Deck 16: Pricing and Revenue Management in a Supply Chain

Question 1

Wastage occurs if higher price buyers have to be turned away because the capacity has already been committed to lower price buyers.

Answer 1

False

Question 2

The cost of a capacity shortage is the increase in productivity that results from having to go to a backup source.

Answer 2

False

Question 3

The tactic of varying price over time is suitable for assets such as fashion apparel that have a clear date beyond which they lose a lot of their value.

Answer 3

True

Question 4

The tactic of overbooking or overselling the available asset is suitable in any situation where customers are able to cancel orders and the value of the asset drops significantly after a deadline.

Question 5

Pricing may influence demand if customers are price sensitive.

Question 6

Unused capacity from the past is extremely valuable.

Question 7

In theory,the concept of differential pricing decreases total cost for a firm.

Question 8

An order from a lower price buyer should be accepted if the expected revenue from a higher price buyer is lower than the current revenue from the lower price buyer.

Question 9

In most instances of differential pricing,demand from the segment paying the lower price arises earlier in time than demand from the segment paying the higher price.

Question 10

Effective differential pricing over time will generally increase the level of product availability for the consumer willing to pay full price,but will decrease total profits for the retailer.

Question 11

The basic trade-off to consider during overbooking is between having wasted capacity (or inventory)because of few cancellations or having a shortage of capacity (or inventory)because of excessive cancellations.

Question 12

To differentiate between the various market segments,the firm must either eliminate barriers that identify product or service attributes the segments value differently.

Question 13

The goal when making the overbooking decision is to maximize supply chain profits by minimizing the cost of wasted capacity and the cost of capacity shortage.

Question 14

Any asset that loses value over time is perishable.

Question 15

The amount of the asset reserved for the higher price segment is such that the expected marginal revenue from the higher priced segment is less than the price to the lower price segment.

Question 16

Revenue management may also be defined as the use of differential pricing based on customer segment,time of use,and product or capacity availability to increase supply chain surplus.

Question 17

Revenue management adjusts the pricing and available supply of assets to maximize profits.

Question 18

Spoilage occurs when the capacity reserved for higher price buyers is wasted because demand from the higher price segment does not materialize.

Question 19

Revenue management is the use of marketing to increase the profit generated from a limited supply of supply chain assets.

Question 20

The cost of wasted capacity is the margin that would have been generated if the capacity had been used for production.

Question 21

Salespeople must understand the revenue management tactic in place so they can align their sales pitch accordingly.

Question 22

The two forms of supply chain assets are

A) capacity and inventory.
B) capacity and revenue.
C) inventory and revenue.
D) inventory and warehouse space.

Question 23

The reserved quantity will be affected by the difference in margin between the spot market and the bulk sale,but not the distribution of demand from the spot market.

Question 24

Revenue management may be defined as

A) the use of differential costing based on product or capacity availability to decrease supply chain cost.
B) the use of differential costing based on customer segment, time of use, and product or capacity availability to increase profitability.
C) the use of differential pricing based on customer segment, time of use, and product or capacity availability to decrease supply chain surplus.
D) the use of differential pricing based on customer segment, time of use, and product or capacity availability to increase supply chain surplus.

Question 25

Revenue management is the use of pricing to increase the supply chain surplus and profit generated from a limited availability of supply chain assets.

Question 26

Shifting demand from peak to off-peak periods is beneficial if the discount given during the off-peak period is more than offset by the decrease in cost because of a smaller peak and the increase in revenue during the off-peak period.

Question 27

Pricing can be used to

A) change available supply.
B) reduce supply chain costs.
C) influence demand if customers are price sensitive.
D) all of the above

Question 28

The use of differential pricing should

A) decrease total profits for a firm.
B) increase total profits for a firm.
C) increase capacity for a firm.
D) decrease capacity utilization for a firm.

Question 29

Customers will have a negative perception of revenue management tactics if they are simply presented as a mechanism for extracting maximum revenue.

