396 Int. J. Product Development, Vol. 4, Nos. 3/4, 2007
Implications from cue utilisation theory
and signalling theory for firm reputation
and the marketing of new products
Roland Helm* and Antje Mark
Friedrich-Schiller-University Jena, Carl-
Zeiss-Str. 3, D-07743 Jena, Germany E-
mail: email@example.com E-
Abstract: The main research streams, which focus on Signals, signalling theory
and Cue utilisation theory, stress the importance of a producer's credibility or
reputation äs an important factor that determines a signal's potential to reduce
customer risk and to motivate customers to adopt a product. Earlier empirical
research has focused on the isolated effect of cues like price, guarantees,
advertising or reputation on perceptions of quality of new products rather than
on the impact of reputation on perceptions of other cues, such äs advertising
and bonding instruments, e.g. guarantees. This research focuses on the impact
of reputation on the effectiveness of various types of information and bonding
instruments, which are said to depend on the character of the instrument. The
major goal of this paper is to identify adequate strategies for an innovative
producer with low reputation to signal high quality credibility.
Keywords: cue utilisation theory; innovation; reputation; signalling.
Reference to this paper should be made äs follows: Helm, R. and Mark, A.
(2007) 'Implications from cue utilisation theory and signalling theory for firm
reputation and the marketing of new products', Int. J. Product Development,
Vol. 4, Nos. 3/4, pp.396-411.
Biographical notes: Prof. Dr Roland Helm has held the Unilever-Chair of
Marketing and Business Administration at Friedrich-Schiller-University Jena
(Germany), since 2000. Earlier he worked at Munich University of Technology
and at the University of Augsburg. He received a Diploma degree in Business
Administration from the University of Regensburg and European Business
Management School of the University of Wales and a PhD from the University
of Augsburg. He is the Chairman of the Board of Directors of a financial
Services firm. His research interests include consumer behaviour, preference
measurement, innovation managetnent, inter-firm cooperation and international
Antje Mark has been a Research Assistant at the Unilever-Chair of Marketing
and Business at the Friedrich-Schiller-University Jena (Germany), since 2001.
She received a Diploma degree in Business Administration from the same
University in 1997. Her research interests include consumer behaviour and
relationship marketing in e-commerce.
Copyright © 2007 Inderscience Enterprises Ltd.
Implications from cue utilisation theory andsignalling theory
Due to time, economic and mental capability limitations, it is almost impossible for a
customer to process all product Information available. This leads to a selection of various
quality Signals on the demand side, to enable the customer to evaluate the product
(Simon, 1981). Therefore, quality Signals can be considered äs instruments by which
suppliers can offer information to customers about the quality of their products.
Based on the cue utilisation theory, the following paper illustrates the impact of
Signals regarding the evaluation of products. In accordance with the theory, Signals have
an uncertainty reduction or a behaviour motivating effect, if the customer has little
uncertainty about the credibility of the signals' message (the supplier could, for instance,
Furthermore, comprehensive considerations of signal effect mechanisms, based on
micro-economic theories, such äs the signalling theory are necessary, because that
enables the often required extended reflection of the product evaluation on the basis of
Signals (Kaas, 1990; Albach, 1991; Hax, 1991). Based on the aspects of the second
approach, it can be argued that the insufficent information to the customer leads to
uncertainties regarding quality or performance of various product characteristics. These
uncertainties can be reduced by signals of information and guarantee and by the index
reputation, which is not alterable by the supplier in the short-term (according to Spence's
defmition (Spence, 1973). In the following case it will be demonstrated that depending on
the fundamental features of innovative (substitutive) objects, both signal mechanisms of
an information policy and especially guarantee policy, are suitable for diminishing
uncertainties. Besides, it is assumed that the customers' confidence in the producer's
performance has an important influence on the perception of product quality, especially
for an extremely difficult evaluation of products and innovations (Backhaus and Voeth,
Furthermore, it can be shown that the credibility of signal performance depends on
the customers' perceived reputation of the supplier (Herbig and Milewicz, 1993). This
shows that a supplier of innovations with a low reputation holds low credibility, thus
making effective signalling impossible. Particularly with regard to young technology
enterprises, customers show a high uncertainty and various forms of market resistance.
