Too late, an automobile rental company, is planning its pricing strategy for the second half of the
Question:
Too late, an automobile rental company, is planning its pricing strategy for the second half of the year. They want to set the Single Day and Weekend rates for each of its three classes of vehicles: Luxury, Standard, and Budget. Weekend rates reflect the total price for renting a vehicle for three days (Friday, Saturday, and Sunday). Single Day prices reflect the price for renting a vehicle for one day. The goal is to maximize overall revenue. Based on internal data and a market analysis, Too Late estimates the total number of rentals for each vehicle class as follows:
Estimated # Rentals | Single Day | Weekend |
Luxury | 100 | 60 |
Standard | 250 | 100 |
Budget | 200 | 100 |
There are maximum and minimum prices for the Single Day options:
Price | Luxury | Standard | Budget |
Maximum | 300 | 150 | 75 |
Minimum | 200 | 100 | 25 |
To make the Weekend rates attractive, the prices for each vehicle class should be set so that the average (per day) price for a Weekend rental is no more than 80% of the Single Day price. To compete in the market, Too Late should also make sure that, among the three vehicle classes, the average Single Day price cannot exceed $150, and the average Weekend price (for all three days) between the three vehicle classes cannot exceed $300.
Determine the optimal amount to charge for Daily and Weekend Rentals for each vehicle class.