• • • • Price-Sensitivity Measurement A T001 for the Hospitality Industry
by Robert C. Lewis and Stowe Shoemaker
Instead of using such pricing methods as gut feel or trial
and error to determine the "right" price for products or
services, a hotel or restaurant operator can use a
relatively simple survey tool to measure customers' price
sensitivity in advance.
S e r v i c e organizations have made considerable strides in estab- lishing price strategies that have improved the bottom line while maintaining consumers' good will. Some examples are the airlines' widely accepted practice of estab- lishing time-based hurdles for coach
Robert C. Lewis, Ph.D., is a professor (retired) in the School of Hotel and Food Administration at the University of Guelph. Stowe Shoemaker, Ph.D., is an assistant professor at the William E Harrah College of Hotel Administration at the University of Nevada-Las Vegas. The authors wish to thank Margaret Shaw for her insightful comments and Diane Gartland and Barbara Riordan
for their help in conducting research for this article.
44 IBRNELL HOTEL AND RESTAURANT ADMINISTRATION QUARTERLY
" i : / M A R K E T I N G
fares (e.g., a Saturday-night stay), Marriott's prices based on advance booking, 1 and yield or revenue management as applied by numer- ous operators. 2 Nevertheless, many service organizations still use what Kent Monroe called a "naive and unsophisticated approach to pricing wi thout regard to underlying shifts in demand, the rate that supply can be expanded, prices o f available substitutes, consideration of the price-volume relationship, or the availability of future substitutes."3 Those prices are also often set wi thout an understanding of con- sumers' perceptions of price. The matter o f pricing for services faces at least three complicating factors, in the view ofValerie Zeithaml and M a r y J o Bitner: (1) customers of- ten have inaccurate or limited ref- erence prices (i.e., "right" prices) for services, (2) customers use price as a key signal for quality, and (3) monetary price is not the only relevant cost for service customers. 4
Because of the complexity of pricing services, we believe hospi- tality operators will find it useful to measure consumers' price sensitiv- ity before establishing prices. In this article, we discuss a method of measuring that price sensitivity-- a process that has been used suc- cessfully by at least one restaurant chain.
1 Richard D. Hanks, Robert G. Cross, and R. Paul Noland,"Discounting in the Hotel Industry: A New Approach," Cornell Hotel and Restaurant Administration Quarterly, VoI. 33, No. 1 (February 1992), pp. 15-23.
2 For example, see: Eric B. Orkin, "Boosting Your Bottom Line with Yield Management," CornelI Hotel and Restaurant Administration Quarterly, Vol. 28, No. 4 (February 1988), pp. 52-56; and Waiter J. P,.elihan III, "The Yield- Management Approach to Hote l -Room Pric- ing," Cornell Hotel and Restaurant Administration Quarterly, Vol. 30, No. 1 (May 1989), pp. 40-45.
3 Kent Monroe, "The Pricing of Services," Handbook of Marketing Services, ed. Carole A. Congram and Margaret L. Friedman (New York: AMACOM, 1989), pp. 20-31.
4 Valerie A. Zeithaml and Mary Jo Bitner, Services Marketing (New York: McGraw Hill, 1996), p. 484.
Reference Prices The reference price of any good or service is the price that a consumer thinks of as an appropriate price for that item. Zeithaml and Bitner point out that the reference price can consist of "the price last paid, the price most frequently paid, or the average of all prices customers have paid for similar offerings. ''5 Refer- ence prices for services are usually fuzzier in the consumer's mind than reference prices for goods. A con- sumer has a fairly good idea of how much to pay for a pound o f sugar or a television set, for instance, but the price of a hotel room is another question entirely. One reason for the discrepancy is the variability across services. Sugar is sugar, for instance, and television sets are generally priced by size and number of fea- tures, but hotel rooms vary widely in size, features, location, and atten- dant services. Similarly, the price of restaurant items also varies accord- ing to the type of restaurant that produces the item.