The conclusion is that due to their low-firm name recognition, these companies do not
have much reputation and have to deal with the problem of impregnable uncertainty
regarding their signals that are not supported by reality (Rao, Qu and Ruekert, 1999).
Thus, there should be quality signals for producers with low reputation, which seem
credible to the customer (Balachander, 2001).
The objective of this article is to derive a comprehensive signalling effect model,
which includes both product attributes relevant to the evaluation and the producer's
reputation. Based on this extensive signalling effect model, different signalling
mechanisms should be explained; the isolated analysis of a single signal without
considering the effect of reputation, might lead to distortion (Moonkyu and Yung-Chien,
1996). In reality, various instruments are used by the supplier, which can be defmed
according to the terms 'information' and 'guarantee', respectively but may show different
effects. Therefore, correspondingly, suitable signalling strategies for suppliers credibility
in different ways and also possibilities for implementing these rudimentary approaches
398 R. Helm and A. Mark
2 Theoretical reflections on the effects of quality Signals
2. l Research approaches and state ofthe art
Two essential areas of research deals with the effects of Signals: cue utilisation theory and
Within the scope of cue utilisation theory, Olson (1972) particularly concentrates his
research on the question of why the use of special signal mechanisms, or 'cues', is
preferred when a product is evaluated. Here, a differentiation can be made between
intrinsic and extrinsic cues. Intrinsic cues are part ofthe product itself, but not taken into
consideration in the following article. This approach is in accordance with the defmition
of Herbig/Milewicz (Herbig and Milewicz, 1996), where a true cue is defmed äs an 'easy
to acquire, extrinsic informal cue'. Olson (1972) additionally distinguishes between two
Parameters, which determine the cue usage: the predictive value and the confidence
value. Whereas the predictive value shows to what extent the consumer believes that the
cue can provide an indication of the product quality, so the predictive value of a cue
designates the signal capacity in terms of a signal potential, which results from the
possibility to reduce the uncertainty by the chosen cue. However, the confidence value of
a cue is considered to be a measure of signal credibility (Stich, 1997).
In this context, the predictive value exerts a direct effect, while the confidence value
has a moderating effect on the cue usage (Olson and Jacoby, 1972; Heimbach, Johansson
and MacLachlan, 1989). This effect is illustrated in Figure 1.
Figure l Relationship between predictive value and cue usage moderated by confidence value
The cue 'brand-label' can be used äs an example: its high predictive value is potentially
appropriate to affect the customer, i.e. to predict the quality of a product. The possibility
that the cue 'brand-label' in this case is not authentic and is indicated by the moderating
effect of the confidence value, which could for instance be the case if the market has to
deal with fakes. Consequently, the label is only effective if it is certain that the brand-
label on the product is authentic.
On the one hand, it can therefore be stated that a cue should have a sufficient signal
potential, i.e. strength of prediction, which most notably reflects the possibility to reduce
the customer's existing risks in quality and performance. On the other hand, it is essential
for the cues to be seen äs credible by the customer. Otherwise, even when there is a
signalling potential pursuant to the cue utilisation theory, they will not show any effect.
Therefore, higher relevance should be granted to the confidence value than to the
predictive value (Cox, 1967; Schellinck, 1983). If the confidence value of a cue is low,
the probability regarding the usage of the quality signal is also be relatively low -
independent of the level of the predictive value. However, if the confidence value is
Implications from cue utilisation theory and signalling theory
medium or high, the adequacy of the signal depends on the level of the predictive value
(Stich, 1997). The ultimate applicability of a quality signal can only be obtained if both
confidence value and predictive value are relatively high (Olson and Jacoby, 1972). This
relationship can be seen in Figure 2.
