Services Marketing Concepts

Strategies and Cases 5th Edition

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CHAPTER 6 THE PRICING OF SERVICES

MULTICHOICE

1. A buyer's perception of value is considered a trade-off between:

(A) product value and psychic cost.

(B) total customer value and total customer cost.

(C) image value and energy cost.

(D) service value and monetary cost.

(E) personnel value and time cost.

Answer : (B)

2. Total customer value consists of all of the following components except _____ value.

(A) product

(B) service

(C) image

(D) time

(E) personnel

Answer : (D)

3. Total customer cost consists of all of the following components except _____ cost.

(A) monetary

(B) social

(C) time

(D) psychic

(E) energy

Answer : (B)

4. Consumers exchange their money, time, and effort for the bundle of benefits the service offers.
Economic theory suggests that consumers will have a(n) ____ that captures the value they place on
these benefits.
(A) lower price threshold

(B) reservation price

(C) consumer surplus

(D) image value

(E) product value

Answer : (B)

5. When pricing a service, the service provider should consider all of the following except _____
considerations.

(A) demand

(B) cost

(C) customer

(D) intuitive

(E) product

Answer : (D)

6. A consumer's price sensitivity will increase as:

(A) the perceived number of substitutes increase.

(B) switching costs increase.

(C) the shared costs for the expenditure increase.

(D) the perceived unique value of the service increases.

(E) the customer's ability to build an inventory decreases.

Answer : (A)

7. A consumer's price sensitivity will increase as:

(A) the perceived number of substitutes decrease.

(B) switching costs increase.

(C) the shared costs for the expenditure increase.

(D) the perceived unique value of the service increases.

(E) the customer's ability to build an inventory increases.

Answer : (E)

8. A consumer's price sensitivity will decrease as:

(A) the perceived number of substitutes increase.

(B) switching costs increase.

(C) the shared costs for the expenditure decreases.

(D) the perceived unique value of the service decreases.

(E) the customer's ability to build an inventory increases.

Answer : (B)

9. A consumer's price sensitivity will decrease as:

(A) the perceived number of substitutes increase.

(B) switching costs decrease.

(C) the shared costs with third parties increase.

(D) the perceived unique value of the service decreases.

(E) the customer's ability to build an inventory increases.

Answer : (C)

10. Which of the following statements about the pricing of services (compared to the pricing of
goods) is false?

(A) The demand for services tends to be more elastic than the demand for goods.

(B) Cost-oriented pricing is more difficult for services.

(C) Comparing prices of competitors is more difficult for service consumers.

(D) Self-service is a viable competitive alternative.

(E) Consumers are less able to stockpile services by taking advantage of discount prices.

Answer : (A)

11. Which of the following statements about the pricing of services (compared to the pricing of
goods) is false?

(A) The demand for services tends to be more inelastic than the demand for goods.

(B) Cost-oriented pricing is more difficult for services.

(C) Comparing prices of competitors is more difficult for service consumers.

(D) Self-service is a viable competitive alternative.

(E) Consumers are more able to stockpile services by taking advantage of discount prices.

Answer : (E)

12. Which of the following statements about the pricing of services (compared to the pricing of
goods) is true?

(A) The demand for services tends to be more elastic than the demand for goods.

(B) Cost-oriented pricing is more difficult for services.

(C) Comparing prices of competitors is less difficult for service consumers.

(D) Self-service is not a viable competitive alternative.

(E) Consumers are more able to stockpile services by taking advantage of discount prices.

Answer : (B)

13. Which of the following statements about the pricing of services (compared to the pricing of
goods) is true?

(A) The demand for services tends to be more elastic than the demand for goods.

(B) Cost-oriented pricing is less difficult for services.

(C) Comparing prices of competitors is less difficult for service consumers.

(D) Self-service is a viable competitive alternative.

(E) Consumers are more able to stockpile services by taking advantage of discount prices.

Answer : (D)

14. The mental energy spent by customers to acquire a service is referred to as:

(A) image costs.

