Exercises in Economic Value to the Consumer (EVC)

This exercise set focuses on Economic Value to the Consumer (EVC)—a framework for calculating the maximum price a fully informed customer would be willing to pay for a product. The exercise consists of eight problems, each targeting a distinct dimension of differentiation value.

The exercise set is intended to build students’ ability to think systematically about value. Many students enter a pricing course knowing that firms should engage in “value-based pricing” but lack a concrete process for actually doing so. The EVC framework provides exactly this: a disciplined, six-step method that forces the student to identify the next best alternative (NBA), anchor on its price, and then quantify—in dollars—every way the new product differs from the NBA.

• Define EVC and explain the relationship of reference value, differentiation value, and the price ceiling.
• Apply the six-step EVC framework to any pricing problem involving a new product or service, including the step of considering customer segmentation.
• Identify the correct NBA from the customer’s perspective, including the special case where the NBA involves no product (NBA price = $0).
• Quantify each dimension of differentiation value in dollars, scaled correctly over the product’s lifetime or rental period.
• Recognize and avoid common pitfalls: seller bias, wrong time horizon, missing negative differentiation, NBA misidentification, and confusing selling with renting.
• Apply the EVC framework across diverse contexts, including manufacturing, food, software, logistics, and risk management.
• Distinguish between EVC (the ceiling) and the actual price the firm should charge, and articulate why the firm may want to leave consumer surplus on the table.