Final answer:
Marketing managers can select a higher price alternative to improve service as high prices may signal higher quality to consumers, especially in markets with imperfect information. However, they must ensure that service quality corresponds to the higher price to avoid customer dissatisfaction and brand damage.
Step-by-step explanation:
When considering whether marketing managers can use a higher price alternative to improve service, it is essential to understand that a higher price could potentially serve as a signal of higher quality in the minds of consumers. This is because, in scenarios with imperfect information, prices can influence perceptions of quality. If there is a perception that a higher price equates to better service, this could indeed increase demand if the product's target market responds to such pricing strategies. This approach may work notably in markets where the price elasticity of demand is relatively inelastic, allowing firms to pass on higher costs without significantly reducing the quantity demanded.
However, marketing managers should be wary that pricing strategies are part of a broader marketing mix and must be aligned with the actual quality of the service offered. For instance, if customers do not perceive an improvement in service that corresponds with the higher price, this could backfire leading to dissatisfaction and potential damage to the brand's reputation. Conversely, if the service significantly exceeds customer expectations, the higher price might not only be justified but could enhance the firm's image, and could lead to increased customer loyalty and word-of-mouth promotion, further driving demand.