HW2 - Marketing Management Professor Arjun Chakravarti...

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Professor Arjun Chakravarti Homework #2 – Due Beginning of Week 5 Economic Value to the Consumer (EVC) I. Conceptual Questions about EVC 1. Define the reference value of a product. What is it composed of? Reference value of a product is the price of what customer views as best substitute to the product. Best alternative to your product. 2. What is the differentiation value of a product in the market? Does differentiation value always need to be positive? Give an example of when it is not. Differentiation value is the value of differentiating attributes (both positive and negative) to the customer. No. A laptop without camera while others are planted cameras. 3. You ask an employee to do an EVC analysis on a new product line. The reference value of the product is calculated to be $100 and the differentiation value is $44,000. Is this necessarily a mistake? Explain why or why not. In general, provide a reason for why you may not be able to charge the differentiation price in the market. No. The best substitute of the product is $100, yet the attributes separate the product from others are high-valued. For example, a DIOR cell-phone with diamonds on its surface. EVC leads to Maximum Price, while others may provide a lower price, this would affect the customers’ willingness to pay. They may purchase the cheaper one. II. Computing EVC Values 1. EASY: Suppose a chemical plant uses 200 O‐Rings to seal the valves on pipes that carry corrosive materials. The plant pays $5 each for every o‐ ring and must change them during regular maintenance every two months. A new O‐Ring product has twice the corrosive resisting power. What is the price that you can charge for the O‐Ring to make its value equal to the old O‐ring? 2. DIFFICULT:
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This note was uploaded on 11/07/2011 for the course ECON 101 taught by Professor Johnson during the Spring '11 term at Sciences Po.

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HW2 - Marketing Management Professor Arjun Chakravarti...

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