Copa Cruises - Welcome Aboard! Copa Cruises is a 40-year old company that offers dining and sightseeing cruises.

What started with only one ship at Marylands Eastern Shore, is now a big business operating at multiple locations with 40 vessels. Copa operates scheduled tours at least twice daily during the peak travel/tourism seasons at each of its locations. The total number of scheduled tours varies based on the number of vessels available at each location. Copa also offers its ships exclusively for groups. In fact, a significant portion of Copas revenues come from group bookings. Typically, group customers book for corporate events, weddings, or private celebrations (e.g. family reunion). Copa customizes the table arrangement, the deck, and the menu to suit its customers needs for a group event. An event coordinator helps customers with the layout, food and dining options, and other special needs for their utmost satisfaction. The event coordinators at each of the locations oversee reservations and logistics of special events. Currently, event coordinators have full responsibility in pricing the cruises for groups. Once a customer makes an inquiry, an event coordinator first checks the availability by date. If the group can be accommodated given the capacity of a ship and there is availability for the desired date, further information about the event is gathered. A service contract that specifies the date, time, route and length of the cruise, the food and beverage selection, and additional service needs, is prepared. The event coordinator specifies a price per person to cover all the expenses of a tour in this contract. Information on each contract is recorded in Copas database. Event coordinators charge different prices to different customers. However, price differentiation is done in an ad hoc manner. Each coordinator relies on his/her expertise and knowledge to quote a price to a customer. Many event coordinators think corporate groups are less sensitive to prices compared to private groups. Others think there are geographic differences: A private event is believed to be more likely to accept a contract with a higher price in New York City compared to other locations. In summary, there seems to be systematic biases at pricing group events. Copa is interested in providing guidance to its event coordinators to make better pricing decisions. Contract data that has been collected for a 12-month duration will be used for this purpose. Table-1 below shows a snapshot of data. Each transaction has a unique Customer-ID. The event takes place at a
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Fall 2009 This case was prepared by Itir Karaesmen and Inbal Yahav of Robert H. Smith School of Business at University of Maryland, College Park. The names, locations, and other information included in the case are fictitious. Any resemblance of company, data, or circumstances to any organization past or present is coincidental.

specific location, denoted by a number (e.g. location 1 is Boston). Information on how far in advance the booking was made, the type of event (wedding, private or business), the price (per person) quoted to the customer, and whether the customer booked the cruise at that price (recorded in the Win column; a 1 indicates customer booked the cruise, 0 indicates otherwise) are all recorded in the data file.

Customer ID 2007-1 2007-2 2007-3 2007-5

Location 8 10 6 1

Booking date (# of days before the event) 47 195 84 177

Type Wedding Private Private Wedding

Price quote ($ per person) $179.00 $118.00 $180.00 $157.00

Win 0 1 0 1

Table-1: Snapshot of collected data. The list of locations is also available in the data file. All the events recorded in the data set were for groups of size 50. The groups were homogeneous in their needs such as the length of the tour and the type of service provided on board. In other words, the cost of the cruise did not vary across customers included in this data set. 1) Download the Excel file that includes the data. Using all the transactions in the data set, determine the revenue maximizing price for Copa. Here is a step-by-step approach: a) Fit a logit price-response curve to the data using the MLE approach discussed in class. (NOTE: For better numerical precision and to get good results in Excel, use prices in 100s. That is if the quote is $150 per person for a contract, use $1.5 per person in the MLE calculations.) b) Based on the fitted logit curve, what is the price (per person) that maximizes expected revenue per event? What is the expected revenue per transaction for that price? c) Assuming the annual number of inquiries remains the same, what would be the total expected revenue for the company if the price you determined in part (b) is used? How does the annual expected revenue compare to the total revenue earned by Copa in 2007? 2) Analyze the data to determine whether there are multiple price segments. a) What is your segmentation criterion? Explain clearly. b) What is the revenue maximizing price for each segment? What is the expected revenue for each transaction in that segment? (You have to repeat the analysis in part (1) for each of the segments.)
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Fall 2009 This case was prepared by Itir Karaesmen and Inbal Yahav of Robert H. Smith School of Business at University of Maryland, College Park. The names, locations, and other information included in the case are fictitious. Any resemblance of company, data, or circumstances to any organization past or present is coincidental.

c) What is the annual expected revenue for Copa for each segment? (Considering the transactions corresponding to each of your segments in the data file, you can determine how much revenue Copa would earn in each segment.) How does the expected annual revenue of Copa compare to total revenues in 2007 if optimal price for each segment was used? 3) The case mentions each contract in the data set had the same cost. Suppose this was not the case. Answer the following question assuming there is no segmentation. a) Will the profit maximizing price be different than a revenue maximizing price? b) Would differences in costs affect your segmentation criteria? Why or why not? 4) Currently, the events are first screened by availability of vessels: no contract is prepared for an event if Copa is booked entirely for the desired date/time of the event at the desired location. The data set does not include any information on the events where the customer was immediately turned down due to lack of availability. a) Is screening the reservations inquiries by availability a good strategy? Why or why not? b) Can you suggest a better way to manage the group reservations and pricing at Copa? How can Copa further improve its pricing process? What additional information would you provide to the event coordinators to better manage the reservations and pricing?

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Fall 2009 This case was prepared by Itir Karaesmen and Inbal Yahav of Robert H. Smith School of Business at University of Maryland, College Park. The names, locations, and other information included in the case are fictitious. Any resemblance of company, data, or circumstances to any organization past or present is coincidental.