Practical Asset Pricing ECM 152
Class 2
Fabio Calonaci
Semester C, 2023
1. Define the Economic Value to a Customer concept.
2. A company, ABC, has developed a new washing machine able to let the people save
energy and produce less contaminated water. Relative to buy a normal washing
machine from ABC’s competitor a customer would save $150 in electricity costs,
$100 in government discount for buying green washing machine and $150 in water
costs. What is the differentiation value of the company ABC? Define.
A. $400
B. $300
C. $100
D. $500
3. Using the setting of question 2. Find the ECV of the new washing machine, knowing
the competitor price is $450 and the government also gives incentives to buys a new
washing machine of $50 (not applicable if the product has already other promotion).
A. $850
B. $800
C. $900
D. $750
4. StableServer Inc. has developed a very stable server. StableServer has a probability
of crash over one year of 1% while its competitor of 20% over the same period.
StableServer has operating cost/hour of $15; the competitor is cheaper and requires
only $10 If the system crash this issue will cost your company $100,000. You are
planning to use this server for 2,500 hours. The competitor price is $75,000. What
is the EVC for StableServer?
A. $ 91200
B. $ 78300
C. $ 81500
D. $ 80000
5. Explain the situations in which you can set the prices close to ECV?
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6. Explain the situations in which you can set the prices well below to ECV?
7. EVC is an useful tool for establishing whether an existing product that is performing
poorly is.... complete the sentence and describes the 3 scenarios where the ECV is
an useful tool.
8. A company is launching a new electric car model in a highly competitive market.
The market research reveals that the economic value to the consumer of the new car
is $45,000. The company believes that the differentiation value of its car compared
to its closest competitor is 15% of the economic value to the consumer. Determine
the reference price set by the company for its electric car.
9. A company has successfully implemented a series of innovative changes in its manufac-
turing process, resulting in a significant reduction in production costs and improved
product quality. The market research indicates that the economic value to the con-
sumer of the product is $500. The company estimates that the optimization of the
manufacturing process has led to a cost reduction of 30% compared to the previous
process. In addition, the improved product quality has increased customer satisfac-
tion and loyalty, resulting in a price premium of 15% compared to similar products
in the market. Determine the differentiation value offered by the company’s product.
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