Figure 2 Interaction effect between predictive value and confidence value on signal
effect and impact
Besides, cue utilisation theory and signalling theory particularly deal with the effects of
Signals of product quality. Thereby, it is assumed that a decision made on the basis of
quality Signals is the result of faulty information, and hence the decision-making process
has to be regarded äs uncertain. According to this theory, uncertainties on the part of the
customer exist due to the opportunism scope of the supplier and because of asymmetrical
information allocation, which can be diminished by the supplier through appropriate
Signals such äs quality Signals or indices, to be precise (Spence, 1973); for the effects of
asymmetrical information allocation (Hartmann-Wendels, 1989; Spremann, 1990).
Quality Signals, such äs information and guarantees, are signal mechanisms that can
easily be manipulated by the supplier, whereas indices recognised by the customer, such
äs the producer's reputation, are 'Signals' which cannot be modified, at least in the short-
term (Spence, 1973). According to Kaas (Kaas, 1991), a purely information-economic
view, where information is simply transferred, seizes marketing points too
compendiously. The above-mentioned differentiation is in accordance with the defmition
of Herbig and Milewicz's reputation äs the evaluation of the temporal consistency of
attributes and/or promises (here a product or Service) by Herbig and Milewicz, 1993.
Therefore, reputation results from an aggregated view of all previous actions of the
supplier (Kreps and Wilson, 1982; Rogerson, 1983; Yoon, Guffey and Kijewski, 1993;
Herbig, Milewicz and Golden, 1994). There are several terms discussed in the literarure,
which are used synonymously for the term 'signaP, such äs 'information chunk',
'indicator', 'risk reliever' or 'cue'. For the purposes of this paper we use the terms
'signal' and 'cue', äs they are the preferred terms in their respective fields of research.
400 R. Helm and A. Mark
Information asymmetries and therefore customer uncertainty concerning the
characteristics of an Innovation, and supplier behaviour may be reduced by offering
information, guarantees and reputation (Spremann, 1988; Kaas, 1990).
In the following, information policy is defmed äs a reduction of information
differences between suppliers and customers with the help of Signals concerning the
quality of a product or Service - e.g. advertisements and reports. Guarantee policy
indicates the suppliers' commitment by ensuring guarantees, subsequent treatment,
product replacement in case of damage and the provision of other securities. The major
objective of a guarantee policy is the ex post compensation of the sustained loss of the
claimant. Reputation policy aims at establishing image and trustworthiness. The supplier
offers reputation äs a security to the customer because the customer can härm the
supplier's reputation in case of discontentment with the product or Service. In this
context, specific Instruments are difficult to distinguish from those of information policy
and guarantee policy. Actions to build reputation, such äs image promotion or usage of
reference customers can be assigned both to information and guarantee policy. The
reputation effect is similar to the information policy, because it also tends to avoid the
incidence of loss ex ante. Besides the insufficient classification of these respective
instruments, they are also not independent. In this Situation, particular attention should be
paid to possible interactions of a temporarily more stable reputation with instruments of
information and/or guarantee policy that can be used in the short-term. Some of these
instruments are particularly suitable to reduce customer uncertainty that depends on the
kind of information asymmetry, which implies a consideration of customers' assimilated
distorted perceptions of the instruments (Spence, 1973; Spremann, 1990; Tolle, 1994).
Due to the inconsistent terminology within these approaches, these instruments are
generally referred to äs signalling mechanisms. Thus, they indicate supplier activities that
are appropriate for reducing information asymmetry and the resulting customer risk.
The supplier should select suitable signals depending on the character of the product,
i.e. the product attributes relevant to the evaluation from the customer's point of view.
However, the customer is not always able to estimate the quality of these attributes with
certainty. Depending on the kind of information asymmetry, a differentiation can be
made between three categories of product attributes: search and experience attributes
(Nelson, 1970), and credence attributes (Darby and Karni, 1973). In accordance with this
classification, quality uncertainties concerning those three categories of product attributes
may occur at different moments and to a different extent for the customer, but can
potentially be diminished by the producer.
