TBChap 015

Chapter 15 Pricing of Services Answer Key
Multiple Choice Questions
1. 1. One of the reasons used to explain why customers evaluate goods and services differently is:
A. The greater degree of customer empowerment used to sell services

B. Services and goods influence opportunity costs differently
C. That customers often have limited reference prices for services
D. The increased customer autonomy in the pricing of goods
E. The cost of maintaining inventory
Accessibility: Keyboard Navigation

Bloom: Remember
Difficulty: Easy
Learning Objective: 15-01 Discuss three major ways that service prices are perceived differently from goods prices by customers.
2. 2. Which of the following statements does NOT contain a reason why consumers lack accurate
reference prices for services?
A. Individual customer needs vary within the same service provider

B. Collection of price information is overwhelming in services
C. Many service providers are unable or unwilling to estimate price in advance
D. Low degree of variability exists across providers of the same service
E. Prices are not visible

Bloom: Remember
Difficulty: Moderate
3. 3. All of the following examples are nonmonetary costs EXCEPT:
A. Time costs
B. Search costs
C. Convenience costs
D. Psychological costs
E. Utility costs

Bloom: Remember
Difficulty: Easy
15-1
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4. 4. _____ costs represent other sources of sacrifice perceived by consumers when buying and using a
service.
A. Penalty
B. Forfeit
C. Opportunity
D. Nonmonetary
E. Psychological

Bloom: Remember
Difficulty: Easy
5.
5. Many white-collar workers have heard the story about the busy executive who billed the doctor for
keeping him waiting when the patient showed up promptly at his appointment time or has dreamed of
doing it themselves. This is an example of the _____ costs of services.
A. Convenience
B. Monetary
C. Psychological
D. Time
E. Search

Bloom: Understand
6.
The process for installing a new in-dash audio system in Leo’s car took almost four hours, which Leo
spent sitting in the waiting room of J.J.’s Auto Sound. Leo paid _____ costs for the installation of his
new audio system.
A. Convenience
B. Fiscal
C. Physiological
D. Time
E. Search

Bloom: Understand
15-2
7. 7. _____ cost refers to the effort invested in identifying and selecting a service from your consideration
set.
A. Convenience
B. Monetary
C. Psychological
D. Time
E. Search

Bloom: Remember
Difficulty: Easy
8. 8. After moving to Florida, Vanessa opened both a savings and a checking account at Benford Bank.
Although Benford had a higher minimum balance requirement for free checking than the other two
banks she considered, Vanessa chose Benford because it was located closer to her home than the other
banks. Vanessa would rather expend other costs than _____ costs.
A. Convenience
B. Monetary
C. Psychological
D. Time
E. Search

Bloom: Understand
9. 9. Consumer resistance to using self-checkout lines has resulted from a _____ cost in using a new
service.
maybe là fear of not understanding
A. Convenience
B. Monetary
C. Psychological
D. Time
E. Search

Bloom: Understand
10. 10. Which of the following statements describes a problem in cost-based pricing for services?
A. Monetary price must be adjusted to reflect the value of non-monetary costs

B. Heterogeneity of services limits comparability
C. Prices may not reflect customer value
D. Labor is more difficult to price than materials
E. Information on service costs is not available to customers
15-3
Bloom: Understand
Learning Objective: 15-02 Articulate the key ways that pricing of services differs from pricing of goods from a company’s perspective.
11. 11. The basic formula for _____ is Price = Direct costs + Overhead + Profit margin.
A. Contribution margin
B. Return on investment
C. Cost-based pricing
D. ABC costing
E. Net profit

Bloom: Remember
Difficulty: Easy
12. 12. To calculate what it charges a client, a detective agency charges $200 a day direct costs plus an
additional $50 per day to pay for office expenses, licenses and other fixed costs and fifteen percent of
full costs for the profit margin. What type of pricing strategy is being used by the detective agency?
A. Contingency
B. Cost-based
C. Perceived value
D. Fee for service
E. Going-rate

Bloom: Apply
Difficulty: Challenging
13. 13. In _____ pricing, a service firm determines price by calculating component costs of the service and
adding a mark up.
A. Contingency
B. Fee for service
C. Perceived value
D. Cost-plus
E. Going-rate

Bloom: Remember
Difficulty: Easy
Learning Objective: 15-05 Give examples of pricing strategy in action.
15-4
14. 14. In which of the following service industries are you most likely to find the service provider using
fee for service pricing?
professionals + cost of the time
A. Apartment rental business

