Question

15. Schimpf Industries Inc. has developed a new grinder, model WC-13, that is designed to offer superior performance to a comparable grinder sold by Schimpf’s main competitor. The competing grinder sells for $86,000 and needs to be replaced after 13,200 hours of use. It also requires $26,400 of preventive maintenance during its useful life. Model WC-13’s performance capabilities are similar to the competing product with two important exceptions—it needs to be replaced only after 52,800 hours of use and it requires $66,000 of preventive maintenance during its useful life.

From a value-based pricing standpoint what range of possible prices should Schimpf consider when setting a price for model WC-13?

Answer 1

Range of the possible prices will be as follows, Competitirs pricevalue based priceeconomic value to the customer (EVC) Step 1 - Competitors price for the grinder is $ 86000. Step 2 - EVC competitors price differentiation value things to consider while calculating the differentiation value, model WC-13 have life of 52800 hours while competitors model have life of only 13200 hours It means model wc-13 have 3 times more life than the competitors grinder, means WC-13 will save price of 3 competitors grinders. And this saving will be $ 258000 (86000x3). Saving in the preventive maintenance cost preventive maintenance cost for 4 grinders of competitor - preventive Saving in the preventive maintenance cost (26400 x 4)-66000 39600 Total differentiation value saving of the cost of 3 grinders+ saving of the preventive maintenance cost Total differentiation value- 258000 + 39600 = $ 297600 Economic value to the customer-competitors price + total differentiation value 86000 297600 383600 Step 3 - answer Range of the possible prices is as follows. 86000value based price for model WC-13<383600