Microsoft Word 2007 ichrie conference Proceedings Final-Final 06-06-07. doc

Price Sensitivity Measurement 
Price can play a considerable role in a consumer’s perception of quality. If price is used as a marketing 
strategy, operators must take into account two roles of price: first, when price acts as a dominant indicator of quality, 
the pricing aspect of the marketing mix can be used to position the product. On the other hand, when price acts as a 
relative indicator of quality, it can be used to alter consumer perceptions of value. Price-value is a relationship that 
goes beyond the monetary price of a service. Price-value is based on the buyer’s view of the relationship between 
price and value (Lewis & Shoemaker, 1997). 
PSM can be used to investigate how consumer perceptions of value are affected by the interaction of price 
and quality. Taco Bell’s value-pricing menu is an example of the application of PSM. Usually, value pricing is 
misconstrued as offering deep discounts, which can lead to a death spiral of price cutting. However, when value 
pricing is based on PSM, value pricing becomes a technique that establishes a balance of price with product or 
service value (Lewis & Shoemaker, 1997). Price-Sensitivity was first explored by Gabor and Granger (1966), who 
investigated upper and lower price limits in the minds of consumers entering the market. Gabor and Granger (1966) 

---