In this article, we examine how consumers assess product quality when confronted with multiple cues. Based on cue diagnosticity, a conceptual framework is developed that differentiates between cue types and suggests that the diagnosticity of some cue types depends on the valence of other cue types in the environment. The cue diagnosticity framework is then used to assess the effects of manufacturer reputation, retailer reputation, and product warranty on consumer perceptions of product quality. Consistent with the conceptual framework, we find in 2 studies that warranty is not used in judgments of product quality when a manufacturer with a poor reputation sells directly to consumers or sells through a retailer with a poor reputation. However, when the same manufacturer sells through a reputed retailer, then the warranty is used in making quality evaluations. The results not only support the conceptual framework, but also highlight the important role that the retailer plays in assessments of product quality. The implications ofthe fmdings are discussed along with directions for future research.

This paper analyzes the problems associated with marketing a durable through leases and sales. Academic research in this area has argued that in a monopolistic environment, leasing dominates selling. Hence, leasing and selling should not co-exist and the firm should concentrate its efforts solely on leasing. We show that the relative profitability of leasing and selling hinges on the rates at which leased and sold units depreciate. In particular, we find that leasing does not dominate selling in all cases; if sold units depreciate at a significantly higher rate than leased units, a monopolistic firm is better off by only selling its product. In addition, we find that if leaded and sold products depreciate at different rates, then the optimal strategy for the firm involves a combination of both leasing and selling. We conclude the paper with an empirical analysis of the depreciation rates of leased and sold units of a popular car model. We find that the depreciation rate of leased cars has been significantly lower than the depreciation rate of sold cars.Leasing, Selling, Durable Goods, Automobiles

The issue of product obsolescence is addressed by examining the optimal sales strategy of a monopolist firm that may introduce an improved version of its current product. Consumers' expectations of a forthcoming product lowers the price that they are willing to pay for the current product because of its loss in value due to obsolescence. The new product is characterized by consumers' increased willingness to pay and by its competitive interaction with the old product. These characteristics affect the tradeoff that the firm makes between the cost of waiting for new product sales versus the cost of cannibalizing these sales. We analyze the effect of these characteristics of the new product on the firm's optimal sales strategy. We consider the various policy measures available to the firm, including limiting initial sales in order to lower cannibalization of the new product, buying back the earlier version of the product in order to generate greater demand for the new product, and announcements of future product introductions. We find that, for modest levels of product improvement, the firm's optimal policy is to phase out sales of the old product, while for large improvements a buy-back policy is more profitable. Lastly we find that the firm is better off if it informs consumers whether a new product is forthcoming.durable goods, product obsolescence, buy-backs, cannibalization

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In marketing durable goods, manufacturers use varying degrees of leasing and selling to consumers, e.g., cars, photo-copiers, personal computers, airplanes, etc. The question that this raises is whether the distinction between leases and sales is simply one of price, or whether the proportion of leases and sales effects a firm's ability to compete in the market. In this paper we use two approaches to argue that leasing and selling create strategic consequences that extend beyond prices. First, we develop a stylized theoretical model that shows that the optimal proportion of leases and sales depends on the competitiveness of the market and on the inherent reliability of the firm's product. And second, we find support for the implications of our theoretical model with data from the automobile industry. The U.S. automobile industry has seen a large increase in leasing over the last five years. However, the extent to which leasing has been embraced varies widely across manufacturers. For example, in 1993 the sport utility segment had the following lease percentages: Ford Explorer, 29%; Jeep Grand Cherokee, 24%; Toyota 4-Runner, 11%; and Chevrolet Blazer, 9%. In addition, manufacturers often vary lease percentages across models. For example, in 1993 Ford leased 22% of its Crown Victoria model, 35% of its Taurus model, and 42% of its Probe model. A popular argument for why we see these differences is that higher priced cars are leased more often because leasing makes them more “affordable.” However, this rationale is not compelling in the face of our data. For example, the Ford Probe was priced significantly lower than the Crown Victoria and yet it was leased almost twice as often. To develop a better understanding of why we observe differences in the proportion of leasing, we develop a two-period model of a duopoly in which each manufacturer chooses its optimal quantity and the fraction of units it wants to lease. We find that in equilibrium neither firm leases all its units—either they use a mix of leasing and selling or they use only selling. Our analysis suggests that the fraction of leased cars decreases as the manufacturers' products become more similar and the competition between them increases. The intuition for this result is that a higher fraction of leases puts the firm at a competitive disadvantage in the future. This occurs because, unlike firms that sell their product, firms that lease are at a price disadvantage. Another important finding in this paper is that the extent of leasing chosen by a manufacturer depends on the reliability of its product. In particular, all else being equal, the lower a product's reliability, the lower its proportion of leases. Within the context of the automobile industry, this suggests that more expensive cars may be leased more often because they are of higher quality and not necessarily because they are more expensive. Finally, we test the implications of our theoretical model with data from the U.S. automobile market. In particular, for 1993 model year cars, we develop a m...