Marketing HW2 Answers

Marketing HW2 Answers - Amanda Brady Weihan Ni Oscar Rivera...

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Amanda Brady Weihan Ni Oscar Rivera Wenjun Wang Yue Yang HW #2 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 is the price of what the customer views as the best substitute to what you are offering. It is composed of all potential sources of economic value to the customer. 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 to the customer. It is composed of factors that separate your product from the competitive product or process, such as performance, reliability, features, maintenance, start-up costs, etc. Differentiation value does NOT always need to be positive. For example, if a competitive product has lower performance, that is a negative differentiation value. 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. This is not necessarily an error. It is possible that this product serves unmet or unarticulated needs. Potential sources of value are availability, convenience, functionality, relationship, and reference price. An example of this is a diamond encrusted cell phone. Anyone can get a cell phone at a cheap price, but diamonds could contribute to a $44K differentiation value. 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? Currently, plant pays $1000 every 2 months (200 rings x $5, replaced every 2 months). The new o-rings last twice as long, so they only need to be replaced every 4 months. The plant would pay $2000 for the old o-rings in this time, and would presumably be willing to pay the same amount and be able to change the rings less, which would mean we could charge $10 for the new o-rings (200 x $10 = $2000 every 4 months). (This is not taking into the account labor costs for changing o-rings less frequently) 2. DIFFICULT: 1
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Amanda Brady Weihan Ni Oscar Rivera Wenjun Wang Yue Yang BACKGROUND: The AC company has developed a resin designed to compete with other resins in the manufacture of flexible pipe. They believe that their pipe is substantially more durable than the competition: experiments show that pipes made with AC company resin fail only 3 percent of the time compared to an 8 percent failure rate for its nearest competitor. Consumers currently pay $6.50 per hundred feet for pipe made with low-quality
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Marketing HW2 Answers - Amanda Brady Weihan Ni Oscar Rivera...

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