B. Management consulting business
C. Cleaning service industry
D. Airline industry
E. Internet service providers

Bloom: Understand
15. 15. Accountants, architects, interior decorators, marriage counselors and lawyers typically use a _____
pricing strategy.
fee for service thường dùng bởi professionals
A. Going-rate
B. Perceived value
C. Fee for service
D. Price signaling
E. Cost-plus

Bloom: Understand
16. 16. _______-based pricing is used when there are a small number of large service providers.
A. Demand
B. Profit
C. Competition
D. Supply
E. Cost

Bloom: Remember
Difficulty: Easy
17. 17. In which of the following service industries would you most likely find the service provider using
competition-based pricing?
A. Banking industry
B. Hospital industry
C. Legal services
D. Tax accounting business
E. Rental car industry

Bloom: Understand
15-5
18. 18. _______-based pricing occurs in services that are standardized across providers.
A. Demand
B. Profit
C. Competition
D. Supply
E. Cost

Bloom: Remember
Difficulty: Easy
19. 19. Pizza Hut, Uncle Sam's, Domino's and Papa John's all deliver pizza in Cartersville, Georgia, a town
of about 30,000. As a result, one would expect all of the pizza delivery services to use _____-based
pricing.
A. Standardized
B. Simultaneous
C. Competition
D. Supply
E. Cost

Bloom: Understand
20. 20. Which of the following is an example of competition-based pricing strategy?

gồm going-rate & signaling
A. Cost-plus pricing
B. Going-rate pricing
C. Fee for service
D. Synchronized pricing
E. Simultaneous pricing

Bloom: Understand
Difficulty: Easy
21. 21. _____ occurs in markets with a high concentration of sellers. Any price offered by one company
will be matched by its competitors in order to avoid giving the low-price seller a distinct advantage.
A. Cost-plus pricing
B. Price signaling
C. Value pricing
D. Price lining
E. Price standardization
15-6
Bloom: Understand
22. 22. A day after US Airways announced its new low fares for the autumn on travel from New York (i.e.,
Newark and LaGuardia Airports) to selected cities in the United States and Canada, American Airlines
matched their fares. American Airlines is using a _____ strategy.
A. Value pricing
B. Price signaling
C. Demand-based pricing
D. Going-rate pricing
E. Price trimming

Bloom: Understand
23. 23. _____ is a form of competition-based pricing that involves charging the most prevalent price on the
market for a service.
A. Value pricing
B. Price signaling
C. Fee for service pricing
D. Going-rate pricing
E. Price trimming

Bloom: Understand
Difficulty: Easy
24. 24. Which of the following approaches to pricing considers that customers may judge quality on the
basis of price?
A. Demand-based pricing
B. Profit-based pricing
C. Competition-based pricing
D. Supply-based pricing
E. Cost-based pricing

Bloom: Remember
Difficulty: Easy
15-7
25. 25. Which of the following statements describes a problem with demand-based pricing for services?
Monetary price must be adjusted to reflect the value of nonmonetary costs.
Information on service costs is less available to customers; hence, price may not be a central factor.
A. Prices may not reflect customer value

B. Costs are difficult to trace
C. Heterogeneity of services limits comparability
D. Monetary price must be adjusted to reflect the value of non-monetary costs
E. Labor is more difficult to price than materials

Bloom: Remember
26. 26. Which of the following statements does NOT describe how consumers typically define value?
A. Value is all that I get for all that I give

B. Value is everything I want in a service
C. Value is low price
D. Value is reliable service
E. Value is the quality I get for the price I pay

Bloom: Remember
Learning Objective: 15-03 Demonstrate what value means to customers and the role that price plays in value.
27. 27. Derrick saves coupons from 10-minute oil and lubrication services (e.g., Jiffy Lube, Quick Lube and
Speedi-Lube) and when he needs to have his car's oil changed, he chooses the oil and lubrication service
that offers the best deal on a 10-minute oil change. For 10-minute oil and lubrication services, Derrick
defines value as:
A. All that I get for all that I give

B. Everything I want in a service
C. Low price
D. Reliable service
E. The quality I get for the pace I pay

Bloom: Understand
28. 28. When comparing the value of health clubs, Shaundra believes value comes from having a "women's
only" nautilus room and "women's only" aerobic classes. Shaundra defines value as:

