; Sneakers: low=34.95, high=149.95; Vacuum: low=39.95, high=159.95; Bicycle: low=89.95, high=379.95) and taken into the main questionnaire without change.

Questionnaire

The sample of 217 people filled out the questionnaire without incomplete or unfinished results due to a force response lock implemented in the configuration of the survey via Qualtrics. This led to complete responses since respondents weren’t able to continue to the

(29)

29 next sets of questions without answering the current ones. Demographic questions were not force locked (age, gender, monthly income and educational level) due to the intimacy these questions might entail. The response duration of all the responses were deemed acceptable therefore no responses had to be taken out in this preliminary step. A reliability test was completed for the extraversion 10-item list only because of the fact that the quality question was a single-item measurement specifically related to each product chosen.

A control price perceived quality relationship question as used in Boyle & Lathrop (2009) was used to measure how respondents believe price influences quality in product categories (see data & method – Perceived quality). To show the results of this question see table below.

Table 2: Mean, Standard deviation – Price-Quality Relationship in Categories Sneakers Toothpaste Vacuum Bicycle

Mean 3.68 4.20 5.03 5.12

Std. Deviation 1.56 1.49 1.30 1.37

Note: N=217

The table depicts the mean agreement with the statement if the higher the price, the higher the quality of the product is. In sneakers it is closest to neither agree nor disagree, however, in the toothpaste, vacuum and bicycle categories there seems to be a gradual increase in the perception by the respondents respectively. The price perceived quality relationship is perceived to be most effective in durable products. Additionally, respondents seem to see different price-quality relationships across product categories.

After recoding the aforementioned variables, skewness, kurtosis, and normal distribution were tested. All the main variables seemed to be acceptable in skewness and kurtosis (values are between -1 and 1) except for the perceived quality of toothpaste in the high and low price

(30)

30 function (skewness=-1.43; kurtosis=2.84) therefore a variable transformation of a substantial negative skewness will be done to normalize the distribution.

The extraversion construct was combined to a mean extraversion total variable. In the 217 respondents average mean 21 respondents tended to be more extroverted (score at 2.5 or below in the 5-point likert scale) and the majority had a score towards extraversion. This statistic is not optimal, however, people cannot be picked by personality to respond to a survey.

The columns of variables of both survey groups were combined by product to be able to test these and figure out correlations between subjects. For example the perceived quality variable (“the quality of this product seems to be: 1=very low; 7=very high) in the high price sneaker and the same quality question in the low price sneaker group were combined into one variable. The price categories (high and low) for each product were recoded to low=-1 and high=1 to make the distinction between the two easier.

Tables 1, 2, 3 and 4 will present the mean, standard deviation and correlation table separated into four product-specific correlations to have a better overview.

(31)

(32)

(33)

(34)

(35)

35 4.2 Correlation Analysis

In this section an analysis is fulfilled to explain the findings of Tables 3 through 6.

The demographic variables show that education correlates significantly with age (r = 0.24, p < 0.01) and monthly income correlates significantly with gender, age and education (r =-0.21, r = 0.31, r = 0.27, respectively at p < 0.01). These findings were expected and validate the idea of a reliable sample.

Positive and significant correlations between the variables price (control) and price, which is a test correlation to determine the perceived significance of high and low prices to the sample, are found across all products (toothpaste: r = 0.73; sneakers: r = 0.82; vacuum: r = 0.69; bicycle: r = 0.68; p < 0.01). These correlations show that the chosen prices did have the wanted effect on the respondents. They were perceived as high or as low to the sample as the pre-test predicted.

