McDermott Company has developed a new industrial component called IC-75. The company is excited about IC-75...

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General Management

McDermott Company has developed a new industrial componentcalled IC-75. The company is excited about IC-75 because it offerssuperior performance relative to the comparable component sold byMcDermott’s primary competitor. The competing part sells for $1,360and needs to be replaced after 2,160 hours of use. It also requires$280 of preventive maintenance during its useful life.
The IC-75’s performance capabilities are similar to itscompeting product with two important exceptions—it needs to bereplaced after 4,320 hours of use and it requires $380 ofpreventive maintenance during its useful life.
Required:
From a value-based pricing standpoint:
1. What is the reference value that McDermott should considerwhen pricing IC-75?
2. What is the differentiation value offered by IC-75 relativethe competitor’s offering for each 4,320 hours of usage?
3. What is IC-75’s economic value to the customer over its4,320-hour life?
4. What range of possible prices should McDermott consider whensetting a price for IC-75?

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4.1 Ratings (617 Votes)

Answer1 The reference value that McDermott should consider when pricing IC75 is as below The unit service charge per hour should be considered when pricing IC75 because the market perceived the product based on its hour life in the market and its maintenance cost to the customers Thus for current product the selling price 1360 See Answer

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