Reference prices for services are also complicated by the different needs of customers. Guests desperate for a hotel room in high season will generally agree to pay more for a room than those who visit during low season. The purpose of the guest's purchase also influences the reference price. Hotels attempt to offset demand variability by practic- ing yield or revenue management, further confusing the customer about what things "should" cost. 6
The lack of a firm reference point makes it difficult for consum- ers to assess current service pricing relative to the price they paid the last time they used a similar service. Consumers often consider a price range instead of an exact price as they judge an appropriate price.
s ZeithamI and Mary Jo Bimer, p. 486. ~' Ibid.
Price: Indicator of Quality Price can play a considerable role in consumers' formation of quality perceptions. In a consumer's consid- eration of two different segments of the industry (e.g., tablecloth restau- rants versus quick-service restau- rants), price becomes a dominant indicator o f quality. The consumer must decide how large a per-person cost is justified by the eating occa- sion. As a relative indicator o f qual- ity, on the other hand, price can separate restaurants operating in the same segment (e.g., Taco Bell and McDonald's). The emphasis an op- erator places on price as a marketing strategy must take into account the two roles of price in the formation of quality perception. W h e n price acts as a dominant indicator of qual- ity, the pricing aspect o f the market- ing mix can be used to position the product and service offering. O n the other hand, when price acts as a relative indicator o f quality, it can be used to alter the consumer's percep- tion of value. This is what Taco Bell did with its "value menus," as ex- plained in the accompanying box (on the next page).
Price-Value Price-value has become a common expression for a relationship that goes beyond the manifest monetary price of an item or service. The interpretation of price-value must be based on the buyer's view of the relationship between price and value. A technique known as price- sensitivity measurement (PSM) can be used to determine how consum- ers' perceptions of value are affected by the interaction of price and qual- ity. PSM also provides clues on how to alter consumers' perceptions of value. Taco Bell's value-pricing menu is an example of the applica- tion of PSM. Value pricing has widely been misconstrued merely to mean charging low prices or offer- ing deep discounts. Unlike value
ApriE 1997 • 45
Taco Bell's Approach to PSM Taco Bell used price-sensitivity measurement when it introduced "value pricing" to the quick-service industry in 1988 with its 59-cent value menu. After sales at the chain rose 50 percent in two years to $2.4 billion, McDonald's and Burger King among others "tried to imitate" the value-pricing practice, as Zeithaml and Bitner put it. 1
Taco Bell has succeeded with its value pricing while others did not because Taco Bell based its strategy on customer perceptions of value. 2 Taco Bell did not use the cost- based-pricing methods common in the industry, Instead, it took the approach of examining customer perception, and made no plans to drop its food quality. 3
Rather than taking the traditional approach to pricing of first developing a new food item (e.g., a chicken soft taco) and then determining what the price should be, Taco Bell first determined what customers were willing to pay for a specific type of item and then determined what they needed to do to develop a product in that price range. If the price customers were willing to pay could not guarantee a profit, then the product was not further developed.
To generate the range of prices, respondents are first read a description of a proposed concept. They are then asked the following three questions:
1. Assuming you could buy this product at Taco Bell, at what price would this item be so cheap that you would worry about the quality?
2. Assuming you could buy this product at Taco Bell, at what price would this item be so expensive that you would not purchase the product?
3. What price do you expect to pay for this item? Following the technique detailed in the box on PSM (see pages 48-49), it is easy to
see that Taco Bell was establishing an acceptable range for pricing the product. Provided with this information, Taco Bell was then able to determine what products it could afford to make and achieve its profit goals.
Like many quick-service chains, Taco Bell has recently had difficult times due to saturation in the market. Nevertheless, value pricing gave the company a tremendous boost in the late '80s and early '90s.--R.C.L. and S.S.
1Valerie A. Zeithaml and Mary Jo Bitner, Services Marketing (New York: McGraw Hill, 1996), p. 509.
