Morr Logistic Solutions Corporation has developed a new forklift-model QY-49-that has been designed to outperform a competitor's best-selling forklift. The competitor's product has a useful life of 10,000 hours of service, has operating costs that average $3.70 per hour, and sells for $109,000. In contrast, model QY-49 has a useful life of 40,000 hours of service and its operating cost is $2.10 per hour. Morr has not yet established a selling price for model QY-49.
-From a value-based pricing standpoint what is QY-49's economic value to the customer over its 40,000 hour useful life?
A) $500,000
B) $193,000
C) $146,000
D) $391,000

Question

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 $109,000.
The differentiation value has two components. First, customers who purchase a QY-49 rather than the competing alternative would avoid the need to buy four forklifts for $109,000 rather than just one QY-49 to achieve 40,000 hours of service. This is a savings of $327,000 (= 3 × $109,000) for the additional forklifts that would have to be purchased. Second, customers who purchase a QY-49 rather than the competing alternative would realize operating cost savings computed as follows:
 11ea7761_164d_29cf_81a5_1b1e9ffe68d7_TB2580_00 Differentiation value = $327,000 + $64,000 = $391,000
EVC = Reference value + Differentiation value = $109,000 + $391,000 = $500,000

Morr Logistic Solutions Corporation Has Developed a New Forklift-Model QY-49-That