The universality of the signal theory for products and services

Abstract

The effect of price and warranty information, acting together, on Chinese consumers' perceptions of product quality is the primary focus of this study. Specific theories, such as the price-quality relationship and signal theory, are tested by using a structural equations model. A set of hypotheses is developed specifically for Chinese consumers, based on these theories and Chinese cultural values; one model is developed for a consumer durable and another for a service category. The models are calibrated on two different samples of respondents in Guangzhou, China. Relationships between the model constructs are compared across consumer durable and service models. We find a difference in the way warranty information acts as a signal of quality for the service but not for the durable. We believe that, because we used a Chinese sample, this finding is hard evidence of the applicability of signal theory to service categories. Chinese consumers are different from westerners in their use of the price cue - there is no evidence of a price-quality relationship but price appears to have a pure allocation role - it affects risk perception, and has an indirect effect on purchase intention. The implications of the findings for marketing strategy in China are discussed.