2 In an overall market that was flat to declining from 1988 to 1991, sales growth at company- owned Taco Bells exceeded 60 percent, and profits grew by over 25 percent (compared with 6 percent at McDonald's), while Taco Bell cut prices for its core menu by 25 percent. Source: Leonard A. Schlesinger and James L. Heskett, "The Service-Driven Service Company," Harvard Business Review, September-October 1991, p. 77.
3 From a speech by Blaise Mercadante, vice president of marketing and development and Taco Bell research director, at the American Marketing Association Conference on Customer Satisfac- tion, Sheraton Palace Hotel, San Francisco, May 1993.
pricing, those cost-based strategies do not expressly take into account the consumer's perception of value in relation to price.
Observers who have labeled value pricing as extremely risky or potentially disastrous are correct in their perception that rampant dis- counting can lead to a death spiral of price cutting. 7 Value pricing, however, does none of this. When based on PSM, value pricing be- comes a bundling technique that establishes a balance of price with product or service value, based on consumers' perceptions of that value. This approach is radically different from the industry's com- mon pricing rules of thumb, such as 30-percent food cost and $1.00 in room rate per $1,000 building costs. Peter Drucker labeled these pricing approaches "cost-driven pricing." He went on to write:
The third deadly sin [of business practice] is cost-driven pricing. The only thing that works is price- driven costing .... The only sound way to price is to start out with what the market is willing to pay-- and designing to that price specification .8
Marriott took the approach of price-driven costing when it devel- oped the successful Courtyard product. 9 Courtyard began with consumer research that revealed a preferred price point and related bundle of desired benefits. The product was then developed to fit within those limits.
Theodore Levitt puts the matter another way:
7 See, for example: David K. Hayes and Lynn M. Huffrnan,"Value Pricing: How Low Can You Go?," Cornell Hotel and Restaurant Administration Quartetqy, Vol. 36, No. 2 (February 1995), p. 51.
Peter E Drucker,"The Five Deadly Business Sins," Wall Street Journal, October 21,1993, p. A20.
') See: Christopher W.L. Hart,"Product Devel- opment: How Marriott Created Courtyard," Cornell Hotel and Restaurant Administration Quar- terly, Vol. 27, No. 3 (November 1986), pp. 68-69.
4. EflRNELL HOTEL AND RESTAURANT ADMINISTRATION QUARTERLY
H U M A N R E S O U R C E S
The usual presumption of so-called undifferentiated commodities is that they are exceedingly price sensitive....That's seldom true ex- cept in the imaginary world of eco- nomics textbooks. In the actual world of real markets, nothing is exempt from other considerations, even when price competition is virulent. The fact that price differ- ences are, prima facie, measurable becomes the usual, and usually false, basis for asserting their pow- erful primacy. 1°
Price-Sensitivity Measurement Price sensitivity was explored by Andre Gabor and Clive Granger in a seminal work that appeared in the journal Economica. 11 Gabor and Granger conducted a study in which they asked consumers to state the highest and lowest prices at which they would purchase selected inexpensive items (e. g., stockings). The resulting distribution enabled the researchers to determine upper and lower price limits for these products. Gabor and Granger sug- gested that within these limits price may continue to act as a quality indicator but does not act as an absolute barrier to purchase. Out- side these limits, however, price may act as the dominant indicator of quality and, further, may become a barrier. A price falling above the upper limit can cause the item to be judged as being too expensive, sug- gesting quality levels and attributes exceeding those desired by the con- sumer. A price falling below the lower limit, on the other hand, can cause the item to be judged as being of questionable quality.
The concept of a price range, whereby the consumer enters the market with two price limits in
u~ Theodore Levitt,"Differentiation--of Any- thing," The Marketirtg Imagination (New York: Free Press, 1986), p. 73.