Table 7: Correlation between Price and Quality

Category Product Price/ Quality Correlation

Non- Durable Toothpaste 0.15*

Sneakers -0.02

Durable Vacuum 0.38**

Bicycle 0.19**

** Correlation is significant at the 0.01 level (2-tailed). * Correlation is significant at the 0.05 level (2-tailed). Note: N=217

(36)

36 To evaluate the price perceived quality relationship the Pearson correlation was assessed for the high/low price categories on the respective quality evaluation question. A linear regression between those would have also been possible but not necessary because those two tests are very similar when only one independent variable is present. Table 6 presents all four products in one table and their price-perceived quality correlation coefficients to simplify the findings in the previous tables. The price and quality correlations illustrate significant positive correlation in the durable products (vacuum: r = 0.38; bicycle: r = 0.19, at p < 0.01) and in toothpaste (r = 0.15, p < 0.05). Sneakers do not show a significant correlation. The variance in correlation between the products shows that respondents are differently influenced by price as an indicator for quality across categories. Similar findings are presented in the correlation between the price control and quality variable, where the products vacuum, bicycle and toothpaste have a significant correlation (r = 0.39, r = 0.21, with p < 0.01; r = 0.14, with p < 0.05, respectively) and sneakers show no significant correlation. Toothpaste also shows a significant negative correlation between the price control and product importance (r = -0.15, p < 0.05). This correlation could be interpreted by the higher the price of toothpaste (low cost durables) is perceived to be, the less important the product becomes to the consumer. Equally important to mention is the negative correlation of age with the toothpaste quality variable (r = -0.15, p < 0.05). It appears that the higher the age, the lower the quality ratings of the sneaker become.

Sneakers quality and price-quality relationship of the category variables correlate significantly and positively with gender (r = 0.13, r = 0.15 with p < 0.05, respectively). The price control variable and age also experience a significant positive correlation (r = 0.14, p < 0.05), which means that older respondents tend to depict the price as higher. Sneakers price-quality relationship variable has a positive significant correlation with education (r = 0.16, p < 0.05), and negative correlation with price (r = -0.22, p < 0.01) and price (control) (r = -0.21,

(37)

37 p < 0.01). To interpret that, respondents with a higher level of education also believe the price-quality relationship is stronger in sneakers. Product importance positively and significantly correlates with durability in the sneakers category (r=0.20, p < 0.01).

Another correlation in durability occurs in sneakers, vacuums and bicycles where a very significant positive correlation occurs with quality (r=0.73, r = 0.76, r = 0.80 with p < 0.01, respectively). This shows that the predictor for quality does entail durability in durables, however, can also predict quality in some non-durables (i.e. sneakers). Nevertheless durability in durable goods is linked to additional variables. Vacuums and bikes see a correlation between durability and price (r = 0.35, p < 0.01 in vacuums; r = 0.17, p < 0.05 in bikes) as well as price (control) (r = 0.37, p < 0.01 in vacuums; r = 0.16, p < 0.05 in bikes). The higher the price, the more durable the product becomes. Vacuum’s product importance and gender also significantly correlate (r = 0.19, p < 0.01), which means that female respondents see vacuums as more important. Other significant correlations are seen between quality and gender (r = 0.17, p < 0.05), age (r = -0.20, p < 0.01), and product importance (r = 0.20, p < 0.01) in bicycles. These findings predict that the higher the perceived quality of a bike, the younger the respondent, and the higher the product importance. Female respondents generally see a higher quality in the bicycle of this study. They also perceive the bike’s price as higher (r = 0.14, p < 0.05; between price (control) and gender) and the price-quality relationship (PQR) in this product category as lower (r = -0.15, p < 0.05). The price-quality relationship variable shows a significant negative correlation with price (control) in bicycles (r = -0.13, p < 0.05). Last but not least, product importance of bicycles positively correlates with monthly income (r = 0.17, p < 0.05), which predicts that respondents with higher income see bikes as more important. The correlation table, however, does not illustrate significant correlations between the extraversion variable and the main variables of quality and price in

(38)

38 those products therefore next is a moderation analysis with PROCESS procedure by Hayes (2013).

4.3 Moderation Analysis

In this model, price (IV) is categorical therefore the moderator extraversion was standardized since it is numerical. Four separate moderations were completed to test an interaction for all the products. In Process, heteroscedasticity-consistent SEs was selected to eliminate heteroscedasticity issues.

The interaction term that describes how much of the effect of price on quality evaluations is different between extroverts and introverts.

