Shaikha, the owner of a 4* star hotel in Sharjah, considers to apply smart pricing and revenue management to maximize her profits. The total capacity of this hotel in Sharjah is 200 rooms. The fixed cost to operate a room is 500 AED per night. A price sensitivity study shows that the relationship between the price (p) and demand (d) is: d = 200 − 0.1p

a. What is the optimal price that Shaikha should charge for each room? And what is the maximum profit Shaikha will make? Please show your calculations.

b. Please discuss why this optimal price strategy may not be satisfactory to Shaikha.

Shaikha hires a consultancy firm that conducts an advanced market study and finds that the customers can be divided into two segments that each react differently to the offered prices. Their demand functions are:

d1 = 300 − 0.05p1 (for segment 1) and d2 = 250 − 0.02p2 (for segment 2).

c. Based on the two demand functions of the two segments, how would you describe these two segments in your own words? What are the main differences between these two segments?

d. What are the optimal prices that Shaikha should charge for each segment? Please show your calculations.

e. Which main problem(s) will Shaikha face if she charges these prices? Please justify your answer.

f. How much more profit will Shaikha make with this price differentiation compared to if she would charge one fixed price to both segments? Please show your calculations.

Hint: First, calculate the fixed price that Shaikha will charge to both segments.

g. Discuss two differential pricing strategies Shaikha can use for her business.

Shaikha is annoyed by the large number of no-shows and last-minute cancellations from customers, especially during peak seasons. Let’s assume that the hotel charges customers a price of 800 AED per night. Shaikha considers to accept overbookings, which means that she will accept more bookings than the number of rooms, but she is worried what to do if more customers show up than the number of rooms in his hotel. In that case, she thinks that she should offer a free dinner voucher (of 200 AED value) and a stay in the more luxury hotel next that charges 1,200 AED per night. Shaikha forecasted that the number of cancellations will be normally distributed with a mean of 15 and a standard deviation of 5.

h. Should Shaikha accept overbookings? And if so, what is the optimal overbooking strategy?

i. From a business ethical point of view, do you agree or disagree with overbooking? Please explain.

Answer rating: 100% (QA)

a ANS WER The optimal price would be 2 000 A ED per night WORK ING d 200 0 1 p d 200 0 1 2000 d 0 This means that at a price of 2 000 A ED per night the hotel would be at full capacity and there would ... View the full answer