An extensive research study comparing objective quality to perceived quality on multiple products across multiple categories.

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Debanjan Mitra, Peter N. Golder
2006
How Does Objective Quality Affect Perceived Quality?
Short-Term Effects, Long-Term Effects, and Asymmetries
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The Authors
Debanjan Mitra
Assistant Professor of Marketing
University of Florida’s
Warrington College of Business,
PhD, Marketing
New York University
Peter N. Golder
Professor of Marketing
Dartmouth University’s
Tuck School of Business
PhD, Business Administration (Marketing)
University of Southern California

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Purpose of the Study
While quality might be the most important factor underlying the long-term success of
products and firms, it is now well established that it is the customer’s perception of
quality rather than quality itself which drives preferences and consequently satisfaction,
loyalty, sales, and profitability (Aaker and Jacobson, 1994; Anderson and Sullivan, 1993; Anderson,
Fornell, and Lehman, 1994; Bolton and Drew, 1991b; Rust et al., 1995; Zeithaml, 1988). Further, while
“numerous anecdotes suggest that customer perceptions of quality do not reflect
objective quality,” other researchers do believe that customer perceptions of quality
respond to changes in quality, albeit slowly (Bolton and Drew, 1991a). Researchers have
asked for more longitudinal studies examining the long-term
aspects of the business environment (Aaker and Day, 1986; Golder,
2000; MSI Research Priorities, 2002-2004). However, the few
longitudinal studies which examine quality considerations
tend to focus on short-term effects or are based on single
company or experimental data rather than large sample
studies addressing the effects of quality, the duration of those
effects, and how they change by product and category level
characteristics. Since it is critically important as it is for
managers to understand those effects, the authors address
that gap.

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Purpose of the Study
As such, the authors address the following five primary areas:
 What is the relationship between quality and customer perceptions of quality over
time?
 What are the sizes and durations of short-term and long-term effects for increases
and decreases in quality on customer perceptions of quality?
 Are the sizes and durations of these effects different for high-reputation products and
lower-reputation products?
 Are there asymmetries between increases and
decreases in quality, or on their effects with high-
reputation versus lower-reputation products?
 What are the roles of other category-specific variables
on the relationship between quality and customer
perceptions of quality?

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Research Landscape of the Study
Definitional Rubric
The authors are providing the following key terms in the Study:
 Objective Quality: The aggregate performance of all vector
product attributes (Curry and Riesz, 1988; Lichtenstein and Burton,
1989; Riesz, 1978; Tellis, 1989).
 Perceived Quality: The overall subjective judgment of quality relative to the
expectation of quality (Zeithaml, 1988; Dodds et al., 1991; Boulding et al., 1993; Johnson et al.,
1995).
 Contemporaneous Effect: The impact of objective quality on perceived quality in
the current time period (the same year, in this Study) (Boulding et al., 1993; 2000; Bolton
and Drew, 1991b; Kamakura et al., 2002).
 Short-Term Effect: The impact of objective quality on perceived quality in the
current and subsequent time period (the same year plus one year later, in this
Study)
 Short-Term Carryover: The difference between the short-term effect and the
contemporaneous effect (Bolton and Drew, 1991a; Boulding et al., 1993; 2000).

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Research Landscape of the Study
 Long-Term Effect: The cumulative effect of objective quality on perceived quality
over an infinite time horizon
 Long-Term Carryover: The difference between the long-term effect and the short-
term effect (Prabhu and Tellis, 2000)
 Carryover Duration: The time needed to reach a pre-specified percentage of the
long-term effect (Clarke, 1976; Mela et al., 1997)
 Quality Variance of a Product Category: The average variance of objective quality
across all the products in the category (over time)
 Search Cost: The interaction between category level, average price and a dummy
variable which is zero (0) for unpacked goods that can be experienced and
evaluated prior to buying at no cost and one (1) otherwise
 Purchase Frequency: The frequency of purchases on an ordinal scale: once every
five or more years, once every two to five years, once every one to two years, once
a year, once a month, and weekly or more frequently.

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Conceptual Framework of the Study
The authors’ conceptual model builds on the marketing literature where perceived
quality is determined primarily by objective quality as well as prior expectations of
quality (Boulding et al., 1993, 1999; Olshavsky and Miller, 1972; Parasuraman et al. 1985). With
this dynamic framework, there is a direct contemporaneous link between the two as
well as an indirect link based on updated expectations of quality (Bolton and Lemon, 1999;
Boulding et al., 1993, 1999; Nerlove, 1958). Those updated expectations of quality tend to
occur slowly by virtue of the uncertainty about objective quality as well as the
cognitive effort required to update those expectations (Akerlof 1970; Johnson et al., 1995;
Camerer, 1992; Lucas, 1986) .

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Hypotheses
H1a: There is a significant positive contemporaneous effect of objective quality on
perceived quality.
H1b: There is a significant positive short-term carryover of objective quality on
perceived quality.
H2a: There is a significant long-term carryover of objective quality on perceived
quality.
H2b: The long-term carryover of quality is larger than the short-term effect of quality
on customer perceptions of quality.
H3a: The short-term effect of objective quality on perceived quality is larger for a
decrease in quality than for an equivalent increase.
H3b: The long-term carryover of objective quality on perceived quality is larger for a
decrease in quality than for an equivalent increase.
H4b: The long-term carryover of an increase in objective quality is smaller for high-
reputation brands than for low-reputation brands.
H5b: The long-term carryover of a decrease in objective quality is larger for high-
reputation brands than for low-reputation brands.
Laurence J. Pino

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Data and Methodology
The authors were interested in conducting a longitudinal Study on both objective
quality as well as perceived quality on multiple products across multiple categories.
Therefore, they were required to collect data from multiple sources.

