Can you please help with the tasks on this assignment?
Overview It has been two years since your last Assignment. Following your recommendations, A+ Rentals implemented radical changes in its price structures and in its marketing. That is, the economy car is advertised for its convenience and availability. More targeted advertisement has been issued to spread the word to the right audience, mostly family tourists during the summer. Meanwhile, the strategy of the luxury car program has been reviewed to maximize the overall profit. This strategy change was successful and Rental A+ began dominating the market over the competitor quickly. Observing that A+ Rentals takes a larger share of the local market, it became apparent that a price increase would improve the profit. Now it is time consider your new pricing strategy. Research Staff Memo To begin with, price discrimination had been implemented in A+ Rental. During the data collection earlier, the overall average price was $28, although the prices ranged from $20 to $35 depending on different options and premium features. The new pricing strategy was to recognize the strong position of A+ Rental in the local market and take advantage of the market power. In this memo, pricing strategy is analyzed. Following the success of the new marketing strategy, the data indicated that the demand for the Economy Cars became higher. Given that the number of visitors to the city has not changed much, A+ Rental has taken more market share. Clients like A+ Rental more than its competitor because they recognize the uniqueness of A+ Rental's services. Some developed enough loyalty to sign up for a newly-established membership program. Given the new demand estimated by our team, it is strongly suggested that we can increase our profit by raising the average price from $28 to $31 (about a 10% increase). As a result, we will have a smaller amount of rentals (measured by car-days) with a higher average revenue. Moreover, by implementing more targeted pricing, we can further increase our profit. Targets identified by the research team are as follows: • Family travelers during the summer. They tend to prefer having larger cars for an extensive length of days. • Parents of prospective university students at the end of summer. They tend to prefer smaller cars with options and amenities. • Regular travelers to the regional nature reserve. They tend to be younger and have a higher chance of accidents. They are more sensitive to price changes. • Business people. They are much less sensitive to price changes, but have specific preferences for the cars used. As long as the specifications of the cars are unchanged, they will be likely to remain our customers. Those groups make up for the majority of our customers (70%), while the rest are a composition of various demographics such as students, travelers for events, and so on. Tasks Task 1. Currently A+ Rentals charges all customers the same daily rate. The lone exception to this rule is the $12.50 surcharge on customers under 25 years of age (required by company policy). Should A+ Rental Cars consider alternative pricing strategies? For instance, is it possible to increase revenue and profit by charging different customers different prices? If so, how would you approach and implement these strategies? Please explain your strategy. Task 2. Your execs expressed some concern about the higher price. Some were unhappy that the research team expects some drop in the number of rental contracts. What is the rationale for this analysis? In other words, why do we expect fewer contracts, but more profit? (You may assume that the market is in monopoly or is monopolistic to simplify your analysis.) Please explain. If helpful, use a graph in Appendix. Task 3. You know that the competitor will not just sit and watch, if they lose their profit. However, they may adapt to the situation if they can benefit from it instead. It is all about strategic moves when you have few competitors. What would be the condition under which the competitor will gain from the price increase of A+ Rentals? What are the risks of taking the pricing strategy without coordination with the competitor? Please explain. Task 4. [Revisiting Assignment 2] Your execs want to hear about the opportunity cost. Two years ago, you reported that the company had a "zero economic profit" but a "positive accounting profit." What does that mean? Please explain.