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Medium Profitability Market Entry Pricing Strategy

New Club in the Hub

#Hospitality #Nightlife/Entertainment
ProHub Comment

This case tests quantitative modeling and pricing strategy optimization. The candidate must calculate venue capacity based on physical constraints, model customer throughput with turnover dynamics, and compare two alternative pricing strategies to maximize profitability. The key is recognizing that revenue optimization requires analyzing both price elasticity and customer composition.

Estimated Time 15 minutes
Difficulty Medium
Source Queen's
50 / 100
An investor has purchased a building in Downtown Kingston and is considering using the space for a new nightclub. They come to you and ask for help assessing the viability of a new nightclub in this market. What do you tell your new client?

Clarifying Information

  1. The total floor space of the building available is 6000 square feet, of which 1/3 is taken up by office space, the bars, and other unusable space
  2. Maximum capacity is set at 1 person per 10 square feet of usable space
  3. Assume the nightclub reaches capacity at 12:00 AM (midnight)
  4. Over every half-hour after midnight, 100 people will leave and be replaced by a different 100 people, until the nightclub closes at 2:00 AM
  5. The average person coming through the nightclub will purchase two shot-equivalents in a night. (A shot equivalent is either a shot of alcohol or a mixed drink containing one shot.)
  6. Bottles of alcohol purchased by the club cost an average of $10 per bottle and contain 25 shots each
  7. Cover for the nightclub is initially set at $5 per person and alcoholic drinks cost $5 per shot-equivalent
  8. Queen’s University has 15,000 undergraduate students, of which 8000 are female and 7000 are male
  9. Key competitors include Ale House (two-floor nightclub), Stages (dance club), The Spot (low-cost nightclub), and Undies (student nightclub on-campus)
  10. For a regular night, no club currently charges more than $5 for cover, or $10 for a drink. However, for special events, ticket prices can reach $40.