11 Andre Gabor and Clive VdJ. Granger, "Prices as an Indicator of Quality: Report on an En- quiry," Economica, Vol. 33, February 1966, p. 45.
mind, is a far more realistic approach than reference pricing in under- standing consumers' market behav- ior, particularly with regard to ser- vices, because a price range does not assume that the consumer has per- fect knowledge of current market prices.
The concept of price limits was developed into the model of price- sensitivity measurement by the Dutch economist Peter H. Van Westendorp. In the early 1980s Kenneth Travers expanded on the technique.12 Travers investigated a method for using PSM to reveal price perceptions by determining the level of consumer price resis- tance over a range of prices as they relate to quality perceptions. The approach was largely ignored in the hospitality industry until Taco Bell employed it to create its value-price menu. As explained in the box on the next page, PSM's assessment of price-value for a product or service is determined by the perception of the target market, which is the ulti- mate authority on prices. Through value pricing based on hard research data, Taco Bell learned to bundle its products (for example, adding sour cream, including a soft drink) in a way and at a price at which the consumer perceived "value."
The PSM model is easy to use, is parsimonious, and requires no spe- cial knowledge or skills on the part of either the researcher or the re- spondents. The survey contains four questions. When consumers' aggre- gate responses to those questions are graphed, the model indicates the price-sensitivity level of the market being tested.
The questions are: (1) At what price on the scale do
you consider the product or service to be cheap?
12 Kenneth Travers, PSM: A New Technique for Determining Consumer Sensitivity to Pricing (Los Angeles: Plog Research, no date, circa 1983).
(2) At what price on the scale do you consider the product or service to be expensive?
(3) At what pric e on the scale do you consider the product or service to be too expensive, so expensive that you would not consider buying it?
(4) At what price on the scale do you consider the product or service too cheap, so cheap that you would question the quality?
The responses to those questions are analyzed statistically and plotted on a graph, as explained in the ac- companying box on PSM (on the next two pages). Even though the model is simple to use, it must be carefully applied to ensure accurate results.
Attention must be paid to market segmentation, for instance, so that the results are meaningful and not just an average of a catchall group of respondents. Casual users of a brand, for instance, may indicate that they want to pay an unreasonably low price, while loyal, heavy users may have more realistic price expecta- tions. If those two groups' responses are aggregated, the results may be biased. Along the same lines, the researcher must also make sure the sample is representative of the target population and that the respondent is qualified to answer (i.e., she is familiar with your offering). The model's chief disadvantage is that it is extremely sensitive to outlying data. The researcher must, as a result, first plot the data and run basic de- scriptive statistics to locate extreme or nonsensical answers. Finally, like all survey research, the number of respondents to be interviewed must be determined by first calculating the desired confidence level for the estimate. If one desires the true range to be within 10 percent of the derived estimates, for instance, the sample size will need to be larger
April 1997 • 4.7
48 EIRNELL HOTEL AND RESTAURANT ADMINISTRATION QUARTERLY
than if one can accept a range within 25 percent. Calculations like this are available in statistical- methods books. Once this range is determined, it is then a straight- forward matter to determine the required number of respondents.
PSM can also be used to deter- mine the threshold range in price, as discussed by Gabor and Granger and also by Margaret Shaw. 13 The "range of acceptable prices" gives the low- est price, the one below which the consumer will question the quality of the product or service, and the highest price, above which the con- sumer feels the product or service is too expensive. Marketers have found that when the cost of a room or meal exceeds the upper threshold price, the consumer will substitute products or services rather than reduce consumption.
PSM for the Association-Meeting Market We conducted a study to test the application of the price-sensitivity measurement model to the associa- t ion-meeting market. The five com- ponents of our hypothesis were as follows: (1) There is a point at which hotel
room rates are considered to be cheap.
(2) There is a point at which hotel room rates are considered to be expensive.
(3) There is a point at which the price is considered too cheap and quality is questioned.
(4) There is a point at which, no matter what the quality, the price is too expensive and pur- chase is beyond consideration.
(5) There is a way to measure the above points.
