Eastman - Tritan Case Study

EVALUATION CASE:

What price should Eastman charge for Tritan?

Executive Summary

 Eastman should adopt the EVC model because it reflects the value added to the final

consumer. Following a cost plus pricing model severely undercuts the actual value of the

Tritan product.

Pricing Schemes.

Cost plus pricing is a cost-based method for setting the prices of goods where you take the unit

production cost and add to it a markup percentage in order to derive the price of the product.

Since the production cost for the co-polyester was already high and it was a relatively new

product, it makes sense for Eastman to adopt a cost plus model to convince MegaTec to buy their

product while Eastman makes a profit at the same time.

Value based pricing is the setting of the product’s price based on the benefits it provides to

consumers. Since the copolyester is substantially superior to the polycarbonate it replaces and

adds huge value to both the consumers and MegaTec, it makes sense for Eastman to adopt a

value-based pricing model.

Cost-Plus Pricing

Cost plus pricing scheme has been clearly described in Table 1. The final cost per pitcher is $12.

The advantage of this pricing scheme is that it is very simple and if the mark-up percentage is

applied consistently across product ranges, then Eastman can also predict more reliably what the

overall profit margin will be.

The two main disadvantages of this scheme is that

(1) Customers don’t care about the company costs; they care about the product attributes

they value.

(2) Unrealized revenue and profit can be substantial: If the perceived value by consumers is

not understood by Eastman, then they may leave a lot of money on the table.

Value-Based Pricing (this will be most of your writeup)

EVC = Reference value + positive differentiation value – negative differentiation value

Reference value = $Cost of first pitcher = $7.532 (as calculated below)

Positive differentiation value: (1) 2 polycarbonate pitchers...