1.) The value of this product should be determined by the various elements used in manufacturing it and the benefits that it provides to consumers. Based on the situation, the materials used for manufacturing Compressor Controls’ surge controlling machine is only $1000. However, physical materials are not the only things needed to create this product. There is also the advanced control system developed by its creators which entails research costs and intellectual property value. On the other hand, the risk of compression surges are great as it has several uncontrollable causes. The fact that repair costs can reach up to 6 figures means that a system that is able to prevent it is saving the consumer that much money in expenses spread over time. If costs are minimized to $100,000 (the smallest six figure number), then anything less than that amount should already generate value for the consumer over time. However, there is competition which costs only $10,000 and is able to prevent half of the surges. Selecting this option incurs a $10,000 spending and expected expenses from surge repairs of 50% of the original. On the other hand, using Compressor Controls’ product results to expected repairs of only 5%. Using $100,000 as the benchmark, the competition makes the client spend $50,000 on regular regularly while Compressor Control’s product makes the client spend only $5000. Hence, if both products are one-time use only, an appropriate price would be $35,000 because then selecting Compressor Control would mean a total savings of $10,000 for the consumer. However if it is not a one-time use machine then the price should increase even more to even a few hundred thousand dollars.
2.) There are many additional information needed to come up with a better price for this product. Firstly, the cost of researching the effective system should be inputted. Next, the likelihood of surges and the expected loss from each surge should be computed. Lastly, the repairs that the product itself would require and its total lifetime should also be factored in. Lastly, the marketing costs should also be loaded in.