According to the quality signaling theory, firms are motivated to invest more advertising in high-quality products. This paper conducts an experiment through a closed-ended double-bounded dichotomous choice of the contingent valuation method to measure consumer willingness-to-pay for a fictitious cell phone market of varying quality before and after advertising. The results show that advertising effectively influences consumer awareness of perceived quality and enhance their WTP. The results also suggest that even though the high- and low-quality products differ in the investment of advertising, the effect of advertising on the increase in consumer WTP for low-quality products as well as for high-quality products.
Numerous studies have suggested that firms are motivated to influence consumer perceived value by advertising because of the asymmetric information between seller and buyer. Therefore, advertising can enhance consumer perceived quality and alter their willingness-to-pay (WTP), creating a positive relationship between perceived quality and WTP ( Kirmani and Rao, 2000 and Kirmani and Wright, 1989; Zeithaml, 1988).1 Perceived quality is the overall subjective judgment of quality relative to the expectation of quality. These expectations are based on personal experiences, in addition to various other sources including brand reputation, price, and advertising ( Boulding and Kirmani, 1993 and Dodds et al., 1991; Zeithaml, 1988).
Theoretically, researchers indicate that firms with high quality are willing to invest more into advertising for greater returns over time. They emphasize advertising as the signal of firms to convey quality ( Fluet and Garella, 2002 and Nelson, 1974), also known as quality signaling theory.2 In contrast to perceived quality, the quality referred to here is objective quality. Objective quality is the aggregate performance of all vector product attributes (Kopalle & Lehmann, 1995). For example, the objective quality of a personal computer includes processing speed, hard disk capacity, reliability, battery, graphics, and WebCam. In this paper, objective quality and quality are synonymous.3
This paper addresses whether advertising of high-quality and low-quality product influence consumer WTP differently when it takes the advertising effect of quality signaling into account. In other words, when firms invest in different types of advertising for high- and low-quality products, does consumer WTP for high- and low-quality products change in the same or not? Specifically, firms are motivated to invest more advertising in high-quality products. When advertising influences consumer perception of product quality, the advertising affect should differ according to varying product qualities; the change in consumer WTP for products after advertising differs according to varying product quality. Thus, besides probing the influence of advertising on consumer WTP, this paper also considers the different advertising effects of product quality.
Due to the asymmetric information, advertising has been one of the measures for firms to convey product information to consumers. According to the theory of quality signaling, firms invest more advertising in high-quality products. If advertising can change consumer perception of product quality and further influence their WTP, do the advertising effects of high and low-quality products differ? This paper treats a fictitious market of camera cell phone as the target, and conducts the experiment using a questionnaire survey through the closed-ended double-bounded dichotomous choice of the CV method to measure and compare consumer WTP for high and low-quality cell phones before and after advertising. This paper first designs a high and low-quality cell phone and provides two different types of advertising. The advertising content of high-quality products is better than that for low-quality products in product information, pictures, color, and pages. Valid samples collected by internet total 500.
The result suggests that regardless of product quality, advertising can effectively influence the perception of consumer product quality and increase their WTP. Advertising influences consumer WTP differently regarding different types of product quality; after advertising, the percentage increase in consumer WTP for low-quality products is higher than for high-quality products. Income is also a critical factor affecting consumer WTP. The finding indicates that consumers with higher income have higher WTP. However, consumers’ marginal WTP effect of income for high-quality products is lower than for low-quality products. This paper also reveals significant gender influences on WTP. Before and after advertising, male WTP is higher than for females for low or high-quality cell phones. However, after advertising, the percentage increase in female WTP is higher than for males.
