What is the reference value McDermott should consider when pricing IC-75? What is the differentiation value offered by IC-75 relative the competitor's offering for each 4,240 hours of usage? What is IC-75's economic value to the customer over its 4,240-hour life? What range of possible prices should McDermott consider when setting a price for IC-75?
What is the reference value McDermott should consider when pricing IC-75? What is the differentiation value offered by IC-75 relative the competitor's offering for each 4,240 hours of usage? What is IC-75's economic value to the customer over its 4,240-hour life? What range of possible prices should McDermott consider when setting a price for IC-75?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:McDermott Company developed a new industrial component called IC-75 that offers superior
performance relative to the comparable component sold by McDermott's primary competitor.
The competing part sells for $1,320 and needs to be replaced after 2,120 hours of use. It also
requires $260 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 4,240 hours of use and it requires $360 of preventive
maintenance during its useful life.
Required:
From a value-based pricing standpoint:
1. What is the reference value McDermott should consider when pricing IC-75?
2. What is the differentiation value offered by IC-75 relative the competitor's offering for each
4,240 hours of usage?
3. What is IC-75's economic value to the customer over its 4,240-hour life?
4. What range of possible prices should McDermott consider when setting a price for IC-75?
1. Reference value
2. Differentiation value
3. Economic value to the customer
4. Range of possible prices
<= Value-based price
<=
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