When Old Is Gold:The Role of Business Longevity in Risky Situations

The authors examine how a service firm's longevity may affect consumers' perceptions of risk in conducting business with the firm. Depending on the nature of information available to consumers, a firm's longevity can act in one of two ways to reduce the consumers' perceived risk: (1) Longevity may act as an extrinsic cue of the firm's quality, or (2) availability of a longer track record of an older firm may allow consumers to make more precise prediction of the firm's future quality. The authors develop a set of hypotheses that relate these two effects to consumers' preferences and test them in a series of four experiments. They find that a firm's age can act as an extrinsic cue of the firm's quality. When consumers also have information about firms' intrinsic attributes, the effect of a firm's age as an extrinsic cue is diminished under conditions of high involvement. The experiments also show that consumers prefer firms with longer track records, especially when firms' performance/quality leve...