Havard Business SCHOOL PAPER: Universal Car Rental Pricing Simulation
July 2012

Universal Car Rental Pricing Simulation

Background:
The objective of the simulation was to maximise profits of Universal Car Rental Company. The simulation was run across three cities in Florida; Tampa, Orlando and Miami.

Overall strategy:
We adopted a strategy of offering the highest price achievable whilst maintaining 100% capacity utilisation irrespective of market share. In the context of the scenario, where growth in demand outstripped supply and with only twelve ‘rounds’, we felt market share was not fundamentally important. In respect of setting the pricing level, we calculated the price elasticity of demand to give us an insight into the increment we could increase the price. We concluded that price elasticity of supply was irrelevant in the context of this simulation.

Market Demand: customer price response
We were quickly able to observe that weekday and weekend demand outstripped supply, we deduced that weekday demand was a proxy for business users and weekend demand was a proxy for leisure users. After running the simulation for the first quarter we were able to analyse the Price Elasticity of Demand (PED). In general we found that demand from business users was price inelastic, whereas leisure users were price sensitive. The ranking of price inelasticity by market as calculated from our Quarter 1 numbers is shown in table 1. The graphical representation of the computations is recorded in Appendix D. Table 1: PED from Quarter 1

In Tampa and Miami demand was more price elastic than in Orlando, where demand was price inelastic at the levels we had set prices in the first quarter. As a result of this observation we increased the weekday prices more rapidly than the weekend prices in Quarter 2 across