CPP Dynamic Pricing & Revenue Management 3

Question 1

A pricing analyst notices that price increases of 10% reduce unit volume by only 4%. What does this indicate about demand?

Accepted Answer

Inelastic demand

Answer

When a percentage price change causes a smaller percentage change in quantity, demand is inelastic (|PED| < 1).

Question 2

Overbooking in airline and hotel revenue management is justified because:

Accepted Answer

It maximizes load factor when cancellations and no-shows are predictable

Answer

Statistical models predict expected no-shows and cancellations, allowing overbooking to fill seats/rooms that would otherwise go empty.

Question 3

In a dynamic pricing model, 'price elasticity segmentation' means:

Accepted Answer

Identifying customer segments with different price sensitivities and pricing accordingly

Answer

Segmenting by price elasticity lets firms charge higher prices to inelastic segments and lower prices to elastic ones, improving overall revenue.

Question 4

Which of the following is a key risk associated with overly aggressive algorithmic dynamic pricing?

Accepted Answer

Price wars and margin erosion if competitors match every move

Answer

When competing algorithms mirror each other's cuts, both sides can spiral into price wars that destroy industry-wide margins.

Question 5

A theme park charges lower ticket prices on Tuesdays than on Saturdays. This is an example of:

Accepted Answer

Day-of-week demand-based pricing

Answer

Charging different prices on different days of the week based on expected demand is a form of time-based dynamic pricing.

(CPP) Certified Pricing Professional Practice Test