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 $1,300 and needs to be replaced after 2,100 hours of use. It also requires $250 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 4,200 hours of use and it requires $350 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 4,200 hours of usage? 3. What is IC-75's economic value to the customer over its 4,200-hour life? 4 What range of possible prices should McDermott consider when setting a price for IC-75?
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 $1,300 and needs to be replaced after 2,100 hours of use. It also requires $250 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 4,200 hours of use and it requires $350 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 4,200 hours of usage? 3. What is IC-75's economic value to the customer over its 4,200-hour life? 4 What range of possible prices should McDermott consider when setting a price for IC-75?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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I cant figure out the last two problems
Transcribed Image Text: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
$1,300 and needs to be replaced after 2,100 hours of use. It also requires $250 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
4,200 hours of use and it requires $350 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 4,200 hours of usage?
3. What is IC-75's economic value to the customer over its 4,200-hour life?
4. What range of possible prices should McDermott consider when setting a price for IC-75?
1. Reference value
2. Differentiation value
$ 1,300
$ 1,450
$ 2,750
3. Economic value to the customer
4 Range of possible prices
<= Value-based price <=
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