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

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Accounting

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 $1,400and needs to be replaced after 2,200 hours of use. It also requires$300 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 4,400 hours of use and it requires $400 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 4,400 hours of usage?
3. What is IC-75’s economic value to the customer over its4,400-hour life?
4. What range of possible prices should McDermott consider whensetting a price for IC-75?

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4.3 Ratings (887 Votes)

Value based pricing It is a strategy of setting prices primarily based on a consumers perspective ie the value the costumer is willing to pay for a productservices 1The Reference See Answer

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