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Class Outline. 1.Video on Advertising Jello **Reminder** 2. Class Discussion on Optical Distortion Inc. 3. Practice in Decision Analysis 4. Hand out last year's midterm. Optical Distortion Incorporated. • How was the idea for the product enerated? • What were some initial problems?

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Class outline

Class Outline

1.Video on Advertising Jello **Reminder**

2. Class Discussion on Optical Distortion Inc.

3. Practice in Decision Analysis

4. Hand out last year's midterm


Optical distortion incorporated

Optical Distortion Incorporated

• How was the idea for the product enerated?

• What were some initial problems?

• What is the potential market for this roduct?

• What makes it easy / hard to predict demand?


Pricing

Pricing

How much would you charge for these lenses?

What is the lowest price ODI could charge and still make money?

What is the highest price ODI could possibly get away with charging? (What determines the upper bound?)


What is the most that farmers would pay value of saved chickens extra eggs and saved food

What is the most that farmers would pay?:value of saved chickens, extra eggs, and saved food

  • trauma from debeaking results in one fewer egg laid

  • farmers get 53¢ for a dozen eggs

• murder rate (debeaked) = 9% / yr

• murder rate (lenses) = 4.5% / yr

• cost of egg laying hen = $2.40

  • total food consumed & spilled per day with 2' deep trough = 0.245 pounds

  • total food consumed & spilled per day with 1' deep trough = 0.237 pounds

  • with "lensed" chickens, food trough can be 3/8 of an inch less deep

  • chicken feed = $158 a ton


How much are the lenses worth to farmers

How much are the lenses worth to farmers? chickens, extra eggs, and saved food

ECONOMIC VALUE

$2.40 * (9%-4.5%) = 10.8 ¢

1 extra egg * (53¢ / 12) = 4.5 ¢

(0.245 -0.237) * 3/8 * ($158 / 2000) * 365 = 8.7 ¢

BENEFITS

Fewer homicides

No debeaking trauma

Feed Savings

TOTAL SAVINGS 10.8 ¢ + 4.5 ¢ + 8.7 ¢ = 24 ¢


What is the optimal pricing strategy

What is the optimal pricing strategy? chickens, extra eggs, and saved food

3¢ < p* <24¢

What are the advantages of a low price?

What are the advantages of a high price?


Would now be a good time to sell company

Would now be a good time to sell company? chickens, extra eggs, and saved food

• Resources that ODI has

– Patent +

– contract with New World Plastics

– = exclusive access to a gigantic market

• Resources ODI lacks

– cash

– sales force


6 factors affecting the diffusion of technology the accord model

6 factors affecting the diffusion of technology: chickens, extra eggs, and saved foodThe "ACCORD" model

• Advantage of the product over that it replaces

• Complexity (or perceived complexity)

• Compatibility (with present behavior patterns)

• Observability (of benefits to others)

• Risk (of adopting the new technology)

• Divisibility (can it be tried on a limited basis?)

• How easy will it be to generate positive "buzz"?


The diffusion of innovation

The diffusion of innovation chickens, extra eggs, and saved food

# of

consumers

who have

adopted

by

time "t"


Technology adoption life cycle

Technology Adoption Life Cycle chickens, extra eggs, and saved food

The

Chasm

Visionaries Pragmatists Conservatives Skeptics

Innovators Early Majority Late Majority Laggards


Calculating expected value ev expected value of perfect information evpi

calculating expected value (EV) & chickens, extra eggs, and saved foodexpected value of perfect information (EVPI)


Last year s midterm problem

Last Year's Midterm Problem chickens, extra eggs, and saved food


Another example

Another example chickens, extra eggs, and saved food


7 6 4 2 3 5 12 1 8 3 5 10 1 5 4 5 4 5 with research 1 without research 3 5

.7 * $6 = ( chickens, extra eggs, and saved food4.2) + .3 *.5 * $12 = (1.8) + .3 * .5 * -$10 = (-1.5) = 4.5

$4.5 (with research) – $1 (without research) = $3.5


Another example1

Another example chickens, extra eggs, and saved food


7 8 5 6 3 1 46 1 38 3 9 4 1 08 5 9 5 9 with research 2 without research 3 9

.7 * $8 = ( chickens, extra eggs, and saved food5.6) + .3 *.1 * $46 = (1.38) + .3 * .9 * -$4 = (-1.08) = 5.9

5.9 (with research) – 2 (without research) = 3.9


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