How to assure low price and high quality in supplier selection

What is it about?

When contractors choose suppliers to a construction project, price often is the dominant selection criterion. Yet, choosing the lowest price option can be costly because low price suppliers have incentives to provide low quality during service delivery. Suppliers, on their side, face a similar problem. High-quality sellers need to credibly distinguish themselves from low quality suppliers and make their price trustworthy. A conjoint experiment among 19 contractors is used to suggest solutions to the problems described.

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Why is it important?

One strategy for high-quality sellers in situations where quality is uncertain and difficult to assess is to invest in various signals to build a quality reputation. This study shows that although low price is generally important for supplier selection, the results indicate that quality- sensitive buyers are willing to pay a price premium when poor quality may cause economic losses. Furthermore, the combined effect of the reputation variables outweighs price. Still buyers are not willing to pay price premiums to suppliers with a quality reputation – a finding contradicting extant B2B brand equity literature. In fact, the findings suggest that reputation makes low prices more trustworthy.

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