Search attributes like the colour or design of a flat screen can already be examined
before purchase. In order to reduce uncertainty with regard to search attributes of
products ex ante, it can be useful to offer relatively cost-effective information signals,
such äs advertisements or certificates (Stiglitz, 1989).
Experience attributes like the taste of an instant meal or functional efficiency of a
navigation System, on the other band, it can only be assessed after purchase. However,
the customer is unable to judge credence attributes either before or after purchase.
Credence characteristics are, for instance, technical details of an innovation, such äs air
bags, the Electronic Stability Programme (ESP) in a car, or the achievements of a
physician or structural engineer. Neither experience or credence attributes can be tested
before the contract is signed by the customer. In order to reduce uncertainty about these
attributes, the supplier must select a signal mechanism, which is also tangible for the
customer ex post, i.e. after purchase.
Implications from cue utilisaüon theory and signalling theory
Guarantees and reputation, both fulfil the requirement of supplier tangibility. In the
case of the former, the supplier promises the customer to answer for damages ex post
(Spremann, 1988; Murthy and Djamaludin, 2002). According to the existing reputation of
the supplier, there is of course the possibility of the customer destroying it in cases of loss
or damage. This instrument is considered to be very effective, since the customer can
assume that the loss of reputation is associated with high costs for the firm (Spremann,
1988; Kaas, 1990). Thus, a high-reputation can be seen äs a guarantee for future
efficiency, äs well äs the supplier's motivation to perform. Various researchers have
shown that high-reputation allows a firm to ask for higher prices (Milgrom and Roberts,
1986a), can prevent market failures (Ungern-Sternbeck and Weizsäcker, 1981), attracts
Investors, and also facilitates the access to fmancial markets (Beatty and Ritter, 1986;
Milgrom and Roberts, 1986b).
Contributions, based on signalling theory describe the effect of different signal
mechanisms with regard to the dominating product attributes [experience goods (Ungern-
Sternbeck and Weizsäcker, 1981; Conrad, 1985; Ringbeck, 1985) and credence goods
(Allen, 1984; Miller, 1988)]. However, individual arrangements of the signal-types
Information, guarantee and reputation cannot be examined on a general basis due to the
character of the underlying models. Publications, based on cue utilisation theory focus on
the explanation of using single cues [country of origin (Heimbach, Johansson and
MacLachlan, 1989; Stich, 1997) and certificates (Winkler, 2000; Bambauer, 2003). A
systematic analysis of the effects of different signal mechanisms depending on the
dominating product attributes has not yet been conducted.
The objective of the following is a representation of a general signal effect
mechanism, based on a differentiation between the cue's predictive and confidence
values. This allows for Statements regarding the relative effectiveness of different Signals
(information and guarantee), according to the proportion of search, experience and
credence attributes of the product examined and the supplier's reputation. The following
considerations are exemplified by technological innovations.
2.2 Predictive and confidence values ofvarious cues
According to the above, the predictive value of a cue is interpreted äs the potential of the
signal with which the supplier is able to reduce customer uncertainty. In compliance with
the economics of information theory, product attributes determine the applicable signal
and thus the accuracy of forecast and the predictive value of the cues.
On closer consideration, innovations are mainly characterised by experience and
credence attributes rather than search attributes (Pohl, 1996), due to the difficulty of
comparing advantages, and because of their lack of compatibility, higher complexity and
difficulties in testing and communicability (Rogers, 1983). This leads to the question of
signal mechanisms, which hold the highest potential of uncertainty reduction or
forecasting accuracy. All together, the combination of specific attributes of an innovation
(search, experience and credence attributes) determines the signals' predictive value. This
argument is recapitulated in Figure 3.
Nevertheless, the relatively small number of search characteristics include important
attributes like brand or price. For this reason, the relevance of information policy in the
case of innovations, and particularly in terms of advertisement, should not be
underestimated (Nelson, 1974; Ringbeck, 1985).