The interaction term states that as price increases one unit, the difference in quality evaluation between extroverts and introverts increases by 0.02 units in toothpaste. However, the moderation effect is not taking place (p = 0.85 therefore p > 0.05).

Sneakers interaction term (c = -0.2) predicts that as price increases one unit, the difference in quality evaluation between extroverts and introverts decreases by 0.2 units for sneakers. The moderation effect (p = 0.039 therefore p < 0.05) is taking place. Next the conditional effect of price on quality evaluations when extraversion = 0 is depicted. Since extraversion is standardized zero is the mean score of the extraversion construct, which is slightly extraverted (extraversion mean = 3.22) and it is not significant (p = 0.705 therefore p > 0.05). The conditional effect of extraversion on quality evaluations when price is zero (i.e. the medium price) -0.044 is the estimated difference in quality ratings between introverts and extroverts to see a medium price in sneakers but it is not significant (p > 0.05). In the r2=0.16, however, p = 0.219 so it is not significant. This error in the model is most likely

(39)

39 because of the non-significant correlation between the price and the quality evaluation in sneakers.

In the product category of vacuum extraversion does not seem to have a moderating effect, either (p = .55 therefore p > .05). Finally the moderating effect in the product category of bicycles was done. This product category does not show a moderating effect of extraversion on the price- perceived quality relationship (p = 0.22 therefore p > 0.05).

4.4 Hypothesis Examination

To evaluate and test Hypothesis 1 the mean scores of the price-quality relationship variable of the products (depicted in Table 2) were compared to the mean scores found in Lichtenstein & Burton (1989). Lichtenstein & Burton, however, used different and, arguably, more relevant products to his sample and the time the study was conducted in (i.e. stereo receiver, VCR, clock radio etc.). Therefore the mean of durables and non-durables were computed. Lichtenstein & Burton (1989) used the same method for the price-perceived quality relationship as the PQR variable used in this study. The durable’s mean in their study was 5.44 and durable’s mean was 4.17. This study’s mean scores of durables and non-durables computed to be 5.08 and 3.94 respectively, which shows a drop in the perception of the price- quality relationship and therefore agrees with the hypothesis.

H2: The price as an indicator for quality is more effective in durable than in non-durable goods.

(40)

40 Hypothesis 2 is also valid (see Table 7) since the correlation between perceived quality and price is positive as well as higher for durables. The correlation in non-durable goods is only significant in toothpaste. The data captured by the correlation analysis shows that a significant correlation at the 0.01 level is present in durables only and at the 0.05 level in toothpaste. This underlines the fact that the price-perceived quality relationship seems to be more effective in durable goods. However, it doesn’t explain the missing correlation in sneakers.

Hypothesis 3 and 4 were disregarded. In the correlation analysis already it was probable that extraversion would not moderate the effect due to no correlation with any of the main variables. The moderation analysis made it clearer that there is no significant moderation effect of extraversion in the relationship between price and perceived quality.

(41)

41

5. Discussion and conclusion

Below, the most evident findings are discussed, together with the implications of these findings with respect to the literature and management practice. Furthermore, the limitations regarding the conclusions of this study are outlined. Finally a number of suggestions for further research will be given.

5.1 Theoretical and managerial implications Extraversion on Price – Perceived Quality

The main purpose for this study was to evaluate the price- perceived quality relationship further and connect price as an indicator for quality to its extrinsic nature. Extrinsic and intrinsic attributes work differently as indicators for quality and are perceived differently by certain personalities (Gohary & Hanzaee, 2014). Nonetheless, this study showed that price does not act contrarily as an indicator for quality between people with various personalities in the extraversion trait. In other literature the extraversion trait did present compelling findings about differences as a consumer. The majority of studies of personalities, however, are aimed at the extraversion trait in relation to the work environment and capabilities. Significant differences of extraversion in terms of customer approaches were found. It is hard to figure out to what extent extroverts and introverts might perceive dissimilarities in terms of product attributes, specifically extrinsic and intrinsic cues, when they evaluate a product’s quality.