B. Whatever I want in a service
C. Low price
D. Reliable service
E. The quality I get for the price I pay
15-8
Bloom: Understand
29. 29. Salespeople are often on the road three nights every week. They cannot afford to stay in the most
luxurious of hotels, but they do appreciate amenities like a good mattress, a firm pillow and a
comfortable work area. They want the price they pay to be commensurate with the amenities provided
by the hotels. They tend to define value as:

C. Low price
D. Reliable service

Bloom: Understand
30. 30. In talking to a travel agent, T. J. Matthews learned that he would have to pay the same amount of
money for a three-day/two-night package right outside the gates of Walt Disney World for his family of
four as he would for a five-day/four-night stay at a hotel that was about 50 miles away from Walt
Disney World. Matthews decided the farther hotel was a much better value. Matthews defined value as:

C. Low price
D. Reliable service

Bloom: Understand
31. 31. Which of the following is NOT an effective pricing strategy to use when customers define value as
"low price"?
A. Odd pricing
B. Synchro-pricing
C. Value pricing
D. Penetration pricing
E. Discounting

Bloom: Remember
Learning Objective: 15-04 Describe strategies that companies use to price services.
15-9
32. 32. American Woman Fitness Centers offer first-time customers a 3-month membership for $79, a
saving of $20 off the regular 3-month membership price. American Woman Fitness Centers' pricing
strategy is aligned with which of the following customer definitions of value?
A. Value is all that I get for all that I give

B. Value is everything I want in a service
C. Value is low price
D. Value is reliable service
E. Value is the quality I get for the pace I pay

Bloom: Understand
33. 33. Executive Dry Cleaners charges customers $2.99 to launder a dress shirt rather than $3.00.
Executive Dry Cleaners is using a(n) _____ pricing strategy.
A. Odd
B. Synchro-
C. Discounting
D. Prestige
E. Complementary

Bloom: Understand
Difficulty: Easy
34. 34. Because most people like to get tattoos and body piercings on the weekends, a tattoo parlor in
Portland, Maine, offers a reduced rate from Monday to Thursday for all of its services. Prices on Friday
and Saturday are 45 percent higher than they are during the rest of the week. The tattoo parlor is using
a(n) _____ pricing strategy.
time diffrentials
A. Odd
B. Synchro-
C. Discounting
D. Prestige
E. Complementary

Bloom: Understand
15-10
35. 35. Which of the following is NOT a type of differential used by service providers to synchronize
demand and supply?
A. Time
B. Quantity
C. Place
D. Utility
E. Incentive

Bloom: Remember
36. 36. American Airlines BreakAway fares offer travelers substantial savings on nonstop flights from
Newark, New Jersey to Los Angeles from mid-August to mid-October. The round-trip airfare is $299
for customers who depart on Friday and return the following Monday or Tuesday. American Airlines is
using a(n) _____ differential.
A. Place
B. Time
C. Quality
D. Incentive
E. Quantity

Bloom: Understand
37. 37. If a family has one child enrolled in Diane’s Day Care Center, it costs $75 per week. If a family has
two children enrolled at Diane’s, it costs $135. Diane’s is using a(n) _____ differential.
A. Place
B. Time
C. Quality
D. Incentive
E. Quantity

Bloom: Understand
15-11
38. 38. All of the following are situations in which a penetration pricing strategy would be appropriate
EXCEPT:
E là skimming
A. Sales volume of the service is very sensitive to price

B. Economies in unit costs can be achieved by operating at large volumes
C. A service faces threats of strong potential competition very soon after introduction
D. There is no class of buyers willing to pay a higher price to obtain the service
E. The service is a major improvement over past services

Bloom: Remember
39. 39. A prestige pricing strategy is appropriate when customers define value as:

B. Everything I want in a service
C. Low price
D. Reliable service

Bloom: Remember
40. 40. In a _____ pricing strategy, new services are introduced at high prices with large promotional
expenditures.
A. Penetration
B. Skimming
C. Prestige
D. Contingency
E. Visible

Bloom: Remember
41. 41. What two pricing strategies are most commonly used when the customer defines value as quality for
the price paid?
“Value Is the Quality I Get for the Price I Pay”
A. Market segmentation pricing and value pricing

