Question
In: Finance
You are the revenue manager of a 200-room hotel in Memphis. The management controllable costs (variable...
You are the revenue manager of a 200-room hotel in Memphis. The management controllable costs (variable room costs) incurred when selling 1 room are $50. You are interested in evaluating hotel performance for two scenarios: fixed pricing and differential pricing.
Scenario one is that you used a fixed pricing strategy: at a selling pricing $200 per night your hotel would sell 150 rooms on a given day.
Scenario two is that you implement a three-price strategy: low rate $150 per night, regular rate $200 per night, and high rate $250 per night. Your hotel would sell 100 low-priced rooms, 60 regular-priced rooms, and 20 high-priced rooms per day.
2. Discuss which scenario generates more revenue for your hotel and why?
Solutions
Expert Solution
Revenue per day
Scenario 1=200*150=30000
Scenario 2=100*150+60*200+20*250=32000
Hence, Scenario 2 generates more revenue because it is able to capture different segments and also extract higher consumer surplus
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