Case Study Overview Congratulations. You’ve been hired as the manager of an A+ Rental Cars franchise that serves a small
Posted: Thu May 05, 2022 7:42 am
Case Study Overview
Congratulations. You’ve been hired as the manager of an A+
Rental Cars franchise that serves a small southern city. A+ is
located at a regional airport, and 40% of their customers are
travelers, with the remaining coming from the town (which has a
small college and a solar panel production facility). There airport
is a good location for the business, as it is located very close to
the college campus, and about a 10-minute drive into the center of
town (which can also be reached by taxi or bus).
Background Information
You have a fleet of 72 cars on site (47 ‘economy’ cars and 25
‘luxury’ cars). Additional cars can be delivered from A+ Rental
Cars’ corporate hub, approximately 70 miles away, if demand for a
particular vehicle type exceeds the number of cars you have
available. Alternatively, a customer renting an economy car can be
upgraded at no charge to a luxury car, if demand exceeds
availability for economy cars. There is one local competitor,
Discovery Rent-a-Car, also located at the airport. They have a
slightly different system of car categories: Sub-Compact, Compact,
Mid-Sized, and Large. Each assignment will provide additional
information and ask for some specific responses from you and/or
your team.
This is an individual assignment. Your response should be in the
form of a standard business report and be submitted in the
Assignments/Dropbox. You woke up this morning to a troubling
advertisement on TV: A+ Rental Cars' local competitor is
discounting their economy rentals. After doing a little digging,
you discover that your competitor has launched an aggressive
advertising campaign, reducing the price on their economy line from
$32.99 to $24.99. Based on your knowledge of previous pricing
practices, you expect a similar price reduction across all vehicle
types. In your memo or short business report, include answers to
the following questions:
1. How will A+ Rental Cars' weekly revenue be affected by the
price cut if you maintain the revenue maximizing price that you
specified previously? Hint: If you did not include Pcomp in your
estimated demand curve, then perhaps you should revisit this
decision.
Demand Curve: Y = 88.23 – 0.51 X
X = Average daily rate of the only competitor across all vehicle
categories
2. Should A+ Rental Cars respond to the competition by reducing
their price as well, or ignore the actions of the competitor and
run the business as usual? If you decide that a price cut is
preferred, how deep should the discount be? Can game theory be used
to analyze this situation? Explain your reasoning and methodology
thoroughly.
3. It would be labor intensive to re-analyze your situation
every time your competitor changed their prices. Is there a way to
develop a formula that would help you quickly pick a price in
response to the price setting behavior of your competitor? Be as
systematic as possible. A general, concise solution is ideal.
Document the process you used to arrive at the "formula".
4. The corporate leadership team inquired about the use of a
"price match guarantee". This policy would mean A+ Rental Cars will
match our competitor's price for a certain vehicle category if
their price is lower than ours. Please comment on the viability of
the this policy. Is it a good idea? Why or Why not?
5. If the price match policy is a good idea, how widely should
it be advertised? Explain.
Congratulations. You’ve been hired as the manager of an A+
Rental Cars franchise that serves a small southern city. A+ is
located at a regional airport, and 40% of their customers are
travelers, with the remaining coming from the town (which has a
small college and a solar panel production facility). There airport
is a good location for the business, as it is located very close to
the college campus, and about a 10-minute drive into the center of
town (which can also be reached by taxi or bus).
Background Information
You have a fleet of 72 cars on site (47 ‘economy’ cars and 25
‘luxury’ cars). Additional cars can be delivered from A+ Rental
Cars’ corporate hub, approximately 70 miles away, if demand for a
particular vehicle type exceeds the number of cars you have
available. Alternatively, a customer renting an economy car can be
upgraded at no charge to a luxury car, if demand exceeds
availability for economy cars. There is one local competitor,
Discovery Rent-a-Car, also located at the airport. They have a
slightly different system of car categories: Sub-Compact, Compact,
Mid-Sized, and Large. Each assignment will provide additional
information and ask for some specific responses from you and/or
your team.
This is an individual assignment. Your response should be in the
form of a standard business report and be submitted in the
Assignments/Dropbox. You woke up this morning to a troubling
advertisement on TV: A+ Rental Cars' local competitor is
discounting their economy rentals. After doing a little digging,
you discover that your competitor has launched an aggressive
advertising campaign, reducing the price on their economy line from
$32.99 to $24.99. Based on your knowledge of previous pricing
practices, you expect a similar price reduction across all vehicle
types. In your memo or short business report, include answers to
the following questions:
1. How will A+ Rental Cars' weekly revenue be affected by the
price cut if you maintain the revenue maximizing price that you
specified previously? Hint: If you did not include Pcomp in your
estimated demand curve, then perhaps you should revisit this
decision.
Demand Curve: Y = 88.23 – 0.51 X
X = Average daily rate of the only competitor across all vehicle
categories
2. Should A+ Rental Cars respond to the competition by reducing
their price as well, or ignore the actions of the competitor and
run the business as usual? If you decide that a price cut is
preferred, how deep should the discount be? Can game theory be used
to analyze this situation? Explain your reasoning and methodology
thoroughly.
3. It would be labor intensive to re-analyze your situation
every time your competitor changed their prices. Is there a way to
develop a formula that would help you quickly pick a price in
response to the price setting behavior of your competitor? Be as
systematic as possible. A general, concise solution is ideal.
Document the process you used to arrive at the "formula".
4. The corporate leadership team inquired about the use of a
"price match guarantee". This policy would mean A+ Rental Cars will
match our competitor's price for a certain vehicle category if
their price is lower than ours. Please comment on the viability of
the this policy. Is it a good idea? Why or Why not?
5. If the price match policy is a good idea, how widely should
it be advertised? Explain.