B. Psychological pricing and value pricing
C. Penetration pricing and value pricing
D. Discounting and value pricing
E. Market segmentation pricing and price skimming

Bloom: Remember
15-12
42. 42. The New York Yankees, a major league baseball team, offers half-price tickets for high school and
college students every Wednesday home game at Yankee Stadium. The New York Yankees are using
a(n) _____ pricing strategy.
A. EDLP
B. Value
C. Penetration
D. Market segmentation
E. Cost-based

Bloom: Understand
43. 43. Which of the following is NOT an example of an effective pricing strategy to use when the customer
defines value as “all that I get for all that I give?”
A. Price framing
B. Price skimming
C. Complementary pricing
D. Results-based pricing
E. Price bundling

Bloom: Remember
44. 44. Price framing would be used when the customer defines value as:

B. Superior quality
C. Quality I get for the price I pay
D. Everything I want in a service
E. Low price

Bloom: Remember
15-13
45. 45. Deana and Rod Li went on a one-week vacation at the Club Med Turkoise village, located in Turks
and Caicos, a chain of islands in the Caribbean. Club Med's per person price of $2199 included round-
trip air travel from New York, one-week accommodations, all meals, sports, activities and nightly
entertainment. Club Med is using a _____ strategy.
A. Market segmentation pacing

B. Price framing
C. Complementary pricing
D. Price bundling
E. Contingency pricing

Bloom: Understand
46. 46. The price for an all-day trip to the Alpine Spa is $235 and includes an hour-long massage, a facial, a
manicure and pedicure and a hair styling and make-up application. Any of these services can be
purchased individually for the total cost of almost $350. What kind of pricing strategy is Alpine Spa
using?
A. Synchro-pricing
B. Complementary pricing
C. Price bundling
D. Results-based pricing
E. Penetration pricing
47. 47. The three types of complementary pricing are:
A. Substitute pricing, price bundling and leader pricing

B. Leader pricing, value pricing and price lining
C. Leader pricing, penetration pricing and captive pricing
D. Two-part pricing, results-based pricing and bundling
E. Two-part pricing, captive pricing and loss leadership pricing

Bloom: Remember
48. 48. If you visit a county or state fair, you will pay a basic admission fee plus other fees if you want to
enjoy any of the amusement rides. County and state fairs that price this way are using:
A. Synchro-pricing
B. Two-part pricing
C. Mixed bundling
D. Contribution margin pricing
15-14
Bloom: Understand
49. 49. Melissa teaches swimming lessons at the YWCA pool. She will charge $75 per child for four
weeks’ worth of lessons. Payment is not due until the child can swim the length of the pool. If the child
cannot accomplish this task, he or she will be automatically enrolled in the next swimming lesson
session until the child can swim the length of the pool. At that time, the parents will be expected to pay
the $75. The YWCA is using a(n) _____ pricing strategy.
A. Price framing
B. Complementary pricing
C. Price bundling
D. Results-based
E. Value-based

Bloom: Understand
50. 50. The ad for legal services that Marla saw indicated the lawyers would receive no money unless their
client did. To Marla, this statement indicated the legal firm offering this service was using:
A. Synchro-pricing
B. Two-part pricing
C. Mixed bundling
D. Contribution margin pricing

