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

 
 
Figure 2
The cumulative distributions of responses for “cheap” and “expensive”

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2007 Annual International CHRIE Conference & Exposition 
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with an intersection of the two graphs representing the indifference price (IDP) 
0%
10%
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100%
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Price (Hong Kong $)
C
u
m
u
la
tiv
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 D
is
tri
b
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Cheap
Expensive
Indifference Price
= $130
Figure 3 
The cumulative distributions of responses for “too cheap” and “too expensive”
with an intersection of the two graphs representing the optimal pricing point (OPP). 
0%
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0
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Price (Hong Kong $)
C
u
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ve D
ist
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b
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ti
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Too Cheap
Too Expensive
Optimal Pricing Point
= $139
 
 
 
Figure 4 
Combined cumulative distributions of responses for “cheap” and “expensive” and for “too cheap” and “too 
expensive”; the intersections between the four graphs establish a stress price range – the difference between 
the IDP and the OPP.

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2007 Annual International CHRIE Conference & Exposition 
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0
20
40
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Price (Hong Kong $)
C
u
m
u
la
tiv
e
 P
e
rc
e
n
ta
g
e
Too Cheap
Too Expensive
Cheap
Expensive
Indifference Price 
= $130
Optimal Pricing Point
= $139
Stress Price Range
= $9
Figure 5 
Combined cumulative distributions of responses for “cheap” and “expensive” and for “too cheap” and “too 
expensive”, the intersections between the four graphs establish a stress price range 
 – the difference between the IDP and the OPP. 
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0
20
40
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100
120
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Price (Hong Kong $)
Cu
mu
la
ti
v
e
 Di
st
rib
u
ti
o
n
Not Cheap
Too Cheap
Too
Expensive
Not
Expensive
Point of Marginal Expensiveness
= $148
Point of Marginal Cheapness
= $100
Range of acceptable
prices = $48
The graph in figure 4 combines the cumulative distribution of guest responses to the four main questions 
(questions 3-6) in the questionnaire in order to determine whether the respondents experience “stress” over price. In 
general, it can be assumed that the closer the OPP and the IDP are, the lower the price consciousness of the 

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2007 Annual International CHRIE Conference & Exposition 
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respondents is. The results illustrate that the indifference point ($130), is smaller than the optimal pricing point 
($139). These results indicate that “stress” levels over price are low, since the price respondents are likely to pay for 
a dinner buffet is somewhat higher than the indifference point. Therefore, price sensitivity for dinner buffet guests 
is relatively low. 
According to Lewis and Shoemaker, 1997 the basic idea of the PSM technique is the reinterpretation of the 
data in a way that reverses the distribution of “cheap” and “expensive” to be portrayed as, “not expensive” and “not 
cheap”. Graph 4 (figure 5) establishes a range of acceptable prices (RAP) by combining graphs 1, 2 and 3 (figures 
2, 3 and 4). The graph combines the reversed cumulative distribution of “cheap” and “expensive” from graph 1 with 
graph 2’s distributions of “too cheap” and “too expensive”. The range of acceptable prices is the distance between 
the points of marginal cheapness and marginal expensiveness. The larger the range, the less price sensitive 
customers are. In analyzing graph 4, the range of acceptable prices is fairly “wide” ($48) - the point of marginal 
cheapness was found to be HK $100 and the point of marginal expensiveness was HK $148. Thus, it can be 
concluded that buffet dinner guests are not very price sensitive.