Chruch Corporation manufactures numerous products, one of which is called Tau42. The company has provided the following data about this product:

-From a value-based pricing standpoint what is GZ-29's economic value to the customer over its 30,000 hour useful life?
A) $519,000
B) $370,000
C) $205,000
D) $245,000

Question

Chruch Corporation manufactures numerous products, one of which is called Tau42. The company has provided the following data about this product:
 
-From a value-based pricing standpoint what is GZ-29's economic value to the customer over its 30,000 hour useful life?
A) $519,000 
B) $370,000 
C) $205,000 
D) $245,000

Quizplus · Accepted Answer

The economic value to the customer (EVC) is determined as follows:
EVC = Reference value + Differentiation value
The reference value is the price of the competing alternative, which in this case is $149,000.
The differentiation value has two components. First, customers who purchase a GZ-29 rather than the competing alternative would avoid the need to buy three instruments for $149,000 rather than just one GZ-29 to achieve 30,000 hours of service. This is a savings of $298,000 (= 2 × $149,000) for the additional instruments that would have to be purchased. Second, customers who purchase a GZ-29 rather than the competing alternative would realize operating cost savings computed as follows:
 11ea7761_164b_06e8_81a5_b98626edb391_TB2580_00 Differentiation value = $298,000 + $72,000 = $370,000
EVC = Reference value + Differentiation value = $149,000 + $370,000 = $519,000

Chruch Corporation Manufactures Numerous Products, One of Which Is Called