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Genetics Inc. creates products that improve the process of genetic testing. D-Test is one of Genetics Inc.'s products. To improve its profit, Genetics Inc.
Genetics Inc. creates products that improve the process of genetic testing. D-Test is one of Genetics Inc.'s products. To improve its profit, Genetics Inc. wants to learn what D-Test is really worth to customers. Researchers in the field of genetic testing consider the product G-Sync as the best alternative to D-Test. G-Sync sells for $200 per test kit. In comparing D-Test to G-Sync, Genetics Inc. discovered the following four value drivers for its customers. (a) Likelihood of successful development of a drug for Customers: D-Test provides a higher quality DNA structure than G-Sync. The DNA structures are used by pharmaceutical companies who are its customers to manufacture commercial drugs. In general, the pharmaceutical companies expect to earn lifetime revenue of $40,000 for a drug. The lifetime cost of marketing and promoting a typical drug is about $30,000. G-Sync's test kit results in a 1/5 probability of developing a successful drug. On the other hand, D-Test's test kit results in a 1/3 probability of developing a successful drug. (b) Labor Cost: D-Test's test kit also produces more efficient laboratory staff work. Customers save 5 hours of processing labor compared to using G-Sync. Laboratory personnel receive an average of $20 per hour. (c) Saving from Lower Failure rate: The analysis of the DNA sample by the laboratories usually involves a critical stage where the DNA may degrade and 3 weeks of research time may be lost since the work has to be repeated. G-Sync's product leads to such DNA degradation 15% of the time while D-Test's superior product leads to DNA degradation only 10% of the time. Laboratory personnel work only 5 days a week for 10 hours a day. (d) Higher Shipping Cost: Genetics Inc. is located in Switzerland whereas G-Sync's parent company is located in USA and is closer to the US pharmaceutical customers. As a result, customers have to pay higher shipping costs to obtain D-Test, about $30 per test kit, whereas G-Sync is delivered to customers at a shipping charge of $10 per test kit. Calculate the total economic value of the D-Test test kit.
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Total economic value of the D Test test kit 200 40 000 x 1 3 30 000 x 1 3 5 x 20 3 x 15 x 20 x ...Get Instant Access to Expert-Tailored Solutions
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