(42)

42 Price – Quality Relationship

The price perceived quality relationship seems to vary across individuals, markets and products to name a few. This study has added more significance to the concept and in what ways it varies. In Volckner and Hofmann’s (2007) meta analysis about this relationship, they have stated a trend of effectiveness towards non-durable goods compared to durable goods. Fast moving consumer good categories were more influenced by price as an indicator for quality. Nevertheless this study has contradicted those findings. Lichtenstein & Burton (1989) as well as Boyle & Lathrop (2009) show a resemblance to this study. They have also found that durable goods are more prone to the price- perceived quality relationship. Lichtenstein & Burton could not differentiate if the effect was merely a price level variance in product categories since durables typically cost more than durables and therefore a higher price in the categories might have been the deciding factor of price being a more effective indicator or if the durable goods category itself was more influencing. Due to the fact that the sneakers and the vacuum of this study had similar price levels but vacuums presented a higher price- quality relationship it can be argued that the durable goods category has a higher need to use price as an indicator. These findings build a huge managerial value. Price setting for businesses that offer durables is more important for quality evaluation increases. Higher perceived quality in turn also increases the likelihood to buy (Zeithaml, 1988). This study supports the indication of durability being related to quality.

The effectiveness of the relationship in general has decreased. Therefore this study supports the findings in Volckner and Hofmann (2007) as that price as an indicator for quality is becoming less effective. Therefore, from the managerial perspective, businesses need to choose if they should invest in price optimization rather than brand awareness campaigns or

(43)

43 other measures to influence and even increase extrinsic cues that might lead to a higher quality perception.

This study supports Zeithaml’s (1988) claim that durability is an important factor in the construct for measuring quality in durable goods. It has been shown for both vacuums and bicycles. The correlation between durability and quality in sneakers, however, presents insight that some non-durables also have durability as a quality predictor. Products that are not used or consumed instantly will be judged by durability. This entails that products are supposed to be more sustainable in this time.

As mentioned before, Janakiraman et al (2006) states that many extrinsic factors influence the evaluation of products (i.e. brand name, brand name, store name, country of origin). Have more established brand names outgrown the importance of price in product categories? In the following chapter of limitations, a more elaborative analysis will explain the implications of other factors that might have limited this study.

5.2 Limitations

Some limitations arise in the methodology of the study. Cross-sectional data may be of risk to low internal validity. Even though volunteer sampling as well as convenience sampling can reach respondents in a short amount of time and therefore stimulate more quantifiable data, it also is subject to decreasing the generalizability of the results. Additionally, questionnaires are always subject to common method biases and dishonesty or sometimes even errors out of carelessness or disinterest. Therefore emphasizing on the reliability in anonymity and asking for truthfulness in the answers given before starting the questionnaire has hopefully reduced the probability. The acquired sample was above average in terms of education, below average

(44)

44 in age, monthly income but relatively equal to the population in gender division. These implications might also result in a non-generable outcome.

The product number used in this study was relatively low compared to other studies. With two durables and two non-durables it is hard to quantify and generalize the results to all durable and non-durable goods. The name and picture enclosed in the survey did show the brand name, which might have led to a weaker overall effect of price on quality. A good example might be the sneakers, where Reebok as a brand might have been very familiar and therefore the quality evaluations got more influenced by brand rather than by the manipulated price. This would explain the non-significant correlation effect in the sneaker category. Also the description might have influenced the respondents in case of the Reebok sneakers. Leather material was described in the text, and leather is considered to be luxurious, hence can be related to quality.

5.3 Further Research

Additional research about the extraversion personality trait in consideration of purchasing behavior and product evaluation differences should be done to be able to test personality better in the retail setting. The price- perceived quality relationship does not show any correlation with extraversion. Therefore, further research can be done by testing the remaining personality dimensions on the relationship. Personality in the product evaluation setting is an interesting subject to continue research in due to the fact that various personalities show so many dissimilarities when shopping. Further research should be done on the price– quality relationship itself. Other products might be supported differently when considering the price. Also other types of ownership, for instance rental products, can be

(45)

45 considered for further research to see if the price is of importance for indicating quality. Durability and quality do correlate and interact in some way even across product categories. Here an implication for further research lays how to generalize quality measures in non-durables and if there is a measure to do so.

