Question

Rapson Pure Water Solutions Corporation has developed a new water purification system-model EN 78-that has been designed to outperform a competitor's best-selling water purification system. Model EN 78 has a useful life of 120,000 hours of service and its operating cost is $0.70 per hour. In contrast, the competitor's product has a useful life of 40,000 hours of service and has operating costs that average $1.20 per hour. The competitor's water purification system sells for $149,000, Rapson has not yet established a selling price for model EN-78. From a value-based pricing standpoint what range of possible prices should Rapson consider when setting a price for EN-78? Multiple Choice 0 $233,000 S Volue-based prices $358,000 $358,000 s Value-based prices $507.000 0 $149.000 s Value-based price $507.000 O $149,000 S Value-based prices $233,000

Answer 1

Range will be decided as follows

Reference value ≤ Value-based price ≤ EVC

Reference value refers to the alternative that is competitor price which is $149000.

EVC = reference value + differentiation value

Differential value consist of savings due to choosing our product over competitor.

If customer buy EN 78 he don't have to purchase 2 additional competitng alternative so saving = $149000*2 = $298000

This is because of the difference in service hours.

Also saving in operating cost

= 120000 * ( $1.20 - $0.70)

= $60000

Hence total differentiation value = $60000 + $298000

= $358000

So EVC = $149000 + $358000 = $507000

Hence range will be between $149000 and $507000. Answer is option C

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