Perceived Exploitation in Quality Discrimination

Firms often produce similar products at different price levels as a way to appeal to different consumer segments. One such production method—downward quality discrimination— involves a firm decreasing certain features of a product that they produce and selling that product with decreased features as a cheaper, standalone product. For example, the (less expensive) GoPro Hero 2018 consists of the same hardware as the (more expensive) GoPro Hero 5, but includes firmware that limits the quality of the camera. Nine experiments demonstrate that consumers find it unacceptable for a firm to decrease a product’s quality and sell it at a lower price. Experiments 1a-3 establish this effect for consumer judgment and choice, while also ruling out alternative artifactual (e.g., participant inattention) and psychological (e.g., failure to consider the benefits of downward quality discrimination) explanations. Experiments 4a-4c provide complementary and convergent evidence that the effect is driven by the perception that a firm that intentionally decreases a product’s quality is attempting to take advantage of consumers. A final experiment offers a practical insight for marketing managers: how consumers’ disapproval of downward quality discrimination can manifest in consumers’ engagement in negative word-of-mouth (WOM) about a firm.