How investors perceive brand quality

One of the main implications of the paper “The impact of brand quality in shareholder wealth” is that investors view unanticipated increases in brand quality less favorably if accompanied by decreases in current-period earnings because it is a signal that a firm does not have the resources to maintain and enhance its brand quality. This argument is questionable because most consumers vary on the use of price and brand name when evaluating the various dimensions of quality, as stated in the paper “Price and brand name as indicators of quality dimensions for consumer durables”.  For instance, when assessing a product for which performance is an important dimension to people the correlation between price and perceived quality is not strong. So, consumers have high perceived brand quality but it doesn’t pay off with the same extent in the price they are prone to pay. In other words, people perceive high the quality of the product but the company cannot exert high price of them. However, the firm maintains a high quality and has the resources to maintain it which contradicts the point of view of investors in this situation, who view it less favorably. This fact proves that investors are wrong in this case, because they look at quality form an overall standpoint and not considering the multi dimensions it has.

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