402 R. Helm and A. Mark
Figure 3 Influence of the product estimation attributes on the predictive value of the cues
Predictive value of a cue
Potential of uncertainty reduction of the Signal
PRODUCT ATTRIBUTES (Point of
time/Possibility to reduce uncertainties)
Due to the high-proportion of experience and credence attributes of innovations, it can be
assumed that suppliers should commit themselves beyond the offer of information to
offer the customer guarantees (quality Signals) and their reputation (index) äs securities
(Wieandt, 1994; Pohl, 1996). According to Wieandt (1994), a restricted issue of
guarantees in the case of innovations, makes little sense if it is too difficult to determine
the conditions of non-fulfilment of providing these Services. Furthermore, handling
customer errors also has to be taken into account. The consequence according to Wieandt
(1994) is that the reputation mechanism plays a fundamental role.
An exclusive offer of reputation to reduce quality uncertainties of innovations does
not seem to make sense, since these offers only provide the customer with a passive
compensation for any losses occumng, which intensifies the fall in reputation over time
and affects the general credibility of the firm äs a source of information (Herbig and
Milewicz, 1993). Hence, it is necessary to offer additional quality signals for establishing
the producer's reputation, whereby certain forms of guarantee could be suitable (Herbig
and Milewicz, 1993; Rößl, 1996; Price and Dawar, 2002).
Within the scope of signalling theory, it is pointed out that the credibility of a supplier
and his signals, finally evolve from his reputation (Herbig and Milewicz, 1993). Thereby,
it must be considered that the credibility of a sender is mainly determined by its latest
actions, whereas, the reputation emerged äs the sum of all its actions. Consequently, the
credibility of a signal can change rapidly in short-term, while the given reputation is
temporarily stable (Herbig, Milewicz and Golden, 1994). Therefore, the high- or low-
reputation of a producer is accompanied by a high- or low-credibility of his signals
(which corresponds to the confidence value of the cue utilisation theory), which finally
affects the effectiveness of the signal.
Within the scope of economics of information, the effect of information and
guarantees were analysed simultaneously with the effect of reputation. Thereby, it was
related to the possibility of interdependences between reputation and other signals
(Herbig, Milewicz and Golden, 1994; Tolle, 1994; AlNajjar, 1995; Price and Dawar,
2002). A possible explanation for this influence can be derived from the consideration of
the signal äs a commodity, which is evaluated by the customer. Similarly, the customer is
uncertain concerning the signal, in terms of signal validity. For this reason, the supplier is
Implications from cue utilisation iheory and signalling theory
merely able to reduce uncertainty regarding the validity of the Information signal (äs
credence good) by offering his reputation. This perception has to be transferred
analogously to the effect of guarantees. Reputation can be said to have an influence on
the credibility of Information, äs well äs guarantees. These considerations correspond
exactly to the differentiation between predictive and confidence value within the cue
utilisation theory. It was also shown that the effectiveness of information and guarantees
highly depends on the product attributes, whose potential effect responds to the predictive
value. If a signal (information and guarantee) is suitable regarding the current (credence,
experience or search) attributes, it not only has a high-predictive value, but also a high-
signal potential. In addition, it is necessary for the signals (information and guarantee) to
be considered credible by the customer, whereas the credibility of a signal is a result of
the credibility of the sender and therefore, it is about the reputation of the supplier. The
above-mentioned coherences between product attributes and predictive value, äs well äs
those between reputation and confidence value are evident in Figure 4.
Figure 4 Signal effect mechanisms and product attributes
Probability of cue usage
Signal effect (c.g.
of the Signal
Predictive value of
Potential of uncertainty
reduction of the signal
Product attributes (Point of
tirae/possibility to reduce uncerhtinties)
The earlier argument allows the supplier of innovations to conclude that, in order to
reduce customer uncertainty, information and guarantees äs quality signals, a certain
amount of reputation are necessary for credibility reasons. In accordance with the earlier
arguments, the growth of reputation also results from signals (Nelson, 1974; Miller,
1988; Herbig and Milewicz, 1993; Wendorf, 1994; Fombrun and Shanley, 1990) and so
this seems to be an impasse for certain suppliers. Therefore, the new supplier of an
innovation with less reputation would not have any chance of reducing customer
uncertainty concerning his performance potential. However, since new suppliers with less
reputation regularly succeed in establishing a reputation over a period of time, we will
discuss possibilities of how performance potential can be convincingly signalled by
means of information and guarantees.