Question 30

The forecasting function is not necessary for most revenue management systems.

Question 31

Ultimately,a proper understanding of customer preferences and a quantification of the impact of various tactics on consumer behavior are at the core of successful revenue management.

Question 32

Too low a level of overbooking will lead to unutilized assets and lost revenue.

Question 33

The goal of optimization is to use forecasts of customer behavior to identify a revenue management tactic that will be most effective.

Question 34

Too high a level of overbooking will lead to unutilized assets and lost revenue.

Question 35

The amount reserved for the spot market should be such that the expected marginal revenue from the spot market equals the current revenue from a bulk sale.

Question 36

Revenue management is

A) the use of marketing tools to increase revenue.
B) the use of pricing to increase the profit generated from a limited supply of supply chain assets.
C) a process designed to determine the best use of funds generated through sales.
D) the use of accounting tools to monitor cash flow.

Question 37

Faced with seasonal peaks,an effective revenue management tactic is to charge a higher price during the peak period and a higher price during off-peak periods.

Question 38

Airline seats are a good example of a product whose value varies by market segment.

Question 39

Airline seats are a good example of a product whose value is the same across different market segments.

Question 40

Which of the following are issues that must be dealt with in order for differential pricing to be effective?

A) The firm must differentiate between the market segments and structure its pricing to make one segment pay more than the other.
B) The firm must control demand such that the lower paying segment does not utilize the entire availability of the asset.
C) The firm must secure enough capacity to meet demand from each segment.
D) A and B only

Question 41

A shortage of capacity (or inventory)occurs when

A) there are excessive cancellations.
B) there are few cancellations.
C) an expensive backup needs to be arranged.
D) B and C only

Question 42

To successfully use revenue management when serving multiple customer segments,a firm must use which of the following tactics effectively?

A) Price based on the value assigned by each segment
B) Use different prices for each segment
C) Forecast at the segment level
D) all of the above

Question 43

The amount of the asset reserved for the higher price segment is such that

A) all orders from the lower priced segment will be accepted and filled.
B) the expected marginal revenue from the higher priced segment is more than the price to the lower price segment.
C) the expected marginal revenue from the higher priced segment is less than the price to the lower price segment.
D) the expected marginal revenue from the higher priced segment equals the price to the lower price segment.

Question 44

Which of the following is (are)revenue management tactics appropriate for perishable assets?

A) Vary price over time to maximize expected revenue
B) Under book sales of the asset to account for unexpected demand
C) Overbook sales of the asset to account for cancellations
D) all of the above

Question 45

When the capacity reserved for higher price buyers is wasted because demand from the higher price segment does not materialize,this is

A) spill.
B) spoilage.
C) wastage.
D) excess.

Question 46

Wasted capacity (or inventory)occurs when

A) there are excessive cancellations.
B) there are few cancellations.
C) an expensive backup needs to be arranged.
D) all of the above

Question 47

To differentiate between the various market segments,the firm must

A) create barriers by identifying product or service attributes that the segments value differently.
B) eliminate barriers that identify product or service attributes that the segments value differently.
C) negotiate separately with different market segments that value product or service attributes differently.
D) develop pricing structures based on the volume of various product or service attributes.

Question 48

The basic trade-off to consider during overbooking is between

A) having wasted capacity (or inventory) or a shortage of capacity (or inventory).
B) having lost sales or a shortage of capacity (or inventory).
C) having wasted capacity (or inventory) or excess capacity (or inventory).
D) having high sales or a shortage of capacity (or inventory).

Question 49

The goal when making the overbooking decision is to maximize supply chain profits by

A) maximizing the value of wasted capacity and the cost of capacity shortage.
B) maximizing supply chain profits.
C) minimizing the cost of wasted capacity and the cost of capacity shortage.
D) minimizing the cost of wasted capacity and minimizing capacity shortages.

