Question

Cables Electronics Corporation has developed a new instrument-model XG-75--that has been designed to outperform a competitor's best-selling instrument Model XG-75 has a useful life of 40,000 hours of service and its operating cost is $2.80 per hour. In contrast, the competitor's product has a useful life of 20000 hours of service and has operating costs that average $5.00 per hour. The competitor's Instrument sells for $169,000. Cables has not yet established a selling price for model XG-75. From a value based pricing standpoint what is the reference value that Cables should consider when pricing model XG-757 Multiple Choice $269,000 $281,000 $338.000 0 $169,000 Prow 30 of 40 Mext >

Answer 1

* The price of product currently being used by competitor is $ 169,000. The above product can run for 20,000 hours and costs $5 per hour. * Now, the company by name of Cables Electronic Corporation has also developed a similar product to that of the competitor. However, the product is better in terms that it can run for 40,000 hours as compared to competitor's 20,000 hours. Also, the cost is $ 2.80 per hour as compared to competitor's $5 per hour. Firstly, the competitor's price scale of $ 169,000 cannot be used as it is on the basis of 20,000 hours and not 40,000 hours. Secondly, double the price of competitor also cannot be used because the pricing per hour is not a match. Hence, $ 338,000 also cannot be used. Though 40,000 hours are double of what competitors product can provide. The total cost on 40,000 hours will be $ 112,000 (40,000 * 2.80) The cost of competitor is $ 169,000 Thus, reference cost should be $ 169,000 + $ 112,000 = $ 281,000 $ 269,000 cannot be used because the value has no reference for the company. The price of $ 281,000 would act as base and is cheaper as it costs per hour are cheaper. Also, it works for double the number of hours as competitor. Additionally, the cost are less the what it will cost as compared to competito Plus, the company would be in position to penetrate the market and make profits at the same time.