We applied the PSM technique to the association-meeting market because room rates are a definite
13 See: Margaret Shaw, "Positioning and Price: Merging Theory, Strategy, and Tactics," Hospi- tality Research Journal, Vol. 15, No. 2 (1992), pp. 31-39; and Gabor and Granger, p. 45.
April 1997 • 49
factor in the meeting planner's pur- chase decision. Association members generally pay their own expenses when they attend a conference, resulting in a concern for price by meeting planners in this market.
We gave the respondents the hypothetical situation shown in the accompanying box (left) so that they would have a realistic situation on which to base their answers to the four questions in the PSM model. Our design was made with two objectives in mind. First, we wanted to minimize the intervening vari- ables that might enter into the meeting planners' price consider- ations, thereby affecting their re- sponses. Second, we expected the respondents to project their associa- tions' needs and wants into the situ- ation. The determination of price would, therefore, be based on the room-rate values they would expect to receive given their members' requirements.
We sent surveys to a random sample of 443 association meeting planners. We received 115 usable responses (constituting a 33-percent response rate), and another 97 ques- tionnaires were returned undeliver- able or not completed and therefore unusable. We used the Statistical Package for the Social Sciences (SPSS) to determine that there was a normal frequency distribution and no extreme or nonsensical re- sponses. SPSS also provided the cumulative distributions necessary to graph the responses.
Plotting Room Values We plotted four graphs from the data, as prescribed in the PSM pro- cedure. Our graphing procedures yielded rounded, estimated dollar values rather than finding those values to the penny. In this way we created a reasonably solid graphical treatment of the "value boundaries" as perceived by our sample of plan- ners. Because this is the first applica-
tion of PSM to this market, we are not able to make categorical con- clusions regarding the application of the value boundaries.
The graph in Exhibit 1 plots the cumulative distributions of re- sponses for "cheap" and "expensive." The intersection of these curves, $70, is the indifference price (IDP), or the point where an equal number of respondents fed the price is cheap as think it expensive. The indifference price percentage (IDP percentage) is the corresponding cumulative distribution percentage at the indifference price. A low IDP percentage indicates a high level of price consciousness, while a high IDP percentage indicates diffuse price consciousness. We determined the IDP percentage to be approxi- mately 37 percent, a relatively low value that indicates a measure of price sensitivity.
The graph in Exhibit 2 depicts the optimal pricing point (OPP), or the point where purchase resistance due to price is at its lowest. We esti- mated the optimal pricing point for this sample at $52.00. Exhibit 3 combines the cumulative distribu- tions of the planners' responses to four questions regarding what is cheap, expensive, too cheap, and too expensive. We found that the opti- mal pricing point fell to the left of the indifference price. This finding indicates some stress in our market, since the optimal point is $18 lower than (on the "cheap" side of) the indifference price.
The key to the PSM technique is the reinterpretation of the data so that the distributions of "cheap" and "expensive" are reversed to depict the prices at which the room value is "not cheap" and "not expensive." One of the reasons for handling the data in this way is that asking re- spondents to identify a price at which something is "not cheap" or "not expensive" is awkward and prone to error. Asking respondents
so UBI{NELL HOTEL AND RESTAURANT ADMINISTRATION QUARTERLY
M A R K E T I N G
Exhibit 1 Cheap versus expensive
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= 77%
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Or)
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GI
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.,J
o
44%
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- - Indifference price, $70
10 41 72 103
P R I C
The indifference price of $70 in Exhibit 1 was established at 37-percent of the cumulative distribution of meeting pJanners pofled, indh cating some degree of pdce consciousness,
134
i !ill !i ii i I !!i i iii ii ̧ ii!i!iiiii!!ili i̧li III i i iiili ii!!iill I
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40
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120
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160
E
200
April 1997 ° 51
Exhibit 3 Price-stress analysis
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8 8 % I,-
=)
= 7 7 %
6 6 % k-
- 5 5 %
Q
44%
33%
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Indifference price, $70
Too expensive •
~ ~ Expensive ,& Cheap []
price, $52
0 $ 4 0 ~ $80 $120 $160 $200 P ~ R I C E
The indifference price ($70), which is the point where the graphs for cheap and expensive meet, is greater than the optimal price ($52), which is the point at which the graphs for too cheap and too expensive meet. Consequently, the meeting planners in this sample experience some stress over price, since the price that they would most like to pay is lower than the price they view as cheap.