Question 50

An order from a lower price buyer

A) should always be accepted rather than waiting for potential revenue from a higher price buyer.
B) should only be accepted if the expected revenue from a higher price buyer is higher than the current revenue from the lower price buyer.
C) should be accepted if the expected revenue from a higher price buyer is lower than the current revenue from the lower price buyer.
D) should not be accepted if the expected revenue from a higher price buyer is lower than the current revenue from the lower price buyer.

Question 51

The tactic of overbooking or overselling the available asset is suitable where

A) there is a clear date beyond which the asset loses a lot of its value.
B) there is no clear date beyond which the asset loses a lot of its value.
C) customers are able to cancel orders and the value of the asset drops significantly after a deadline.
D) customers are unable to cancel orders and the value of the asset drops significantly after a deadline.

Question 52

A perishable asset is

A) something that decays or deteriorates.
B) an item that has a short life span.
C) any asset that loses value over time.
D) all of the above

Question 53

In most instances of differential pricing,demand from the segment paying the lower price

A) arises earlier in time than demand from the segment paying the higher price.
B) arises later in time than demand from the segment paying the higher price.
C) arises about the same time as demand from the segment paying the higher price.
D) arises both earlier and later in time than demand from the segment paying the higher price.

Question 54

An effective revenue management tactic when faced with seasonal peaks is to charge a

A) high price during the peak period and a higher price during off-peak periods.
B) higher price during the peak period and a lower price during off-peak periods.
C) lower price during the peak period and a higher price during off-peak periods.
D) low price during the peak period and a lower price during off-peak periods.

Question 55

The cost of a capacity shortage is

A) the reduction in margin that results from having to go to a backup source.
B) the margin that would have been generated if the capacity had been used for production.
C) the productivity increase generated when the capacity is used for production.
D) the sales potential of excess capacity kept in reserve for emergency production.

Question 56

The basic trade-off to be considered by the supplier with production capacity is between

A) committing to an order from a high-price buyer or waiting for a lower price buyer to arrive later on.
B) committing to an order from a lower price buyer or waiting for a high-price buyer to arrive later on.
C) allowing the market to be controlled by price or capacity.
D) having marketing or operations establish the constraints within which orders are accepted.

Question 57

The tactic of varying price over time is suitable for assets

A) that do not have a clear date beyond which they lose a lot of their value.
B) that have a clear date beyond which they lose a lot of their value.
C) where customers are able to cancel orders and the value of the asset drops significantly after a deadline.
D) where customers are unable to cancel orders and the value of the asset drops significantly after a deadline.

Question 58

If higher price buyers have to be turned away because the capacity has already been committed to lower price buyers,this is

A) spill.
B) spoilage.
C) wastage.
D) excess.

Question 59

The cost of wasted capacity is

A) the reduction in margin that results from having to go to a backup source.
B) the margin that would have been generated if the capacity had been used for production.
C) the productivity increase generated when the capacity is used for production.
D) the sales potential of excess capacity kept in reserve for emergency production.

Question 60

Effective differential pricing over time will generally

A) decrease the level of product availability for the consumer willing to pay full price and also decrease total profits for the retailer.
B) decrease the level of product availability for the consumer willing to pay full price but will increase total profits for the retailer.
C) increase the level of product availability for the consumer willing to pay full price and also increase total profits for the retailer.
D) increase the level of product availability for the consumer willing to pay full price but will decrease total profits for the retailer.

Question 61

In order to achieve the greatest value,

A) supply planning and revenue management should be performed separately.
B) supply planning should be completed first.
C) supply planning and revenue management should be combined.
D) revenue management should be completed first.

Question 62

Revenue management adjusts the pricing and available supply of assets and has a significant impact on supply chain profitability when one of four conditions exist.Which is not one of the four conditions listed in the textbook?

A) The product is highly perishable or product wastage occurs.
B) Demand has seasonal and other peaks.
C) The product is sold both in bulk and on the spot market.
D) The value of the product is the same across different market segments.

