According to the information economics perspective, information is imperfectly distributed across markets. For consumers, that implies that gathering and processing product information can be costly. This is particularly the case as consumers attempt to reduce perceived risk and uncertainty regarding product attributes. In such imperfect markets, brands are seen as important sources of information. Brands can provide signals about product quality and price, and hence reduce information asymmetries. Indeed, when consumers are uncertain about product attributes, marketers often use brands as signals to convey information to consumers about the quality of their products. Through this signaling process, marketers can shape consumers' perceptions of brands.
Drawing from information economics, a very elegant model of brand signaling was put forward by Erdem and Swait. Their conceptualisation of brand signaling involved six latent variables: brand credibility, perceived quality, perceived risk, information costs saved, relative price, and finally, brand consideration and purchase. However, their research (i) imposed a mediating variable structure on the data and did not test for direct effects and (ii) examined only linear effects and did not consider more complex higher-order effects (i.e., interaction and quadratic effects).
The current study therefore aims to extend previous research, through further examination of the relationships among the variables in the E-S model. This is an important extension because it could lead to not only a more complete theoretical understanding of how brand signals operate, but also produce new suggestions for brand management.