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Pricing Simulation

UNIVERSAL RENTAL CAR V2

by John T. Gourville, Harvard Business School, Tom Nagle, and John Hogan

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Version 2 UPDATED EDITION

At a Florida rental car agency, students assume the role of a district manager responsible for setting rental car prices in up to three cities: Miami, Orlando, and Tampa. Students analyze price sensitivity for business and leisure travelers and consider pricing strategies to maximize vehicle rentals across weekdays and weekends in each city. Students must forecast demand while understanding that demand varies seasonally and that competitive pricing decisions also affect

general market demand for rental cars. Running out of cars in the highly competitive Florida rental market is lost opportunity for profit, while having unrented cars left in inventory increases operating costs. Ultimately, students must develop a strategy to maximize the cumulative profit of the firm. The second release of this popular simulation is designed to deliver powerful learning to students while streamlining tools for faculty to conduct an effective debrief.

Pricing Simulation: Universal Rental Car V2

hbsp.harvard.edu

Students analyze unit sales, capacity utilization, and expected market demand to determine weekday and weekend prices for rental cars.

ADMINISTRATION TOOLS ON NEXT PAGE ➜

ANALYZING DEMAND AND PRICE SENSITIVITY

Students begin the simulation with three months of historical data that allows them to begin analyzing demand for car rentals and available capacity at Universal Rental Car. Each city serves a different mix of business and leisure travelers and the particular price sensitivities of these segments cause demand variations in each city and between weekdays and weekends. Students must consider both historical data and market demand forecasts to understand price elasticity for the two market segments.

The prices set by Universal and its competitor also affect the size of the rental car market and market share between companies. Higher prices not only affect a customer’s choice of where to rent a car but also the decision to rent a car at all.

Students must consider capacity utilization in each city and the effect pricing has on demand.

MAXIMIZING INVENTORY AND PROFITABILITY

In addition to analyzing demand, students must also consider the supply of rental cars at each location. Each simulated month, they examine capacity utilization for weekday and weekend rentals. Running out of cars in a busy month is lost revenue, while having too many cars left unrented also affects profitability. Every car carries fixed costs that must be considered in order to keep the agency profitable.

Instructors can also set up the simulation to require students to allocate inventory among the cities every three simulated months. This option allows students to adjust capacity to best meet anticipated demand and reduce the number of unfilled orders.

UNDERSTANDING THE COMPETITION

For every pricing decision, students must consider the possible competitive reactions. Instructors have the option of changing the behavior of the competition for a particular scenario. For example, one option has the competition using a predatory pricing model that always undercuts Universal’s pricing. The competition can also be set to simply raise prices incrementally each round.

VIEWING HIGH SCORES

To make the simulation more competitive, instructors can allow students to view high scores from the class while the simulation is in progress. The list of high scores ranks the other users in the class by cumulative profit.

CONFIGURING SCENARIOS

Students benefit from playing the simulation multiple times using varied scenarios to experience different pricing challenges. Faculty can choose among three pre-set pricing scenarios or create a custom scenario.

Customer service is available 8 am to 6 pm ET, Monday through FridayPhone: 1-800-545-7685 (1-617-783-7600 outside the U.S. and Canada)Fax: 617-783-7666Email: custserv@hbsp.harvard.eduWeb: hbsp.harvard.edu

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A comprehensive Teaching Note covers key learning objectives:

■■ Understanding the nature and dynamics of consumer response to price (price elasticity)

■■ Accounting for differences in demand across customer segments and regions

■■ Understanding and accounting for seasonal variations in demand

■■ Exploring how pricing decisions affect firm profitability

■■ Using pricing strategies to manage inventory

■■ Anticipating competitive response to pricing decisions

■■ Understanding how general economic conditions affect market demand

FREE TRIAL ACCESSVisit hbsp.harvard.edu

A Free Trial allows full access to the entire simulation and is available to Premium Educators.

Premium Educator access is a free service for faculty at degree-granting institutions and allows access to Educator Copies, Teaching Notes, Free Trials, course planning tools, and special student pricing.

Product #7005 | Single-player | Seat Time: 90 minutes | Developed in partnership with Forio Online Simulations

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Administration Tools for Faculty

Faculty can review web-based results for the entire class as well as detailed results for each student.

ALSO AVAILABLEIN MARKETING

New to this edition:

NEW Design—Updated visuals and navigation allow students to analyze information quickly and make decisions.

NEW Teaching Materials—Updated Teaching Note reduces the time required to learn the simulation.

NEW Dynamic Debrief Slides—Instructors can download presentation- ready debrief slides of class results. Class data automatically displays highest cumulative profit, unit sales, and other key metrics in an easy-to-read graphic format.

NEW Simulation Status—Simulation status information can be viewed from within the instructor’s coursepack and from within the simulation itself. This includes the current pricing scenario students are set to play.