Jet Ski Rentals

“I’m sorry Sir,” said Javier “but all of our boats and our jet skis are out right now. I could get you a unit in about 45 minutes.”

“Thanks anyway,” said the disappointed couple as they walked away from the small beachfront watercraft rental business Javier operated with his partner Esperanza. Their stand was located on the beach in San Juan Del Sur, Nicaragua. Beach traffic was heavy in the daytime and especially in the early afternoon. That’s when Javier and Esperanza’s business was best.

“What did they want?” asked Esperanza as she walked over to the stand where Javier had been talking to the young couple.

“They wanted a two-person jet ski. I told them all our units were out on the water right now,” said Javier.

Esperanza looked at her watch and said, “Typical. It’s two o’clock. Prime time. Everybody wants to rent just after lunch and before dinner. You should have told that couple to come back tomorrow morning, when it’s slow!”

“Maybe we need to buy more jet skis,” said Javier, “so we have more inventory available in the afternoon.”

“More jet skis would just mean more cost,” replied Esperanza. “Maybe what we really need to do is reexamine our pricing.”

  1. Assume that you were advising Javier and Esperanza on pricing. Would you suggest their units rent for the same amount before noon as they do in the afternoon?
  2. Javier seems to believe that additional jet skis would expand the business’s inventory. What exactly is the product sold by Javier and Esperanza? Is it perishable
  3. Assume that Javier and Esperanza wanted to implement a demand-based (differential) pricing structure. How would you advise them to do it?