52 EORNELL HOTEL AND RESTAURANTADMINISTRATION QUARTERLY
to give a price that is "cheap" and then inferring that it is therefore "not expensive" provides a more reliable set of data. The resulting graph (Exhibit 4) combines the reversed cumulative distribution of "cheap" and "expensive" from Exhibit 1 with Exhibit 2's distribu- tions of "too cheap" and "too ex- pensive." The resulting area indi- cates the range of acceptable prices (RAP), which is the distance be- tween the points of marginal cheapness (PMC) and marginal expensiveness (PME). The smaller this range, the greater the sensitivity to price. In analyzing Exhibit 4, the point of marginal cheapness was found to be $38.00 and the point of marginal expensiveness to be $92.00, giving a range of acceptable prices of $54.00.
Applicable. The results of this study show that the price- sensitivity-measurement technique can most likely be applied to the hotel industry. We have no basis for comparing or interpreting our re- suits, however. Although we have been able to ascertain an indiffer- ence point, an indifference percent- age, an optimum pricing point, a stress level, and a range of accept- able prices, we have no lodging- industry benchmarks with which to compare those values. We can con- clude that some meeting planners have in mind threshold prices out- side of which price will inhibit their decision to purchase. At this point, however, we are unable to determine the degree to which our respondents are price sensitive (compared to other buyers). We learned that the range of acceptable prices was $54.00, but without more study we cannot conclude whether this is a large or a small range. These limitations could be overcome by further applications of the model to the lodging industry.
M A R K E T I N G
Additional research would provide more data with which we could compare these results.
Not Definitive, But Useful Although we cannot draw defini- tive conclusions about the associa- tion market's price sensitivity based on the results of this pilot study, we can discuss marketing implications. Several indicators have been identi- fied that can indicate the level of price sensitivity in a market. The degree of price sensitivity depends on the interplay of the indifference percentage, stress level, and range of acceptable price. A combination of low indifference-percentage levels, high stress levels, and a small ac- ceptable price range suggests a fairly sensitive market in which special attention should be given to the pricing component of the marketing mix. This is especially true in a highly sensitive market when the range of acceptable prices is narrow. To minimize resis- tance to purchase due to price, the price would have to fall within that narrow range--giving marketers little flexibility in pricing strategy. The marketer would then have to emphasize informational cues other than price that influence consumer perceptions of value (e.g., bundled benefits or services, superior loca- tion, prestige of a property).
Determining what informational cues consumers use in forming perceptions is an area to be ex- plored for any given product. This information, combined with what consumers' expectations are at dif- ferent price levels, particularly the threshold limits, can give marketers a framework within which they might form, for example, their advertising efforts. Furthermore, if marketers are to change price per- ceptions so that purchase resistance is minimized, an understanding of
Exhibit 4 Range of acceptable prices
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88% i -
ra 77%
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- 55%
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, ¢
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Point of marginal
cheapness ($38)
Too cheap Too expensive • Not cheap [] Not expensive V
,,,=, =,,, m , ,n m, Point of marginal expensiveness ($92)
$40 $80
P R
I I I ! ! I I
Range of acceptable prices ($54)
I
|
$120 $160 $200
C E
April 1997 • 53
what forms those perceptions is essential.
In addition to determining the market's level of price sensitivity, this model enables a marketer to see where the price of a particular product or service falls in relation to the range of acceptable prices. Inside this range the information cues discussed above are particularly important, because price is a rela- tive indicator of quality and not the sole determinant in the decision to purchase. As more information becomes available to the buyer, reliance on price in determining quality perceptions will decrease.
