Quality Tier Competition: How Price Change Influences Brand Choice and Category Choice

Abstract

The authors demonstrate that competition among brands in different quality tiers can be asymmetric both in brand choice (“what”) and in category choice (“whether”). They also investigate how competition among quality tiers is affected by the direction of price changes (increase or decrease). Empirical findings from four scanner panel data sets consistently show that with price reduction, high-quality brands gain more than do low-quality brands both in “what” and “whether” decisions. Furthermore, high-quality brands are less vulnerable to losses when prices are increased. The authors conclude with implications for understanding quality tier competition and developing price promotional strategies.