Question

In order to overcome perishability characteristics of services, service organizations practice differential pricing to maximize the profit given demand. This practice is called:

1) Price discrimination
2) Market segmentation
3) Demand forecasting
4) Cost analysis

Answer 1

Service organizations practice price discrimination to manage perishability and demand, maximizing profit by varying prices for different times or customer groups.

Step-by-step explanation:

In the context of service organizations, the practice of setting different prices for services at different times or for different customer groups to manage perishability and demand is known as price discrimination. This pricing strategy aims to maximize profit by charging customers different prices based on the perceived value of the service, the time of service, or the customer's willingness to pay. Service organizations often deal with differentiated products, which have unique characteristics such as physical aspects, location, intangible elements, or customer perceptions. By differentiating their offerings, companies in monopolistic competition can create a downward-sloping perceived demand curve and utilize price discrimination to adjust prices in response to fluctuations in demand.