(B) monetary price.

(C) energy costs.

(D) psychic costs.

(E) time costs.

Answer : (D)
15. A willingness to pay more for a service because of the top-notch reputation of the company
providing it is related to _____ value.

(A) psychic

(B) image

(C) service

(D) product

(E) personnel

Answer : (B)

16. The negative effect of cross-price elasticity in which the increasing price of one service
decreases the demand for another service is said to be:

(A) unitary.

(B) substitutes.

(C) complementary.

(D) inelastic.

(E) elastic.

Answer : (C)

17. If the cross-price elasticity is such that increasing the price of one service results in increased
demand for another service, the two services are:

(A) unitary.

(B) substitutes.

(C) complementary.

(D) inelastic.

(E) elastic.

Answer : (B)

18. Which of the following is NOT a criteria for effective price discrimination?

(A) The segments should be identifiable, and a mechanism must exist to price them differently.

(B) Different groups of consumers should have similar responses to price.

(C) Segments should be large enough to be profitable.

(D) Incremental revenues should exceed incremental costs.

(E) Customers should not be confused.

Answer : (B)

19. If the goal of the pricing strategy is to reduce the amount of perceived risk associated with the
purchase and appeal to target markets that value certainty, then the appropriate pricing strategy
would be:

(A) relationship pricing.

(B) price bundling.

(C) mixed bundling.

(D) efficiency pricing.

(E) flat-rate pricing.

Answer : (E)

20. All of the following are a form of satisfaction-based pricing except:

(A) offering guarantees.

(B) benefit-driven pricing.

(C) flat-rate pricing.

(D) relationship pricing.

(E) none of these are exceptions.

Answer : (D)

21. The pricing strategy that charges customers for services actually used as opposed to overall
"membership" fees is:

(A) relationship pricing.

(B) price bundling.

(C) benefit-driven pricing.

(D) flat-rate pricing.

(E) efficiency pricing.

Answer : (C)
22. The pricing strategy that is a form of relationship pricing is:

(A) activity-based costing.

(B) price bundling.

(C) benefit-driven pricing.

(D) flat-rate pricing.

(E) efficiency pricing.

Answer : (B)

23. Southwest Airlines appeals to economically minded consumers who are looking for the best
price by flying shorter, more direct routes to less congested, less expensive airports. This is an
example of:

(A) relationship pricing.

(B) price bundling.

(C) benefit-driven pricing.

(D) flat-rate pricing.

(E) efficiency pricing.

Answer : (E)

24. Which of the following represents a variable cost for an airline?

(A) fleet costs

(B) labor costs

(C) fuel costs

(D) both fuel and labor costs

(E) both fleet and fuel costs

Answer : (C)

25. All of the following are cost considerations associated with service pricing except:

(A) ​Service consumers are more likely to use price as a cue to quality.

(B) Cost-oriented pricing is more difficult for services.

(C) Consumers may not know the actual price they will pay until the service is completed.
(D) Services tend to be characterized by a high fixed-cost to variable-cost ratio.

(E) None of these are exceptions.

Answer : (A)

26. The actual dollar price paid by the consumer for a product is _____ cost.

(A) image

(B) monetary

(C) energy

(D) psychic

(E) time

Answer : (B)

27. Like many services, the demand for medical care tends to be more ____ in that an increase in
price does not greatly affect demand.

(A) inelastic

(B) elastic

(C) tangible

(D) complementary

(E) sensitive

Answer : (A)

28. Effective service providers enhance the ____ value of services.

(A) product

(B) service

(C) image

(D) time

(E) personnel

Answer : (E)

29. Costs that are planned and are accrued during the operating period regardless of the level of
production and sales are called _____ costs.
(A) fixed

(B) direct variable

(C) average

(D) marginal

(E) future

Answer : (A)

30. Sheila saw the advertised price for carpet cleaning as too low and instead went with a higher-
priced competitor. Sheila saw the price as a(n):

(A) signpost.

