Case studies

Chapter 3: Price and Value Communication

Electric Car Company

Your company is planning to launch a new electric car, differentiated by various proprietary energy-saving features that enable it to travel much further on a single overnight charge than any all-electric competitor. The car can travel an estimated 90 miles in all-electric mode. The basic car is expected to be cheaper than any other new car alternative for people who want only cheap, local transportation, since it will qualify for the same tax credit incentives as other fuel-efficient cars. Your company can also offer a variety of options, which it could choose to bundle or offer separately. They include:

· 5hp gasoline engine and 3-gal. tank, which extends range between charges to 250 miles (150 between refills without recharging). Variable cost to make is low relative to price difference between this all-electric car and cheapest hybrids.

· Air conditioning which, despite awesomely high efficiency, can cut range to 45 miles in all-electric mode or 250 miles with gas supplement if run continuously. It is also, unfortunately, much more costly to produce than traditional auto AC systems.

· Metallic paint, which creates a unique “electric” appearance that complements the car’s ability to go from 0 to 60mph in just four seconds.

Without any of the options above, the car will sell for much less than any of the leading hybrids.

What prices structures (à la carte, bundled, or included with car) and levels would you choose to maximize your profitability from sales of the “options”? Assume that there are easily observable individual reference prices from other manufacturers for each of these options. Specify your proposed price levels as “BR” for below reference, “NR” for near reference, and “AR” for above reference. Make clear your assumptions about the willingness to pay by segment.

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