Final answer:
It is true that premium brands use price as an indication of quality when positioning themselves in the market. Consumers often equate a higher price with higher quality, especially when they lack detailed information about the product. However, extremely high prices can decrease demand and genuine quality information may surface over time.
Step-by-step explanation:
It is true that premium brands positioned at the high end of the market often use the price/quality approach to positioning. When there is imperfect information about a product's quality, consumers commonly infer quality from price. This is because buyers may not have the expertise to judge certain products like gemstones, legal services, or high-end clothing, and therefore assume that a higher-priced item must denote higher quality. For example, an expensive restaurant is perceived to have better food, and a lawyer charging more per hour is assumed to be more skilled. However, it's important to acknowledge that this perception has natural limits, as extremely high prices will eventually diminish demand, and over time, actual quality information becomes more widely known.