McDermott Company has developed a new industrial component called IC-75. The com
ID: 2524527 • Letter: M
Question
McDermott Company has developed a new industrial component called IC-75. The company is excited about IC-75 because it offers superior performance relative to the comparable component sold by McDermott's primary competitor. The competing part sells for $1,580 and needs to be replaced after 2.380 hours of use. It also requires $390 of preventive maintenance during its useful life. The IC-75's performance capabilities are similar to its competing product with two important exceptions-it needs to be replaced after 4,760 hours of use and it requires $490 of preventive maintenance during its useful life. Required: From a value-based pricing standpoint: 1.What is the reference value that McDermott should consider when pricing IC-75? 2 What is the differentiation value offered by IC-75 relative the competitor's offering for each 4,760 hours of usage? 3. What is IC-75's economic value to the customer over its 4,760-hour life? . What range of possible prices should McDermott consider when setting a price for IC-75? 1. Reference value 2.Diffierentiation value 3. Economic value to the customer 4 Range of possible prices Value-based price !Explanation / Answer
**Competitor product -> $390 for 2380 hrs i.e $720 for 4760 hrs.
Our product IC-75 offers $490 only for 4760 hrs.
Hence, extra value provided = $230
Amount ($) 1 Reference Value 1580 2 Differentiation value 230** 3 Economic value to the customer 720** 4 Range of possible prices $1810 <= Value based price <= $1580