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

 
2007 Annual International CHRIE Conference & Exposition 
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determined that, within certain limits, price acts as a quality indicator but do not act as a barrier to purchase, while 
outside these limits, price may become a barrier.
Lewis and Shoemaker (1997) pointed out that PSM is a far more realistic approach than reference pricing, 
which consists of “the price last paid, the price most frequently paid, or the average of all prices paid for similar 
offerings” (Zeithaml & Bitner, 1995). Reference pricing for services is confusing in the mind of the consumer, 
producing a lack of a firm reference point and price limits.
The concept of price sensitivity was first investigated by Gabor and Granger (1966), who asked retail 
customers about the upper and lower limits of prices at which they would purchase items. Gabor and Granger (1966) 
suggested that prices outside these limits were intolerable to customers, that prices below the lower limits indicated 
poor quality and prices above the limit represented unacceptably high price values at which customers refused to 
purchase items.
The concept of price limits was further developed by the Dutch economist Travers (1980), who determined 
the level of consumer price resistance over a range of prices in relation to customers’ perceptions of value. The 
fundamental premise of PSM incorporates two basic goals: to determine the threshold range in price and to 
determine the stress price level (Lewis & Shoemaker, 1997). The threshold range of acceptable prices incorporates 
the lowest price, the one below which the consumer will question the quality of the product, and the highest price, 
above which the consumer feels that the product or service is too expensive. On the other hand, the price stress 
range refers to the difference between the prices points at which an equal number of customers feel that a product is 
cheap as think it expensive (Lewis & Shoemaker, 1997). 
The PSM approach was largely unobserved by the hospitality literature until Lewis and Shoemaker (1997) 
demonstrated the approach with an example of the association meeting market. Next, we will demonstrate how this 
method can be applied to the restaurant industry with an example of a Hong Kong buffet restaurant.