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Difference between effective vs base price

Oliver Wyman case: Full Electrons Ahead
New answer on Jul 01, 2023
5 Answers
749 Views
Anonymous A asked on Jun 29, 2023

Difference between effective and base price?

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Best answer
Cristian
Expert
Content Creator
replied on Jun 30, 2023
#1 rated MBB & McKinsey Coach

Hi there, 

If you ever saw an ad for a car, the price that they show you there is the base price. 

Go talk to the dealer and all of a sudden you have other costs to worry about. What you'll end up paying is the effective price. 

Almost always, effective price > base price.

Best,
Cristian

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Iago
Expert
replied on Jun 29, 2023
Bain & Co | PwC | Deloitte. Passionate about harnessing opportunities that new technologies and cloud solutions enable

Hi mate,

Both terms "effective price" and "base price" are often used in the context of pricing strategies. Here's a breakdown of the difference between the two:

Base Price: Refers to the initial or starting price of a product or service before any adjustments, discounts, or additional charges are applied. It represents the basic cost or value of the product or service without considering any promotional offers, discounts, or other factors that may affect the final price.

Effective Price: this one, on the other hand, takes into account all adjustments, discounts, or additional charges that may be applied to the base price. It represents the final price that a customer pays after considering all relevant factors. This can include discounts, coupons, rebates, promotional offers, taxes, shipping fees, or any other adjustments that impact the total cost to the customer.

Hope it helps ;)

Iago

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Andi
Expert
replied on Jun 30, 2023
BCG 1st & Final Round interviewer | Personalized prep with >95% success rate | 7yrs coaching | #1 for Experienced Hires

Hi there,

In a nutshell..

  • Base Price in automotive (and other industries) is typically the standard list price of a model in its standard configuration, i.e. without customization.
  • Effective Price is the price you actually pay as it accounts for customizations / optional features, discounts, and mandatory charges (taxes, registrations etc).

Hope this helps.

Regards, Andi

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Pedro
Expert
replied on Jun 30, 2023
30% off in April 2024 | Bain | EY-Parthenon | Roland Berger | Market Sizing | DARDEN MBA

Base Price = List price of vehicle without extras.

Effective Price → includes equipment, extras, but also discounts and tax breaks.

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Ian
Expert
Content Creator
replied on Jul 01, 2023
#1 BCG coach | MBB | Tier 2 | Digital, Tech, Platinion | 100% personal success rate (8/8) | 95% candidate success rate

Hi there,

The others have defined it well. Also remember that you want to do the following in general:

  1. Learn the core formulas + business terms
  2. BUT WHEN you get one in a live case that you don't know, be ready to figure it out on the spot by asking strong, assertive questions (this is what consultants do)
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Cristian gave the best answer

Cristian

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