Value Decoder in Action – Pricing a “High Performance” Hybrid Car for Maximum Profit
Identify the Price and Characteristics of Close Substitutes
The closest hybrid competitor, “Regular Performance” is selling for $25,000
Characteristics Relative to Competitors
High Performance has faster acceleration (worth a $1,500 premium) and is more stylish (worth a $1000 premium).
One downside of “High Performance” is its light weight (to achieve better acceleration). This results in more interior noise (necessitating a $500 discount) and less protection in the event of an accident (necessitating a $1000 discount)
Income
To encourage use of the fuel/environmental benefits of “High
Performance”, the government is offering a $500 tax credit to purchasers. Thus, “High Performance” is able to charge a $500
premium.
Price Changes of Related Products
Because of high gas price, hybrid cars can increase their price by $1,500.
Market Environment Changes
High Performance has become the “it” car in Hollywood – movie stars and Hollywood executives are now driving with “High Performance” cars. This enables “High Performance” to charge a $2,500 premium.