Bloom: Understand
True / False Questions
51. 51. Price visibility does not influence reference prices when selecting a stockbroker.
FALSE
Bloom: Remember
52. 52. Promotional pricing may be less meaningful for services, for which price anchors do not exist, than
for goods, for which they do.
TRUE
Bloom: Remember
15-15
Difficulty: Easy
53. 53. Search costs are the costs invested to identify and choose from services you desire.
TRUE
Bloom: Remember
Difficulty: Easy
54. 54. One of the problems associated with cost-based pricing is the heterogeneity of services, which limits
comparability.
Heterogeneity of services là Competition-Based Pricing
Cost-based pricing là
1. Costs are difficult to trace.
2. Labor is more difficult to price than materials.
3. Costs may not equal the value that customers perceive the services are worth.
FALSE
Bloom: Remember
55. 55. Cost-plus pricing is more likely to be used by lawyers than by the construction industry.
Cost-plus pricing be used when cost must be estimated in advance, such as construction and
engineering.
FALSE
Bloom: Remember
56. 56. Price signaling is typical in markets with a high concentration of sellers.
TRUE
Bloom: Remember
Difficulty: Easy
57. 57. Demand-based pricing does not consider that customers might be sensitive to nonmonetary prices
and may judge quality on the basis of price.
Nonmonetary costs and benefits must be factored into the calculation of perceived value to the
customer.
FALSE
Bloom: Remember
15-16
58. 58. Value may be perceived differently because of consumers' idiosyncratic tastes, knowledge about the
service, buying power and ability to pay.
TRUE
Bloom: Remember
59. 59. When the customer defines value as low price, the service provider should use prestige pricing.
Low price: discount, odd, synchro, penetration
Everything I want: prestige, skimming
FALSE
Bloom: Remember
60. 60. An inn near a ski resort would be using a synchro-pricing strategy if it had lower rates in the
summer months than in its busy season.
TRUE
Bloom: Remember
61. 61. Prestige pricing is a special form of cost-plus pricing by service marketers who offer some sort of
status service like providing cold storage for a mink coat or maintenance for a Rolls Royce.
FALSE
Bloom: Remember
62. 62. Since customers naturally look for price anchors, as well as familiar services, against which to judge
focal services, price framing is an appropriate strategy to use for pricing many types of services.
TRUE
Bloom: Remember
63. 63. In mixed-leader pricing, the price of a catered reception may be less if the bride buys her wedding
cake from the same caterer and pays full price for the cake.
FALSE
Bloom: Remember
15-17
64. 64. The most commonly known form of results-based pricing is a practice called mixed bundling.
Contingency pricing mới thuộc result-based pricing
FALSE
Bloom: Remember
65. 65. Loss leadership is the term typically used when providers place a familiar service on special to draw
the customer to the store and then reveal other levels of service available at higher prices.
TRUE
Bloom: Remember
Short Answer Questions
66. 66. In order to find the best veterinarian service for her prized German shepherds, Joelle interviewed
several different veterinarians and did extensive research before she found one she thought provided
value. What kind of a nonmonetary cost did Joelle expend as she interviewed different vets?
Joilie has to pay the search costs as she interview the diferrent vets. Search costs is the effort invested
to identify and select from among services you desire, so Jolie spends her time interview and did
extensive research is an action of identify & select the service.

Bloom: Understand
67. 67. What is the basic formula for cost-based pricing?
Price = Direct costs + Overhead costs + Profit margin

Direct costs: labor & materials
Overhead costs: shared of fixed costs
Profit margin: Percentage of full costs (Direct + Overhead costs)

Bloom: Remember
15-18
68. 68. Tyra has done volunteer fundraising for years. She has recently decided it would be a good career
move for her to become a full-time, paid fundraiser. She likes the idea of working with a variety of
different organizations and then moving on to some new problem to tackle. She is trying to keep her
operation simple. From what Tyra has told you so far, you understand that she plans on using cost-plus
pricing. What problems do you foresee if she uses this pricing technique? What type of a pricing
strategy might be more appropriate and simpler?
The problems when she the cost-plus pricing – cost-based pricing are:
 One of the major problems with cost-based pricing is defining the units in which a service is
purchased. Thus, the price per unit - a well-understood concept in pricing of manufactured
goods - is a vague entity.
 So she would have to price by the hour and sometimes that becomes difficult with a service
especially when there is a need to develop a rapport with the buyer.
 Costs are difficult to trace or calculate in service businesses, particularly where the firm
provides multiple services. Fundraising covers a wide range of activities. Also, a major
component of cost is employee time rather than materials and the value of people's time is not
easy to calculate or estimate.
 An added difficulty is that actual service costs may under-represent the value of the service to
the customer and therefore, the customer may think he or she is getting less for his money.
The type of pricing might be more appropriate and simpler would be market penetration pricing when
she starts her new business, followed by contingency pricing strategy. This would allow Tyra to share
the risks and rewards of delivering value to the customer.

Bloom: Evaluate
69. 69. What type of pricing strategy will most likely be used by marriage counselors, bridal consultants,
public accountants and tax attorneys?
The pricing strategy mostly used by marriage counselor, bridal consultants, public accountants and tax
attorneys is fee for service (cost-based pricing) – which is the strategy often used by the professionals
and it represents the cost of the time involved in providing the service. These people are expert in their
industry, so they charge their service by the time (often the hour) their service be used.