(B) quality cue.

(C) reservation price.

(D) dual entitlement.

(E) adaptive price.

Answer : (B)

31. Charging customers different prices for essentially the same service is called:

(A) price discrimination.

(B) supply and demand.

(C) aggregrate pricing.

(D) substitutes.

(E) complementary.

Answer : (A)

32. Adaptive pricing strategies include all of the following except:

(A) altering the product size.

(B) using new distribution channels.

(C) requiring purchase minimums.

(D) offering two-for-one deals.

(E) offering guarantees.

Answer : (E)

33. The technique that allows consumers to either buy Service A and Service B together or purchase
one service separately is called _____ bundling.

(A) long-term

(B) relations

(C) mixed

(D) product

(E) individual

Answer : (C)

34. Which pricing strategy encourages the customer to expand his/her dealings with the service
provider?

(A) relationship pricing

(B) efficiency pricing

(C) benefit-driven pricing

(D) flat-rate pricing

(E) aggregate pricing

Answer : (A)

35. Studies suggest that price is more likely to be used as a cue to quality under which of the
following conditions?

(A) when price is the primary differential information available

(B) when alternatives are heterogeneous

(C) prior to purchase

(D) when comparative price differences are relatively large

(E) all of these

Answer : (E)

ESSAY
36. Discuss how consumers relate value and price.

Graders Info :

Customer perceptions of value represent a trade-off between the perceived benefits obtained from
purchasing the product and the perceived sacrifice in terms of cost to be paid. Total customer costs
extend beyond monetary costs and include time, energy, and psychic costs. Similarly, total customer
value extends beyond product value and includes service, personnel, and image value.

37. Discuss the demand considerations that differentiate the pricing of services from the pricing of
goods.

Graders Info :

First, demand for services tends to be more inelastic. Cost increases are often simply passed along
to consumers. Second, consumers of services often implicitly bundle prices. For example, the
demand for food services at a theme park may be affected by the price of the theme park's hotel and
ticket prices. Consequently, the cross-price elasticity of services should be taken into careful
consideration. Finally, due to the supply and demand fluctuations inherent in services, price
discrimination strategies should also be investigated.

38. Discuss the concept of cross-price elasticity as it relates to service pricing.

Graders Info :

Cross-price elasticity measures the responsiveness of demand for a service relative to a change in
price for another service. If this relationship is negative (e.g., the price of one increases, the demand
for the other decreases), then the two services are said to be complements. If the relationship is
positive, then the two services may be substitutes, and consumption of one is at the expense of the
consumption of the other.

39. Discuss the circumstances under which price segmentation is most effective.

Graders Info :

Criteria for effective price segmentation include: (1) Different groups of consumers must have
different responses to price; (2) the different segments must be identifiable, and a mechanism must
exist to price them differently; (3) individuals in one segment who have paid a low price should not
have the opportunity to pass their savings on to other segments; (4) the segment should be large
enough to be profitable; (5) the cost of running the segmentation strategy should not exceed the
incremental revenues obtained; and (6) the customers should not be confused by the use of different
prices.

40. Discuss satisfaction-based, relationship, and efficiency approaches to pricing.

Graders Info :

The primary goal of satisfaction-based pricing is to reduce the amount of perceived risk associated
with the purchase and appeal to target markets that value certainty. Satisfaction-based pricing can
be achieved through guarantees, benefit-driven pricing, and flat-rate pricing. Relationship pricing
enhances the firm's relationship with its targeted consumers through long-term contracts and price
bundling strategies. Efficiency pricing appeals to economically minded consumers by delivering the
best and most cost-effective service for the price.

41. In general, what guidelines should a service provider follow when formulating a pricing
strategy?

Graders Info :

1. The price should be easy for customers to understand.

2. The price should represent value to the customer.
The price should encourage customer retention and facilitate the customer's
3.
relationship with the providing firm.
4. The price should reinforce customer trust.
5. The price should reduce customer uncertainty.