2. Demand-Supply Function
Economic model of price determination in the market
in a competitive market, the unit price for a particular good will vary
until it settles at a point where the quantity demanded (at the current
price) will equal the quantity supplied (at the current price), resulting in
an economic equilibrium for price and quantity transacted.
3. Competition Dependent
Factors
Price of related goods and services
Extra services to attract customers
Reputation of company compared to its competitors
Advertisement amount spent
Discount and Upgrade
Customer database
4. Competition Independent
Variables
Tastes and Preferences
Consumer’s expectations about future prices and incomes that can be
checked
Number of potential customers
Income of people
Current situation of economy
Climatic conditions and cultural factors
5. What more data should have
been given?
Amongst the local customers, the division of masses on the basis of age
and occupation should have been given. As it would have helped the
firm target particular areas like colleges, offices, etc. and at different
times of a day.
The average maintenance cost of the two types of cars (including the
mileage) used in the business should have been mentioned as it plays a
major part while calculating the profits.
The reach of the rival firms isn’t mentioned – How many people do they
reach to? Where do they have their business concentrated at? How
much profits are they making?
6. What more data should have
been given?
The country’s economic situation should have been mentioned. If there’s
growth in the economy, more people will likely avail the firm’s services and
if there’s recession, people will be earning less and will prefer a cheaper
mode of transport, e.g. the public transport.
The price of the services that are being provided should have been
mentioned in order to get a view of the money the firm is making.
Although the population of the state has been mentioned, the area isn’t. It
won’t be feasible for the firm to work in a state with a large area. 25 million
people can be spread over an area of 3,000 km² or they can be spread over
300,000 km². The business will be affected accordingly.
7. Importance of historical data
Although there are factors that change with time, making historical data
not have much influence on the future projections, there are some factors
about which predictions can be made depending upon the historical data.
The data from the previous years about the demand in each season
(summer, fall, rainy) should be provided. This will help in deciding how
much cars are to be rolled out and how much support staff needs to be
employed.
The historical data about the places from where number of people have
ordered to rent can be useful in determining the area to concentrate to
increase the market.
8. Importance of historical data
The number of Luxury Sedans and Sports Sedans that have been
demanded by the people in the previous years can help in determining
if there’s need to buy more number of cars or to cut off the number on
any of the two types of cars.
The profits made in the previous years might help in targeting the
amount of profits to be made in the coming years.
9. Revenue and profit
maximization – the basics
Revenue maximization: Revenue
will be maximized when the price
elasticity is unity.
The total revenue = Price of one x
Quantity of goods sold or services
offered
Profit maximization: As we have
competition, our marginal revenue
will be equal to the price of one
rental.
Profit maximization will happen
when marginal revenue is equal to
marginal cost, and it will give us
the quantity of cars that have
been rented at that point.
10. Revenue and profit
maximization
The firm can focus on improving car qualities and providing better
customer service – Firstly, the nature of costumers should be analysed. If
customers are quality conscious, the quality of cars can be made better and
even cars manufactured by world-class companies can be provided and
they can be charged more accordingly.
Low-price strategy – If the company has a fierce competition with the rival
firms, it can reduce the rent and attract more customers. In the long run,
the company will gain people’s trust and can achieve profits by raising
prices later on.
By targeting particular areas of the state’s cities which have yielded more
money as compared to other areas.
11. Revenue and profit
maximization
Attractive advertising – The firm can reach more number of people
quite easily by advertising in the form of Banners on hoardings, Ads on
local channels, etc.
Easy to reach to people – Online booking can be made available and
even a mobile app can be created to help people book a car easily.
Depending upon the demand more cars can be called in a particular city
to fulfil the requirements.
To cut down losses – The firm should keep a track of the money it is
requiring to spend on cars and the staff. Cutting of unnecessary
spending helps in improving the profits.
12. Revenue and profit
maximization
More types of cars – People with different economic backgrounds have
different differing needs. Someone would like to rent a Honda Accord
and someone a BMW 3-series. So, catering to the needs of different
kinds of people, different types of cars should be provided.
To attract more number of tourists visiting the state, the firm can come
up with schemes like ‘Free first ride’ or ‘50% off on the first free ride’.
If it is feasible to call cars from cities 100 miles away, considering the
fuel costs, only then such measures should be taken.
13. What if a customer is allowed to
keep the rented car for an extra
day?
When a customer keeps the rented car for an extra day, the firm loses out on
one car, and if the car had been allotted to another customer who would be
requiring it the next day, the firm will have to allot another car for that
purpose.
The margin cost will increase due to the uncertainty that the customer will
keep the car for an extra day.
During booking, a customer can be asked if he/she wants to keep the car for
any extra days and discounts can be provided subsequently.
But after renting a car, if a customer asks for extending the time to keep the car,
he can be charged more to cover for the extra costs incurred in the form of
calling a car from another city to make up for the car(whose time has already
been extended) the next day.
14. What if a customer is allowed to
keep the rented car for an extra
day?
However, charging a customer more can mean he/she loses the trust in the
company.
And it can also affect the trust of the customer who has booked the same
car for the next day. If the substitute car doesn’t arrive in time and also if
the customer is not ready to accept the substitute, another customer’s
trust can be lost.
Taking into consideration the covering up of losses incurred in such a
situation and also to meet the costumers’ satisfaction level, a system can
be devised which involves charging the customer who plans to extend the
car’s renting without notifying beforehand more and doing the best to not
lose people’s trust in the company.
