Exam 16: Pricing and Revenue Management in a Supply Chain

Pricing may influence demand if customers are price sensitive.

Scenario 16.1 - The Stone Lion The Stone Lion, a bed and breakfast located in a sleepy town, caters to two groups of customers, young couples interested in something marginally more exotic than a staycation, and corporate clients interested in doing some team-building at a location with no cellular service. Corporations know they can get rooms with minimal notice, but young couples on tight budgets tend to plan well in advance of their planned stay at the property. The corporate rate for rooms is $250 per person and the demand pattern is normal with a mean of 20 and a standard deviation of 10. The proprietor of the Stone Lion takes pity on the young couples and charges them only $150 for identical accommodations. -If the corporate price and young couples' price both double, how many additional rooms should the Stone Lion hold for corporate clients?

In theory, the concept of differential pricing decreases total cost for a firm.

Wastage occurs if higher price buyers have to be turned away because the capacity has already been committed to lower price buyers.

Scenario 16.3 - AITP's Revenge The student chapter of the Association of Information technology Professionals (AITP) notices the success that the APICS student chapter has with their traditional barbecue sauce fundraiser. Blinded by their jealousy, the club officers decide to sell a competing product, clocks made out of junk computer parts that the club sponsor whips up in his garage. Club officers set up a card table in the atrium of the business building and take turns staffing it for the duration of the computer clock season, which is four months. Twenty-five years of experience have revealed that demand varies depending on the month of the season. Customer demand in the first month can be described as 20-p?, in the second month as 20-1.4p?, in the third month 20-1.8p?, and in the fourth month 20-2.2p?. -The components needed to produce a computer clock cost twenty-five cents. How many clocks should the AITP club produce?

The two forms of supply chain assets are

The basic trade-off to consider during overbooking is between having wasted capacity (or inventory) because of few cancellations or having a shortage of capacity (or inventory) because of excessive cancellations.