Group

Assignment on Variable Pricing

In January, NICCO Park can serve up to 1000 customers per day. It charges a single admission price, and all rides are
free after admission. During winter, demand follows a predictable pattern, with higher demand in weekends than
during weekdays. We assume that demands for different days of the week are independent. Assume linear demand
and zero incremental cost per customer.

To create price response functions, NICCO Park sales manager has collected uncapacitated demand data of 30 weeks
in January for the past few years. As a manager, you have several issues to consider.

A) Should you set a common price for all days in a week? If yes, what should be the profit maximizing common
price?
B) Will you gain more by going for a variable pricing? If yes, what would be the optimal prices for each day in a
week? What is the increase in profit because of the variable pricing vis-à-vis common pricing?
C) You think that varying the price everyday will not be feasible and hence you are planning to set a price for
weekdays (Monday to Friday) and a different price on weekends (Saturday and Sunday). Analyze this pricing
mechanism in detail by comparing it with common and variable pricing mechanism.
D) What is your observation about current entertainment park capacity of 1000 customers? If you are asked to
recommend the change in capacity, what would be your recommendation?
E) What is your insight about the impact of various pricing mechanisms on the utilization of the park considering a
capacity of 1000 customers?

Now consider a situation where NICCO park authorities shifted to an online reservation system where bookings are
made through websites and mobile apps. Online kiosks are kept in front of the gates for the customers who plan to
come directly to the park without any reservation. It is a centralized booking system and customers are not allowed
to book a ticket whenever the capacity (of 1000 customers) is reached. This is applicable for the customers who
directly reach the venue. The online booking system shows the ticket prices offered to the other days whenever a
customer tries to book ticket for a particular day. This is to divert some customers from busier days to the days when
the capacity is not completely exhausted. For example, whenever a customer tries to book ticket for a Sunday, along
with the ticket price of Sunday, the system shows the prices (or discounts on the based price) to switch leisure
customers to the weekdays. The system captures the information about customer’s initial intended day of booking
and final booking day to understand the effect the price change in shifting the customers from one day to another.
From the data, management has identified that on avarage 8 customers shift from one day to another for every Rs 1
difference of ticket prices between two days of week. For example, if the ticket price of Monday is Rs 1 less than the
ticket price of Sunday, 8 customers of Sunday will shift to Monday. You need to make the change in Monday’s price
response function accordingly. Answer the following question.

F) What will be the optimal prices for each day if a variable pricing strategy is followed? What is your observation
about the change in revenue and capacity utilization after implementation of this diversion mechanism?
G) Are you satisfied with the diversion of 8 customers for every Rs 1 change of ticket prices between two different
days of the week? If you have a control over the diversion number (of 8 customers), what will be optimal value
of it?