To make reliable revenue forecasts, companies need reliable estimates of willingness-to-pay (WTP) of a sample of customers. A company sells its equipment to chipmakers such as Samsung and Intel. The company says that it has a good understanding of a customers’ WTP for measurable technical performance improvements of the equipment, such as an increase in the uptime of a chip-making machine from 92% to 95%. While the company claims to have a good understanding of WTP for technical performance improvements, it has a much harder time measuring customers’ WTP for changes in service levels that depend on their customers’ subject risk aversion such as increases/decreases in warranty period. Specifically, assume that the company can accurately determine that one of its customers’ WTP for an increase in uptime of the machine from 92% to 95% equals $10,000. Assume that this customer’s minimum requirement for a warranty is six (6) months and that company's company policy is not to offer warranties beyond seven (7) years. Suppose the current warranty period offered by the company is 24 months (this is an included base service level when buying a machine) Estimate this same customer’s WTP for changes in the warranty period.
To make reliable revenue forecasts, companies need reliable estimates of willingness-to-pay (WTP) of a sample of customers. A company sells its equipment to chipmakers such as Samsung and Intel. The company says that it has a good understanding of a customers’ WTP for measurable technical performance improvements of the equipment, such as an increase in the uptime of a chip-making machine from 92% to 95%. While the company claims to have a good understanding of WTP for technical performance improvements, it has a much harder time measuring customers’ WTP for changes in service levels that depend on their customers’ subject risk aversion such as increases/decreases in warranty period. Specifically, assume that the company can accurately determine that one of its customers’ WTP for an increase in uptime of the machine from 92% to 95% equals $10,000. Assume that this customer’s minimum requirement for a warranty is six (6) months and that company's company policy is not to offer warranties beyond seven (7) years. Suppose the current warranty period offered by the company is 24 months (this is an included base service level when buying a machine)
Estimate this same customer’s WTP for changes in the warranty period.
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