404 R. Helm and A. Mark
2.3 The relative effectiveness ofvarious signalling mechanisms
depending on product attributes
Due to the interaction between all elements of the signalling effect model, it is possible to
obtain a more differentiated evaluation with regard to the relative effectiveness ofvarious
signal mechanisms, which implies a broader and extended consideration of the signal
effects. As has already been illustrated, signals should be targeted at product
characteristics. This classification assigns the potential efficiency of the signal types
guarantee and information, hence corresponding to cue utilisation theory. Therefore, the
adequate signals have a high-predictive value.
Accordingly, a supplier should try to reduce customer uncertainty about search
attributes through information. In the case of experience attributes, guarantees could be a
suitable transaction design.
Even though by definition, credence attributes cannot be assessed completely either
before or after purchase, it is appropriate to offer guarantees because these characteristics
can only be evaluated in the case of damage. The assumption that credence attributes
cannot be checked and therefore guarantees would have no impact (Spremann, 1988), on
unrealistics, because the customer would have to trust in the postulated (not directly
revisable) credence attributes until these characteristics can be checked indirectly in the
case of damage. Therefore, the case of damage automatically constitutes the lest (with a
negative result) and thus guarantees that credence attributes would have a lower
predictive value than guarantees for experience attributes. On the basis of the
characterisation of credence attributes, it can be inferred that information has a lower
predictive value than guarantees because it cannot be tested. Therefore, it can be
concluded that product characteristics have to be regarded äs more gradual than absolute,
i.e. overlaps should exist.
If the confldence value is examined depending on the product characteristics, it can
be pointed out that quality signals for a product's search attributes always have a high-
confidence value because the supplier has no opportunism margin via the possibility of
verifying the attributes ex ante. In the other cases, if there are signals for experience
attributes available, whose quality becomes evident just after purchase, for example, the
confldence value in the run-up to the buying-decision is only high, if the supplier would
have to anticipate high losses through bad publicity - äs in the case of high-reputation
(Stich, 1997). Ultimately, signals for credence attributes always have a low-credibility to
Start with, because they cannot be checked directly. Therefore, the confldence value will
occur depending on the discovery of possible losses due to opportunistic behaviour.
As a result of these considerations, the following effects of the signal types
information and guarantee can be deduced in terms of the predictive and confldence
value depending on the product characteristics.
Figure 5 again demonstrates the moderating effect of the confldence value for
utilising the signal potential (of predictive value) in terms of a signal effect for the
different product evaluation attributes. One can see that in the case of search attributes,
all cues have a high-confidence value, independent of the supplier's reputation. Due to
the fact that search attributes can be reduced via information äs well äs guarantees, they
have a high-predictive value. Thus, for search characteristics, such äs brand, price or
handling a good signal effect can be achieved through the utilisation of all signal types,
while for experience and credence characteristics the confldence value depends on the
reputation and consequently on the credibility of the supplier. Hence for this value, a
Implications from cue utilisation theory and signalling theory
ränge can be indicated in both cases (represented in grey in Figure 5). It can be assumed
that Signals from suppliers with a lower reputation also possess a lower confidence value
than those from suppliers with a higher reputation. Experience attributes are characterised
by low-predictive values for information and high-predictive values for guarantees,
because one can see the real quality of experience attributes just after purchase. Thus, the
granting of guarantees can also be used for moderating confidence values. As shown in
Figure 5, a better signal effect can also be achieved by using information for high-
credibility. The same applies for credence attributes. However, predictive values of all
Signals are relatively small, because these characteristics cannot be evaluated. Given a
satisfactory credibility and thus a high-confidence value, a signal effect can still be
Figure 5 The effect of guarantees and information dependent on evaluation of product attributes
Credence atf ributes
The signal effect of information for experience and credence attributes can be extremely
poor (for a low-confidence value), but also relatively good (for a high-confidence value).
