Background for all questions

Alex Matteo is a former partner of a professional accounting firm who has recently established a not- for-profit organisation Leadership in Business. The organisation has the social mission to fill the gap  in professional education of young people caused by the COVID- 19 pandemic, particularly young      people who come from lower social-economic groups. Leadership in Business recently ran its first     major event – Launchpad – a conference primarily for high school students to connect with university students who are studying business and with the professional world.

Section 1: Pricing basis

Alex and the management team of Leadership in Business have decided to run a series of small          monthly workshops covering current topics in business. Workshops will be run by an industry expert, coaching high school and university students to work together on practical business problems.  The    first three workshops will cover the issues of business recovery post-pandemic, cryptocurrencies, and the use of artificial intelligence in business.

The management team is considering how best to market these workshops to high school and              university students. Their current thinking is to offer different prices to high school and university       students for the monthly workshops. They also want to encourage students from target schools to        attend workshops by offering these schools lower prices. This aims to ensure a good diversity mix and meet the organisation’s social mission.

Required:

1)    Berry and Yadav (1996) have suggested pricing strategies can be used to minimise the risks associated with the provision of services.

Pick two customer groups from high school students, targeted schools, and university students. Propose a pricing strategy for each group using one of Berry & Yadav ’s (1996) strategies.

•    For each strategy provide a practical explanation of how it will work.

•    Explain how the strategy will benefit the customer group and how Leadership in Business will benefit.

•    You must propose a different type of pricing strategy for each customer group.

(8 marks)

2)   Leadership in Business has started taking bookings for the coming year’s workshops.            Management have discovered that the workshops covering technology topics are much more popular than general business topics. Alex has suggested introducing an extra charge for       technology workshops.

Referring to Prospect Theory concepts, discuss whether customers are likely to view this pricing strategy as fair. Suggest an alternative approach, based on the concepts of Prospect Theory, that might be more acceptable.

(8 marks)

(Total for Question: 16 marks)

Section 2: Inventory allocation

Alex has started planning for the next Launchpad conference for later in the year. This will be a one- day event. Tickets will be available for high school students, university students, corporate guests and will also target students from lower decile schools. A venue with total capacity of 500 has been         booked for the event.

Required:

3)    The management team has estimated demand and the contribution margin for each ticket type as follows:

Using Nested EMSR determine the protection levels and the booking limits for the four ticket types. Assume that demand can be modelled by a Poisson distribution.

(14 marks)

4)    Alex is not sure EMSR is the right approach for determining capacity allocations to each ticket  type. Instead, they think a simpler approach would be to use a Threshold Curve applied to the    lower decile ticket type only. The idea would be to restrict the availability of these tickets if       demand is too high. Bookings open 30 days before the event and demand is expected to be         uniform throughout the booking period. The management team have collected the following       information from the last Launchpad conference for five days ’ total cumulative bookings during the booking period to illustrate the differences between expected and actual demand.

Prepare a concise instruction guide for the booking agents to apply the Threshold Curve when  deciding whether to take orders for tickets from lower decile customers. Your instruction guide should cover:

•    Possible threshold(s) for the event, referring to the booking information provided.

•    Description of what these thresholds mean and how they are used to make decisions.

•    An example to show when lower decile tickets would be offered.