Modeling price-related consequences of the brand origin cue: An empirical examination of the automobile market
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Modeling price-related consequences of the brand origin cue: An empirical examination of the automobile market Charalampos Saridakis & George Baltas
# Springer Science+Business Media New York 2014
Abstract Price-related consequences of the country-of-origin (COO) cue have been widely neglected in the literature. This paper applies hedonic price analysis to examine a brand’s COO effect on new car prices. The application of our models to an extensive dataset demonstrates that prices of new cars reflect not only implicit prices of performance and technological characteristics but also price distortions that arise out of COO heterogeneity. Moreover, by allowing model parameters to vary across car type segments, we are able to capture patterns of differential attribute and COO effects on prices, which are indicative of implicit price discrimination strategies. The paper provides new interesting insights into critical issues for pricing strategy and demonstrates the role of brand origin, segments, and observed product differences in the price structure of the automobile market. Our findings yield important implications for manufacturers and researchers. Keywords Country-of-origin . Pricing . Car market . Price premiums . Hedonic price analysis
1 Introduction Various studies have applied hedonic price modeling to show that price variation among new cars can be explained by differences in key product characteristics such as horsepower, engine capacity, speed, and safety features (e.g., Andersson 2005; Reis and Santos Silva 2006). Such measurable attributes however may not be the only explanatory factors. One of the most widely examined topics in international marketing is whether the origin of a product or a brand makes them more or less preferable to C. Saridakis (*) Leeds University Business School, University of Leeds, Maurice Keyworth Building, Leeds LS2 9JT, UK e-mail: [email protected] G. Baltas Department of Marketing & Communication, Athens University of Economics and Business, 76 Patission Avenue, 10434 Athens, Greece
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consumers. It has been suggested that country-of-origin (COO) serves as an extrinsic informational cue for consumers’ perceptions and evaluations of a product (Verlegh and Steenkamp 1999). A brand’s or a product’s COO acts as a signal of product quality, influences consumers’ perceptions of risk and value, and directly affects the likelihood of purchase (see e.g., Jaffe and Nebenzahl 2006; Phau and Chao 2008). In the car market, consumer choice is very wide. In Europe, there are about 50 brands which originate from 12 countries. Even a casual look at the car market reveals that prices differ in a systematic fashion among car models based on their brand’s origin. This pattern may suggest implicit price premiums that are largely independent of technical characteristics and derive from unmeasured heterogeneity (Baltas and Saridakis 2010). Therefore, the natural question is whether and, if so, how heterogeneity among brand origins determines different prices for otherwise equivalent
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