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Data and Methodology
 Data on objective quality came from Consumer Reports, which provided data on
53 products categories that were tested four or more times between 1989 and
2000 with 20 of those product categories tested eight or more times during that
same period. Consumer Reports had been commonly used in academic literature
(Tellis and Wernerfelt, 1987; Caves and Green, 1996; Curry and Riesz, 1988).
 Data relevant to perceived quality came from Equitrends data provided by Total
Research Corporation (TRC) which includes data on 280 products between 1989
and 1994 and 1,000 products between 1995 and 2000. TRC data have been used
in previous research (Aaker and Jacobson, 1994; Helloffs and Jacobson, 1999).
 Price data came from Consumer Reports.
 Advertising data came from Leading National Advertisers.
 Average market share data came from Market Share Reporter.
 Data on high-reputation brand products came from Business Week rankings from
which the authors extracted 52 “high-reputation brand” products.
In short, the data provided a time series evaluation of 241 products in 46 product
categories for periods ranging from six to twelve years through 1,926 observations
on objective quality, perceived quality and other important variables.

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Results
Table 1 from the Study, reproduced below, identified descriptive data as a point of
comparison with previous research.
 Results associated with the correlation between objective quality and price were
similar to prior studies (Morris and Bronson, 1969; Oxenfeldt, 1950; Riesz, 1978; Sproles 1977).

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Results
 The data supported the existence of what
has been described in prior literature as a
“price-quality schema” (Peterson and Wilson
1985; Rao and Monroe 1988).
 In addition, the correlation between
objective quality and perceived quality is
similar to earlier studies (Bolton and Drew
1991a; Lichtenstein and Burton 1989).
 While prior literature suggested that quality
is a constant over time, the data suggested
otherwise. In the first instance, pairing
objective quality in the first and last years
shows the change is significant. In the
second instance, the variance of objective
quality is significantly higher than the
variance in perceived quality. The results
associated with the time dimensions of the
Study are set out in the following table.

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Results
 In addition to the results in the data, and specific to the issue of the importance
of understanding quality and the length of the carryover duration, Table 5 sets
out quality carryover for the “average” product in 13 different product
categories.

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Results

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Results
In all three estimations, contemporaneous effects, short-term effects, and long-term
effects are found to be statistically significant, supporting Hypothesis 1a, 1b and 2a.
In addition, to the extent that the size of the long-term carryover is greater than the
size of the short-term effects, Hypothesis 2b was supported.
With respect to the results associated with increases and decreases in quality as well
as the effects of brand reputation and the role of price and category characteristics,
the following table sets out the statistical effects.

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Results

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Summary of Data
 As a result of the data set out in Tables 3 and 4, the following: A relative decrease in
quality has a larger short-term effect than a relative increase in quality (β12),
supporting Hypothesis 3a. The effect of a long-term carryover of a decrease in
quality is not significant; therefore, Hypothesis 3b is unsupported.
 With respect to brand reputation, the authors found a significant positive short-term
effect for high-reputation products (β22), thus supporting Hypothesis 4a; and the
long-term carryover was significantly smaller for high-reputation brands that were
increasing in quality supporting Hypothesis 4b.

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Summary of Data
 For decreasing quality, the short-term effect for high-reputation products was not
significant; therefore, Hypothesis 5a (β32) was not supported; however, the long-
term carryover was marginally larger for high-reputation brands that were increasing
in quality, therefore supporting Hypothesis 5b.
 Lower priced products had significantly larger short-term effects, particularly when
quality was increasing (β42) for product categories with high-quality variance, the
short-term effects are significant larger (η102). For more frequently purchased
product categories, the long-term carryover was significantly smaller (η201).

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Implications & Conclusions
The Study represented a substantial longitudinal
evaluation based on extensive data collection of
241 products in 46 product categories over a 12-
year period of time providing specific (and
useful) findings.
 The long-term carryover effect of quality on
customer perceptions of quality are twice the
short-term effect and five times the
contemporaneous effect, ranging in duration
from five to seven years.
 A decrease in quality has a longer short-term and long-term effect and is more
quickly perceived than an increase in quality.
 High-reputation brands do enjoy a halo effect providing that an increase in quality is
larger and the long-term carryover is smaller relative to lower reputation products;
on the other hand, for a decrease in quality, there are no significant differences in
the short-term, although the long-term carryover is larger for higher reputation
products.

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Implications & Conclusions
 Customers might be delayed for reasons indicated in the Study with respect to
perceptions of quality, but they do learn over time and their perceptions of quality
modify based on that learning.
 While there is a question as to whether any company can sustain a competitive
advantage in a fast-changing world (Barney, 1991; D’Aveni, 1994; Lippman and Rumelt, 1982;
Wernerfelt, 1984), a managerial commitment to improved quality recognizing that
asymmetry and lags in customer perceptions of quality can operate to a company’s
advantage.