Bloom: Understand
Difficulty: Easy
70. 70. Chris has a four-year old daughter and often employs one of the many teenagers in the
neighborhood who regularly baby-sit. When one of the teens raised her price to $5.75 per hour, all of
the other babysitters followed suit. Not surprisingly, when another teen tried to increase his babysitting
hours by lowering his rate to $5.25, all of the other teens made the same reduction in their rates. What
kind of a competition-based strategy does this example depict?
The competition-based strategy this example depict is price signaling strategy - any price offered by
one company will be matched by competitors to avoid giving a low-cost seller a distinct advantage.
Therefore in this case, when the price increase to 5.75, all others teenagers also increase, and when the
price decrease to 5.25, the other competitors also decrease the price.

Bloom: Understand
15-19
71. 71. You can get a haircut in one of the rural counties that surround Atlanta for $15. You will pay around
$45 for the same haircut if you buy it in one of the five counties that make up the Atlanta area. Which
type of competition-based pricing does this best exemplify?
The going-rate pricing involves charging the most prevalent price in the market.

Bloom: Understand
72. 72. College activities boards (CABs) have the responsibility for hiring the entertainment that appears on
college campuses. They have limited budgets and when dealing with them, talent agencies have to
remember they often define value as low prices. Describe how a talent agency might use this
information in pricing to those on CABs that actually have the authority to hire the musicians they
represent. Give specific examples with each.
There are four techniques that the talent agencies can use.
- With discounting - service providers offer discounts to communicate to price-sensitive buyers
that they are receiving value, the agency could charge a lower fee if the CAB members
worked with members at another nearby schools and set up show dates on perhaps a Friday and
the following Saturday.
- With odd pricing - the practice of pricing services just below the exact dollar amount to make
buyers perceive that they are getting a lower price, an act would charge $1,999 instead of
$2,000. Odd pricing suggests discounting and appeals to customers for whom value means low
prices.
- With synchro-pricing (time diferentials) - the use of price to manage demand for a service by
capitalizing on customer sensitivity to prices, the agency could offer lower rates, if the CAB
were willing to hold the concerts during the afternoon or on a less popular day like
Tuesday. This would be an example of a time differential.
- If the act is new, then the agency could use penetration pricing - strategy in which new
services are introduced at low prices to stimulate trial and widespread use, to stimulate
widespread hiring of the act and create awareness of the act.

Bloom: Apply
73. 73. What kind of pricing strategy explains why a traveler is willing to pay $400 to fly first class when
he or she could get to the same destination by paying $125?
 The pricing strategy use here is prestige pricing strategy - a special form of demand-based
pricing by service marketers who offer high-quality or status services.
 By charging a higher price for first class, the airline creates a sense of prestige and exclusivity
around the service, making it more desirable for certain customers.
 In the case of the traveler, they are willing to pay $400 for first class because it is associated
with a higher status, luxury experience, and superior amenities. The higher price tag gives the
impression of superior quality and a more enjoyable travel experience, which some customers
are willing to pay for.
 On the other hand, the traveler has the option to pay $125 for economy class, which offers a
more basic level of service without the added luxury and amenities of first class.
15-20
Bloom: Understand
Difficulty: Easy
74. 74. University presidents often have access to funding to pay to have widely recognized people such as
Condoleeza Rice and Ken Burns come to their campuses as speakers. When negotiating with speakers'
bureaus for the services of these individuals, college presidents are primarily concerned with the "get"
component of a service and monetary price is not of primary concern. What types of pricing strategies
should the speakers' bureau use if they wish to appeal to the value as defined by the university
presidents?
In this case, the perception described in this example indicates the university presidents interpret value
to mean everything they want in a service. The more desirable intrinsic attributes a given service
possesses, like how quickly the speaker's name is recognized, the more highly valued the service is
likely to be and the higher the price the speakers' bureau can set.
Prestige pricing seems well suited to this type of service. It would seem university presidents might
actually value the high fees charged by these speakers because it represents prestige. If the speaker is
new on the circuit and wants to quickly become known as a quality speaker who draws a lot of media
attention, then skimming pricing would be appropriate.

Bloom: Analyze
75. 75. What kind of a pricing strategy is a crafts show using when it charges a lower entry fee for teenagers
and senior citizens?
The pricing strategy the craft show use when charges a lower entry fee for teenager and senior citizens
are market segmentation pricing strategy. For this strategy, a service marketer charges different prices
to groups of customers for what are perceived to be different quality levels of service, even though there
may not be corresponding differences in the costs of providing the service to each of these groups.