(46)

46

6. Appendix

Appendix 1: Example survey layout for product (here toothpaste low price category)

Sensodyne® Extra Fresh

Sensodyne® Extra Fresh toothpaste builds a protective layer over the sensitive areas of your teeth for lasting sensitivity protection* – and gives you all the oral care benefits you need in one complete toothpaste. Sensodyne® Extra Fresh toothpaste also strengthens and re-hardens your enamel, protects against plaque, maintains healthy gums and helps you restore your teeth’s natural whiteness*. Its extra fresh taste leaves a clean feeling in your mouth.

Retail Price: 0.75 €

How would you rate the following: Q15 The toothpaste appears to be of: m Very good quality (7)

m moderately good quality (6) m Slightly good quality (5)

m Neither good nor poor quality (4) m Slightly poor quality (3)

m Moderately poor Quality (2) m Very poor quality (1)

(47)

47 Q16 Generally, toothpaste is important to me.

m Strongly agree (7) m Agree (6)

m Somewhat agree (5)

m Neither agree nor disagree (4) m Somewhat disagree (3) m Disagree (2)

m Strongly disagree (1)

Q17 I think the price of the toothpaste is: m Very high (5)

m Somewhat high (4) m Neither high nor low (3) m Somewhat low (2) m Very low (1)

Q18 For toothpastes, the higher the price of the product, the higher its quality is. m Strongly agree (7)

m Agree (6)

m Somewhat agree (5)

m Neither agree nor disagree (4) m Somewhat disagree (3) m Disagree (2)

m Strongly disagree (1)

Note: Description, name and picture taken from the official website:

(48)

48 Appendix 2: Product information (sneakers, vacuum, bicycle)

Sneakers: Reebok’s Club C85

Vacuum: The Moonlight Canister

Bicycle: Hollandbikeshop's Dutch Bike

You hear it all the way in this new version of our classic Club C shoe. The upper of soft leather provides superior support and quality. Midsole provides cushioning with every step and the timeless Reebok logo window gives him a casual yet elegant style.

The Moonlight cleans as serenly as it's name. It's compact in size but rivals and cleaning power of many full size canisters. With HEPA media filtration and a deluxe dusting brush with generous natural bristles, the Riccar Moonlight won't disappoint.

This Dutch Bike has 28 1 ½ tires and a curved top tube from the seat tube and head tube. This provides a low instep and a high headset and thus the handlebar is extra high. This lets you sit upright on this Dutch Bike. Because this bike is very stable you can cycle with your hand loose from the handlebar. And it is the ideal means of transportation.

Description, name and picture taken from: http://www.reebok.com/us /club-c-85/AR0454.html

Description, name and picture taken from:

http://riccar.com/moonlight-canister-vacuum-cleaner

Description, name, and picture taken from:

https://en.hollandbikeshop.co m/children-s-bicycle/low- priced-dutch- bike/hollandbikeshop-com- dutch-bike-57-cm-brake-hub-black/ Appendix 3: Demographics of Sample:

(49)

49 Gender.

Frequency Percent Valid Percent

Cumulative Percent Valid Male 91 41.9 41.9 41.9 Female 126 58.1 58.1 100.0 Total 217 100.0 100.0 Age.

Frequency Percent Valid Percent

Cumulative Percent Valid 17 1 .5 .5 .5 18 2 .9 .9 1.4 19 1 .5 .5 1.8 20 5 2.3 2.3 4.1 21 15 6.9 6.9 11.1 22 24 11.1 11.1 22.1 23 33 15.2 15.2 37.3 24 48 22.1 22.1 59.4 25 33 15.2 15.2 74.7 26 18 8.3 8.3 82.9 27 14 6.5 6.5 89.4 28 11 5.1 5.1 94.5

The impact of extraversion on the price - perceived quality relationship