On Cost, Price, Value, Leadership & Advantage Base Case Situation: A perfectly c

Question

On Cost, Price, Value, Leadership & Advantage Base Case Situation: A perfectly commonplace median widget available in the market from Acme Manufacturing retails for $125 and costs $99.50 to manufacture. You the customer would willingly pay $150.00 for this widget.

A. How much is the “value-added” by Acme Manufacturing for you in the widget?

B. Your wealthier neighbor, Pierpont is willing-to-pay $175 for the same widget. How much is the value-added for Pierpont by Acme Mfg?

C. If you are willing-to-pay $150, why is the widget retailing for $125? Hint: A response that says that the competition is offering at $125 will need you to answer, why is it that the competitors are charging $ 125.

D. Pinnacle Enterprises, a new entrant has a widget with matte finish that you are willing to pay $160 for. What will be the stable price for this version of the widget from your perspective? Why?

E. Mr. Pierpoint’s willingness to pay is $195 for this Pinnacle widget. What will be the price he will think is about right?

F. Your other neighbor, Bartholomew has a willingness to pay of $175 for this new Pinnacle widget compared to $150 for the Acme widget. At what price(s) will he consider the Pinnacle widget a steal (offering extra ordinary personal “value” – I use “value” here in the sense of its colloquial usage)?

G. Is Pinnacle Enterprises positioning itself as a “Benefit Leader” compared to Acme by offering products with better features?

H. Pinnacle Enterprises spends an additional $10.00 to get the Matte finish on the widget. What is Pinnacle Enterprises’ strategic positioning?

I. Nadir & Sons, a family owned enterprise, introduces a budget version of the widget retailing for $ 115 for cost conscious buyers. Is Nadir & Sons a “Cost Leader” in the widget market?

J. Give me the upper and/or lower bounds of Willingness-to-pay, Price & Cost that Pinnacle can set (or engineer) to become a Benefit Leader.

K. Give me the upper and/or lower bounds of Willingness-to-pay, Price & Cost that Nadir & Sons can set/aspire to to become a Cost Leader.

L. Pinnacle is a Benefit Leader with cost parity ($ 99.50); what will be their choice of prices (range) to

-Follow a “share strategy” and

-Follow a margin strategy

M. Nadir & Sons is a Cost Leader offering widgets that cost $87.5 to manufacture; what will be his choice of prices (range) if they decide to:

-pursue a “share strategy” and

-pursue a margin strategy

Explanation / Answer

A)The actual selling price is $125 and I am willing to pay $150, $25 more and hence this is the value added for me by Acme manufacturing i.e. $25.

B)The actual selling price is $125 and I am willing to pay $150, but Pierpont sees value in the product and is willing to pay $175 i.e. $25 more and hence this is the value added for Pierpont by Acme manufacturing i.e. $25.

C)The pricing strategy that is used in the case is competitive pricing. Competitive pricing is setting the same price as to that of the competitor’s or lesser than the competitor’s price. Though Acme Manufacturing costs $99.50 to manufacture the widget, the company has to gain the competitive advantage by setting a lower price for the product. The widget is in demand and can be sold at $150.00 however the competitors attract the customers by selling the widgets at a lower price at $125.0. In order to beat the competition and gain the competitive advantage the company offers the product at $125.0.

D)

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