Bloom: Understand
Difficulty: Easy
76. 76. What are the two types of market segmentation commonly used by service providers?
Two types of market segmentation commonly used by service providers are client category and service
version.
 The service category based on the recognition that some groups find it difficult to pay a
recommended price.
 The service version recognizing that not all segments want the basic level of service at the
lowest price.

Bloom: Remember
15-21
77. 77. A resort that has identified young upper-middle class parents as a market segment charges $1,750
for a four-day, three-night package for a mother, father and two children. The package includes golf fees
and tennis court fees for the parents and a five-hour a day adult-supervised camp for the children. The
ordinary four-day, three-night package for four costs $1,200. A single day at the camp for any child
between the ages of 3 and 11 is $60. What kind of market segmentation pricing strategy is the resort
using?
The resort is using service version pricing strategy, recognizing that not all segments want the basic
level of service at the lowest price. When they can identify a bundle of attributes that are desirable
enough for another segment of customers, they can charge a higher price for that bundle. Companies
can configure service bundles that reflect price and service points appealing to different groups in the
market.
In this case, the normal price for a ordinary package is $1.200, the normal price for single day at the
camp for child is $60 (not included the golf & tennis & adult-supervised yet). Therefore, the resort
(which for the young upper-middle class) hits the psychology of young families by providing more
child care services for young parents to enjoy comfortably, as well as adding a number of fun services
such as golf and tennis with providing the higher price package.

Bloom: Understand
78. 78. List three groups of service providers that typically use results-based pricing?
Lawyers, real estate agents, travel agencies and advertising agencies.

Bloom: Apply
79. 79. Describe the three strategies associated with the complementary pricing of a service?
 In captive pricing, the firm offers a base service or product and then provides the supplies or
peripheral services needed to continue using the service. In this situation the company could
off-load some part of the price for the basic service to the peripherals.
 Two-part pricing because the service price is broken into a fixed fee plus variable usage fees
(also found in telephone services, health clubs, and commercial services such as rentals).
 Loss leadership is the term typically used in retail stores when providers place a familiar
service on special largely to draw the customer to the store and then reveal other levels of
service available at higher prices
Bloom: Understand
15-22
80. 80. Discuss the reasons why customer knowledge of service prices may differ from customer knowledge
of goods prices.
 Many consumers feel quite uncertain about their knowledge of the prices of services.
Reference prices (prices held in memory) for services are not generally as accurate as reference
prices for goods.
 One reason for this is that services are highly variable, that is service firms have a great deal of
flexibility in the configurations of services they offer. Firms may offer an almost infinite
variety of combinations and permutations, leading to complex and complicated pricing
structures.
 Another reason customers lack accurate reference prices for services is that many providers are
unable or unwilling to estimate prices in advance. This occurs quite often in legal and medical
services. In many cases, the service providers themselves do not know what the service will
involve until they have fully examined the client or patient's situation or until after service
delivery.
 Further, individual customer needs vary. The price of a haircut is likely to vary based on length
of hair, type of haircut, and whether a conditioning treatment is applied.
 Finally, collecting price information on services can be an overwhelming task. With most
goods, retailers display products by category to allow customers to compare and contrast the
prices of different brands, sizes, and styles. Rarely is there a similar display of services in a
single place. If customers want to compare prices for services, they must drive to or call
individual outlets or, when prices are available, search on the Internet. The task of finding out
prices is more difficult for specialized services.

Bloom: Understand
15-23

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Chapter 15 Pricing of Services Answer Key

Multiple Choice Questions

A. The greater degree of customer empowerment used to sell services

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A. Individual customer needs vary within the same service provider

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3. 3. All of the following examples are nonmonetary costs EXCEPT:

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A. Monetary price must be adjusted to reflect the value of non-monetary costs

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A. Apartment rental business

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20. 20. Which of the following is an example of competition-based pricing strategy?

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A. Prices may not reflect customer value

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A. Value is all that I get for all that I give

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A. All that I get for all that I give

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A. All that I get for all that I give

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A. All that I get for all that I give

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A. All that I get for all that I give

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A. Value is all that I get for all that I give

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A. Sales volume of the service is very sensitive to price

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A. All that I get for all that I give

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A. Market segmentation pricing and value pricing

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A. All that I get for all that I give

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