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Problem

Compare and contrast commodity value versus differentiation value, highlighting the significance of each in setting a price.

Step-by-step solution

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Step 1/3

Economic value represents the cost saved and revenue gained that customers realize by purchasing the firm’s product. Some product and features provided are unique and different across a category and this provides economic value to the product.

Step 2/3

Commodity value is the value that the customers assign to product features that resemble those of competitor offering.

In the commodity value features of products of different companies is similar which allows the customers to easily move from one company product to another company product based on their paying capacity.

Step 3/3

Differential value is the values associated with product features that are unique and different from competitors. Therefore, customers are not able to easily move from one product offering to another product offering. Alternatives in products are limited in case of differentiated products.