Question 63

The fundamental trade-off between selling in bulk or on the spot market is

A) different from the situation where a firm serves two market segments.
B) similar to the case when a firm serves two market segments.
C) similar to the case where a firm must deal with seasonal demand.
D) similar to the case where a firm has a perishable asset.

Question 64

Overbooking as a tactic has been used in many industries.However,it has not been used as much as possible in the following industry:

A) hotels.
B) passenger rail.
C) airline.
D) transportation capacity.

Question 65

Which of the following is not listed as a step in revenue management?

A) Quantify the benefits of revenue management.
B) Implement a forecasting process.
C) Involve sales and not operations
D) Understand and inform the customer.

Question 66

Describe the role of revenue management.

Question 67

Shifting demand from peak to off-peak periods is beneficial if the discount given

A) during the off-peak period is more than offset by the decrease in cost because of a larger peak.
B) during the off-peak period is more than offset by the decrease in cost because of a smaller peak.
C) during the peak period is more than offset by the decrease in cost because of a smaller peak.
D) during the peak period is more than offset by the decrease in cost because of a larger peak.

Question 68

The amount reserved for the spot market should be

A) such that the expected marginal revenue from the spot market equals the current revenue from a bulk sale.
B) such that the expected marginal revenue from the spot market exceeds the current revenue from a bulk sale.
C) such that the expected marginal revenue from the spot market is less than the current revenue from a bulk sale.
D) equal to the maximum revenue available from the spot.

Question 69

Capacity assets in the supply chain do not exist for

A) transportation.
B) production.
C) inventory.
D) storage.

Question 70

The tactic of overbooking or overselling of the available asset is suitable in any situation in which customers are able to cancel orders and the value of the asset drops significantly after a deadline.Which of the following would not be an example of this?

A) Computers
B) Airlines seats
C) Production capacity
D) Items designed for a specific holiday

Question 71

The decision to use overbooking will

A) lead to upset customers and a high cost of providing them space.
B) lead to unutilized assets and lost revenue.
C) lead to reduced profits.
D) depend upon optimization to be successful.

Question 72

Successful revenue management requires

A) a proper understanding of customer preferences.
B) a quantification of the impact of various tactics on consumer behavior.
C) a clear focus on profitability.
D) A and B only

Question 73

The forecasting function is

A) the foundation of any revenue management system.
B) unnecessary for a revenue management system.
C) an added plus for any revenue management system.
D) likely to create problems for any revenue management system.

Question 74

Example industries of a product whose value varies by market segment would not include

A) airlines.
B) grocery stores.
C) hotels.
D) car rental companies.

Question 75

Most firms must decide what fraction of an asset to

A) sell in bulk and what fraction of the asset to discard.
B) save for the spot market and what fraction of the asset to discard.
C) save for emergencies and what fraction of the asset to rework.
D) sell in bulk and what fraction of the asset to save for the spot market.

Question 76

The reserved quantity for the spot market will be affected by

A) the difference in margin between the spot market and the bulk sale.
B) the distribution of demand from the bulk sale.
C) the distribution of demand from the spot market.
D) A and C only

Question 77

The sales force must understand the revenue management tactic in place

A) in order to align their sales pitch accordingly.
B) in order to identify those customers who truly need the supply chain asset during the peak period.
C) in order to identify those customers that will benefit from moving their order to the off-peak period.
D) all of the above

Question 78

It is important for the firm to structure its revenue management program in a way that

A) it is presented simply as a mechanism for extracting maximum revenue.
B) revenue increases while improving service along some dimension that is important to customers that pay the highest price.
C) profit is maximized.
D) all of the above

Question 79

The goal of optimization in revenue management is to identify a tactic

A) using forecasts of customer behavior that will be most effective.
B) using linear regression that will maximize revenue.
C) using linear regression that will minimize cost.
D) that will not have to be altered.

Question 80

Examples of perishable assets would not include

A) high-fashion apparel.
B) fruits.
C) computers.
D) ink jet printers.