Four Star Motorsports-Pricing

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Deliverable 3- Four Star Motorsports
Course: 07360, Pricing Strategy
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Student: Jing Wang, Yu-Wen Chu
* Using regression, estimate the demand curves for each type of tire in each type of demand season (low, medium, high). I recommend that you use Excel to do the regressions. (Note: demand for the two sizes of tire are independent from one another).

Yokohama Winter Rally Tire Demand Curve

 | WR 26 155/65R13| WR 26 185/65R14|
Normal Demand| Q=106.4-0.544P| Q=104.8-0.448P|
High Demand| Q=86.28571-0.33143P| Q=94.5714-0.3314P|
Low Demand| Q=155.2-0.704P| Q=132.8-0.704*P|

* What is the optimal “one-price” policy for Sprongl’s rally tires if he sticks with his “base prices” for the entire year? (Assume his goal is to have no residual inventory and to maximize total revenue).

Tire Type| WR 26155/65R13| WR 26185/65R14|
Inventory| 280| 265|
| | |
Price| $150.82| 159.8190703|
| | |
Period 1| 49.02| 20.29|
Period 2| 24.35| 33.20|
Period 3| 36.30| 41.61|
Period 4| 24.35| 33.20|
Period 5| 36.30| 41.61|
Period 6| 24.35| 33.20|
Period 7| 36.30| 41.61|
Period 8| 49.02| 20.29|
| | |
Demand| $280.00| 265.00|
| | |
| | |
Revenue| $42,229.98| $42,352.05|

* If Sprongl elects to use “dynamic pricing” by changing prices for each tire in each season, what are the optimal prices if his estimated demand curves are estimated correctly? (Note: there is no global optimum solution for this in Solver but several “local optima” that are similar. I recommend that you calculate the optimum pricing for each tire separately, and then sum the total revenue from each).

* What are the pros and cons of fixed and dynamic pricing in this situation? Explain your reasoning.

Fixed pricing:
Pros:
1. Fixed pricing establishes optimal “one-price” policy for Sprongl’s two different rally tires. There will be...
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