If a service's price falls outside the range of acceptable prices, where price is the dominant indica- tor of quality, a hotel would have to change its positioning if consumers' perceptions are to change. Travers found, through his application of this model, that pricing outside the acceptable range will generate little new business unless a major shift in brand positioning effectively alters the consumer's price consciousness. If a service were priced just below the point of marginal cheapness, however, and an emphasis were placed on value, some consumers might be persuaded to try the ser- vice because they would perceive the purchase as a bargain for the value offered. On the other hand, if a service were priced above the point of marginal expensiveness, it would be difficult to sway those potential buyers since consumers generally will substitute another product rather than reduce con- sumption. That is, the consumer planning a four-night hotel stay is going to stay four nights at an ac- ceptably priced hotel, rather than cut the stay to two nights at a high- price hotel. Marketing efforts should concentrate on those who feel the price is within the range of
acceptable prices. Attempts to draw consumers who fall outside the range of acceptable prices should be minimal, given the low likeli- hood of success relative to the cost of the effort.
A market with a low sensitivity to price would have a high indifference-price percentage, a low level of stress, and a broad range of acceptable prices. The marketer has a measure of flexibility with this market, particularly with regard to price, since factors other than price influence perceptions and ulti- mately the decision to purchase. An excessive emphasis on price as a component of the marketing mix would be a wasted effort in this instance, and possibly damaging to future marketing efforts. Instead marketers should concentrate on offering cues that influence quality perceptions, given consumer expec- tations within the range of accept- able prices. The identification of these cues will aid in differentiating the service offering from that of the competition.14
In a market with a low sensitiv- ity to price, attempting to entice those who feel the product or ser- vice is too cheap or too expensive might have some payback. During shoulder seasons, for example, a four-star hotel could appeal to con- sumers who might be willing to spend "too much" for a special occasion such as a wedding anni- versary. A budget hotel could fill anticipated empty rooms by appeal- ing to those who might not book due to quality concerns by empha-
14 For example, see: Robert C. Lewis, "Adver- tising Your Hotel's Position," Cornell Hotel and Restaurant Administration Quarterly, Vol. 31, No. 2 (August 1990), pp. 84-91; and Leo M. IKenaghan and Michael Z. Kay,"What Meeting Pla~mers Want: The Conjoint-Analysis Ap- proach, Cornell Hotel and Restaurant Administra- tion Quarterly, Vol. 28, No. 1 (May 1987), pp. 66-76.
sizing the basic quality of the rooms (as Motel 6 does: % clean, comfortable room") and stressing that the room is a good value.
In summary, regardless of whether a market is characterized by a high or low degree of price sensitivity, emphasis must be placed on those who perceive the price of the product or service as being within the range of acceptable prices. The PSM model can be used to determine the sensitivity of different target markets and their respective ranges of acceptable prices. Marketers would then know which markets would be least in- hibited to purchase due to price and, thus, upon which markets to concentrate their efforts of demon- strating the value offered for the price.
Through additional research, marketers can determine what vari- ables interact to form the perceived value at a given price, particularly within the range of acceptable prices. By influencing the cues that consumers use to form perceptions and knowing what consumer ex- pectations are at the threshold prices, marketers can effectively reduce resistance to purchase.
This study has indicated the existence of a range of acceptable prices for association-meeting plan- ners. Marketers can use this model for this and other markets to iden- t i~ a range of acceptable prices and to determine to what degree mar- kets are price sensitive. Additionally, this model can be used to compare perceptions of specific brands, the competition, and variations within a product line. This model is of particular value to marketers who appreciate that it is consumers, and not the spreadsheets from the ac- counting office, that determine a hotel's or restaurant's acceptable prices. CI1
54 EFlNLL HOTEL AND RESTAURANT ADMINISTRATION QUARTERLY
