The Value of Quality

Authors:
Gerard J. Tellis;Joseph Johnson
Affiliations:
The Marshall School of Business, MC 0443, University of Southern California, Los Angeles, California 90089-0443;508 Kosar Epstein Building, Coral Gables, Florida 33146
Venue:
Marketing Science
Year:
2007

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Abstract

Product quality is probably undervalued by firms because there is little consensus about appropriate measures and methods to research quality. We suggest that published ratings of a product's quality are a valid source of quality information with important strategic and financial impact. We test this thesis by an event analysis of abnormal returns to stock prices of firms whose new products are evaluated in The Wall Street Journal. Quality has a strong immediate effect on abnormal returns, which is substantially higher than that for other marketing events assessed in prior studies. Moreover, there are some important asymmetries in the effect. We discuss the research, managerial, investing, and policy implications.