Reference no: EM132817205

Question - Pricing Decisions - Kitchen Mania Limited is considering introducing a new heavy duty industrial kitchen oven called the Wildfire Model which it plans to sell to restaurants. Currently, the market leader is the Gulley Model, which is sold by a competitor. Gulley Model currently sells for $6,000. The new features, or improved functionality, that Wildfire Model has over the Gulley Model includes faster heating, increased fan speed, reduced noise, more safety features and larger capacity. Market research indicates that the improved functionality is valued at $850 by customers. Customers will need to incur $600 in installation costs for the Wildfire Model compared to $400 for the Gulley Model. Engineering estimates have determined that Wildfire Model will entail maintenance costs of $300 per year, and will have a useful life of 7 years with a disposal value of zero. The yearly maintenance costs of the Gulley Model is $450, with a useful life of 8 years and zero disposal value.

Required -

1. Assume that customers are unlikely to buy the new Wildfire Model unless the annual cost to own and operate it at least equals to that of the existing Gulley Model. Based on annual cost calculations to own and operate both ovens, what price should Kitchen Mania Limited charge for the new product? Explain your answer.

2. Critically evaluate the pricing model discussed in 1 above. Do you recommend the company to try other model/s for pricing its new kitchen? Explain your suggestions.