The Cleveland Downtown Inn is a 100-room hotel that has historically charged one set price for its rooms, $150 per night. The variable cost of a room being occupied is low. Management believes the cleaning, air-conditioning, and incidental costs of soap, shampoo, and so forth, are $15 per room per night. Sales average 50 rooms per night. Figure 13.5 illustrates the current pricing scheme. Net sales are

$6,750 per night with a single price point APPROACH c Analyze pricing from the perspective of revenue management. We note in Figure 13.5 that some guests would have been willing to spend more than $150 per room—“money left on the table.”
Others would be willing to pay more than the variable cost of $15 but less than $150—“passed-up contribution

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Room Sales Total $ contribution = (Price) x (50 rooms) = ($150-$15)(50) = $6,750 100 Demand curve Passed-up contribution Potential customers exist who are willing to pay more than the $15 variable cost of the room, but not $150. 50 $15 Variable cost of room (e.g., cleaning, A/C) $150 Some customers who paid $150 were actually willing to pay more for the room. Money left on the table Price charged for room Price