Price Signaling: Does it Ever Work?

Examines the phenomenon of “price signalling”, whereby consumer goods manufacturers attempt to signal higher quality via a higher price when objective product quality is, in fact, not demonstrably superior. A study of two similar facial moisturizers showed that higher price alone did not succeed in signalling higher quality, but that higher price accompanied by premium‐quality signals in the other elements of the marketing mix (advertising, packaging, in‐store location) does succeed. To put it more generally, a “premium pricing strategy” cannot be successful if price is the only marketing variable emphasized. Brand managers should therefore think in terms of a “premium quality positioning” that requires the application of quality cues across the marketing mix.