Exercise $13$A$-3($Algo$)$ Value$-$Based Pricing $[$LO$13-10]$

McDermott Company has developed a new industrial component called IC$-75.$ The company is excited about IC$-75$ because it offers superior performance relative to the comparable component sold by McDermott$$s primary competitor. The competing part sells for $$1,240$ and needs to be replaced after $2,040$ hours of use. It also requires $$220$ of preventive maintenance during its useful life.

The IC$-75$s performance capabilities are similar to its competing product with two important exceptions$$it needs to be replaced after $4,080$ hours of use and it requires $$320$ of preventive maintenance during its useful life.

Required:

From a value$-$based pricing standpoint:

$1.$ What is the reference value that McDermott should consider when pricing IC$-75?$

$2.$ What is the differentiation value offered by IC$-75$ relative the competitor$$s offering for each $4,080$ hours of usage?

$3.$ What is IC$-75$s economic value to the customer over its $4,080-$hour life?

$4.$ What range of possible prices should McDermott consider when setting a price for IC$-75?$