Therefore, it can be shown, that the confidence value presents the primal influence factor
in the case of a high-portion of experience and credence attributes of the products.
Especially customers often tend to be uncertain with these characteristics. Nevertheless,
these innovative characteristics have to be communicated to the customer in both cases.
This consideration leads to the question of how the central and only flexible factor
(the confidence value of cues) can be adequately influenced and increased. Assuming the
validity of the coherence between reputation, credibility and confidence value (äs shown
in Figure 4), the innovative supplier with no reputation has two possibilities of increasing
the confidence value:
On the one hand, he can commit to a highly credible relationship, with which he can
limit the opportunism margin on his flank, thereby focusing on the credibility of the
On the other hand, he can increase his own credibility (from the sender) by using the
credibility of others.
406 R. Helm and A. Mark
The latter procedure fits with an umbrella brand name strategy (Herbig and Milewicz,
1993). The third possibility of building a reputation by intensive advertisement activities
can be disregarded, because in practice it is linked with considerable time and fmancial
3 Potential activities for innovation suppliers
As mentioned above, innovation suppliers have rwo starting points for sending credible
Signals to customers. Table l presents examples of different options.
Table l Possibilities for implementing signal types and determining reputation factors
Characteristics/specification of different signal types
Reputation of the distributor/partner
Experiences in the product ränge
Extent of warranty
Length of warranty
Length of Company presence
'On the spot Service'
The possibilities for a firm to enhance its own credibility (i.e. to achieve an increased
reputation) are associated with extensive time expenditure. This could be achieved
considerably faster by the use of the reputation of others (Buchanan, Simmons and
Bickart, 1999; Purohit and Srivastava, 2001), for instance in the form of a brand alliance
(Rao, Qu and Ruekert, 1999). The examples mentioned within index characteristics apply
to both the supplier and to potential partners in the alliance. It is about parameters with
which the customers perceive signal senders äs credible (i.e. parameters, which can
describe the reputation of a signal sender) including Company size, length of Company
presence or Company experience with the product ränge. In these cases, the (observed)
market success (of the Company) replaces the customers' quality inspection of the
products (Kaas, 1991).
Furthermore, there are some possibilities of implementing both signal types presented
(information and guarantee), which are not extensive and from which further ideas may
be developed. To illustrate this, Table l gives a review, albeit incomplete (Meffert and
Remmerbach, 1988; Tolle, 1994; Möhrle, 1995). The following options are reasonable,
signalling possibilities for an innovation provider with little reputation.
An unknown supplier could use an exceptionally credible signal with no opportunity
margin for the supplier. He could, for instance, provide information for search attributes
to gain high-credibility via this transparent information, and respectively enhance his own
credibility (Wendorf, 1994). Thus, a supplier of low-reputation can promote credibility
for his product through the price, the (prestigious) country of origin, the design or similar
characteristics. In addition, a (more long-term) presence of the product (or the forerunner
product) on the market, offers information on search attributes, because customers can
get an idea of these characteristics, which are, of course, easy to observe.
Implications from cue utilisation theory and signalling theory
An information policy about experience or credence attributes is indispensable even if
the expected impact is low due to lack of reputation, especially if the attributes are
innovative and should therefore be communicated to the customer to differentiate
between competitive products and forerunner products of the specific product line
(Meffert and Remmerbach, 1988). Moreover, it is possible to create a credible advertising
Statement by using typical testimonials of the product ränge or by lest information and
certificates from well-known organisations (Kaas and Busch, 1996). A higher confidence
value can even be achieved through useful alliances in communication (Samu, Krishnan
and Smith, 1999) or distribution policies (Chu and Chu, 1994; Purohit and Srivastava,
2001). In this context, Instruments of merchandising like distributors' employees training
can also be mentioned, so that the product-related information appears äs credible äs
possible to the customer.
