The marketing manager of an automobile battery manufacturer is considering the prices that should be set for some new additions to the company’s product line. The Basic is the standard model, which sells to consumers for $54. The Security is a new model that features power drain protection—the ability to turn off sources of excessive battery drain, such as headlights left on when the vehicle is parked. The Security Plus is a new model that features not only power drain protection but also includes a small backup battery that will start a car three to five times if the primary battery goes dead for any reason.
The manager commissioned a conjoint study in which 300 automobile owners were asked to rank their preferences among a set of alternative batteries, each containing different features and prices. Dummy-variable coding was used for the power-drain protection and backup battery variables. The price variable was coded in dollars. A regression analysis on the responses of these consumers produced the following regression coefficients:
Variable Coefficient
Presence of power drain protection…………….11.31
Presence of backup battery…………………….23.08
Price……………………………………………–0.82
(a) Based on this data, calculate an appropriate price to retailers for the Security model. Assume that retailers take a 40 percent gross margin on car batteries.
(b) Based on this data, calculate an appropriate price to retailers for the Security Plus model. Again, assume that retailers take a 40 percent gross margin on car batteries.