Chapter 2: Value Creation
Miracle Shield Auto Finish
Miracle Shield Auto Finish is the best car polish and paint protection available anywhere. It is a substitute for wax, but it protects and maintains the shine of a car’s finish at least 20% longer than regular car wax. It is sold in a bottle that is adequate for one application to one car. Regular wax, which is sold in a container that is enough for two applications, costs about $4.00/container.
Some cars (about half) have oxidized paint (no shine) at the time wax is to be applied, requiring cleaning with an oxidation cleaner before one can apply regular car wax. Oxidation cleaner costs $2.50 per bottle (good for one application) and can be applied in about the same time required to apply either an oxidation cleaner or regular wax, about two hours. An additional advantage of Miracle Shield, however, is that it both removes the oxidation and shines the car’s surface in one step. Consequently, Miracle Shield can be applied directly to a car’s surface that is already highly oxidized.
a) Making any reasonable assumptions that you need to make, estimate the economic value of Miracle Shield. (You may assume that Miracle Shield is the only alternative to car wax available in this market. You may assume a labor cost of a person’s leisure time who waxes his/her own car. Ignore the time value of money.)
b) There are a number of factors that influence price sensitivity other than “economic value.” Consequently, it may be the case that customers would not be willing to pay as much as this product is really worth, or may pay even more than it is worth according to economic value analysis. Please identify at least two other factors that could influence how much people would be willing to pay for this product. Explain how and why you think these other factors might affect willingness-to-pay in this case.
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