Another possibility is to use a guarantee policy. A signal can be chosen, which
provides no possibility for opportunistic behaviour. This could be achieved through
guarantees for search attributes. This strategy is useful if a certain quality of search
attribute can be guaranteed compared to competitors, especially if there is low-market
transparency. Examples of such a strategy are the offering of price guarantees and quality
guarantees for search characteristics.
In the case of guarantees for experience and credence attributes, there is the problem
of an insufficient confidence value for a supplier of low-reputation. Customers are often
very uncertain about the future survival of an innovative, for example, unknown supplier
(Backhaus and Späth, 1994). For this reason, the postulated impact of the supplier's
reputation on the credibility of the guarantee Signals should be dependent on the time
frame of the supplier's bonding. One possibility for the supplier to signalise credibly
would be to choose guarantee signals that are effective because of a particular benefit and
not because of the length of the guarantee. A greater length of guarantee than that of
competitors is more influenced by reputation than the offer of an extended guarantee in
terms of a promise of replacement instead of repair within the same guarantee period, for
example, äs competitors. So the promise of a 10 years guarantee by an unknown supplier,
for instance, is only partly convincing because of the insecurity regarding the Company
development and presence in the future. Furthermore, such a situation-specific 'wrong
signal' could also have negative spill-over effects on the confidence value of other
signals. However, a longer guarantee than the competition can also have an effect in the
case of a supplier with a low-reputation. Another Instrument that is less influenced by
time, is the money-back guarantee. This Instrument has been identified over and over
again äs being quite effective (Moorthy and Srinivasan, 1995; Gierl and Helm, 1999).
In the case of experience and credence attributes, the firm's own credibility can also
be increased by interposing a credible instance. A guarantee instrument that follows this
idea for technological innovations is for example, 'on the spot service'. Using this
instrument, the supplier guarantees that a service team of an independent, well-known
retailer will repair the product on the spot. The confidence of the retailer regarding the
sustainability of the supplier boosts the customer's confidence in the supplier (Dodds,
Monroe and Grewal, 1991; Chu and Chu, 1994).
For a supplier with a high-reputation, of whom a high-confidence value of cues can
be expected - independent of product evaluation attributes of the customers, all cues
having a high-predictive value according to the above ideas can be offered. Therefore, the
signals that are satisfactory for suppliers with low-reputation are also effective in cases of
high-reputation. However, a supplier with a high-reputation can particularly use
408 R. Helm and A. Mark
Information about experience and credence attributes äs Signals. It is helpful to use the
brand name äs a source of information, because it can reduce uncertainty of experience
and credence attributes (Kaas and Busch, 1996). Intended misinformation or wrong
guarantee promises that cannot be upheld, should be avoided by a supplier with high-
reputation, because one wrong signal comes with a reputation deficit, which is hard to
The effectiveness of different signals depend on the characteristics of the product on one
band and on the reputation of the signal sender on the other. In this paper it was shown
that on the basis of cue utilisation theory and signalling theory, the reputation of a
Company (the signal sender) is a conditio sine qua non of the signal effect, and above all
for innovations, due to their large proportion of credence attributes.
Taking into account the empirically observable phenomenon that unknown innovative
companies can manage to seil their products on the market and create 'a name', the
effectiveness of quality signals had been extended after conditioning the earlier
theoretical state of knowledge. In doing so, the earlier meaning and thus the impact of
credence attributes of a product were analysed in detail.
Furthermore, we showed that a large proportion of experience and credence
characteristics (which exist to a significant extent for innovative products), the
confidence value and thus the credibility pose are the central factors with regard to the
effectiveness of the signals.
These considerations resulted in the identification of two potential starting points
for a supplier of innovative products — to build up his reputation and to signal successfully
despite the lack of reputation. Finally, we discussed possibilities of implementing actions
in this regard.
For further research in this area, it will be of interest to test the effectiveness of the
possibilities of credible signalling, identified without a firm's own reputation, by means
of empirical cross-sectional studies. Because of the complexity of the analysis approach
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