Buying Car

The next set of questions relates to the car buying situation explained in the next situation. For each question, please show calculations clearly and state upfront any assumptions that are made.

Imagine your friend is considering buying a new car. She is indifferent between American and foreign brands and after an initial search (based on friends' recommendations, general word-of-mouth, and Consumer Reports' evaluations), she has narrowed her choices to Buick Regal, Ford Taurus, Honda Accord, and Toyota Camry. She plans to keep the car for 5 years. She looks for four things in a car: overall quality, roominess, standard options that the car comes equipped with, and resale value after 5 years. Further, the importance weights of these attributes for her are 0.3, 0.2, 0.1, and 0.4 respectively. On a scale of 1 to 9 (9 being the best), she rates the brands in her consideration set as follows:

Overall Roominess Standard Resale value
Quality Options after 5 years

Buick 6 7 7 3
Regal

Ford 5 6 7 4
Taurus

Honda 8 5 6 7
Accord

Toyota 8 7 6 6
Camry

1. All else being equal, predict the car she is most likely to buy and the one she is least
likely to buy. Show computations clearly based on how you arrive at your predictions.

**Suggest three distinct, non-overlapping, and mutually exclusive ways that will help the least likely brand to become her choice.

2. State 3 limitations of the model you used in question 1 above.

3. Assume that your friend is willing to pay $ 19,000 for an average car (a score of 5 on the 9 point scale is considered average). Using perceived value pricing, how much should each brand charge? Clearly show computations.

4 If each brand was to charge based on its perceived utility, which brand is your friend most likely to choose?

Why?