Asked by Andrew Grasso on May 14, 2024
Verified
Bochenski Mechanical Corporation has developed a new industrial grinder-model UF-48-that has been designed to outperform a competitor's best-selling industrial grinder. Model UF-48 has a useful life of 80,000 hours of service and its operating cost is $1.95 per hour. In contrast, the competitor's product has a useful life of 20,000 hours of service and has operating costs that average $2.75 per hour. The competitor's industrial grinder sells for $148,000. Bochenski has not yet established a selling price for model UF-48.
Required:
From a value-based pricing standpoint what is the differentiation value offered by model UF-48 relative to the competitor's offering for each 80,000 hours of service?
Value-based Pricing
A pricing strategy where prices are set primarily on the perceived value to the customer rather than on the cost of the product or historical prices.
Industrial Grinder
A heavy-duty machine designed for industrial applications, such as grinding metals or plastics.
Operating Cost
Expenses associated with the day-to-day operations of a business, excluding costs related to direct material and direct labor.
- Gain an understanding of value-based pricing and its implementation in pricing products.
- Assess the distinctiveness value of a product vis-à-vis its competitors.
- Recognize the role of operating costs in contributing to the total cost of ownership for a product.
Verified Answer
Differentiation value = ${{[a(8)]:#,###}} + ${{[a(11)]:#,###}} = ${{[a(12)]:#,###}}
Learning Objectives
- Gain an understanding of value-based pricing and its implementation in pricing products.
- Assess the distinctiveness value of a product vis-à-vis its competitors.
- Recognize the role of operating costs in contributing to the total cost of ownership for a product.
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