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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. • How was the idea for the product enerated? • What were some initial problems?

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Class Outline

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  1. 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

  2. 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?

  3. 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?)

  4. 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

  5. How much are the lenses worth to farmers? 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 ¢

  6. What is the optimal pricing strategy? 3¢ < p* <24¢ What are the advantages of a low price? What are the advantages of a high price?

  7. Would now be a good time to sell company? • Resources that ODI has – Patent + – contract with New World Plastics – = exclusive access to a gigantic market • Resources ODI lacks – cash – sales force

  8. 6 factors affecting the diffusion of technology:The "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"?

  9. The diffusion of innovation # of consumers who have adopted by time "t"

  10. Technology Adoption Life Cycle The Chasm Visionaries Pragmatists Conservatives Skeptics Innovators Early Majority Late Majority Laggards

  11. calculating expected value (EV) &expected value of perfect information (EVPI)

  12. Last Year's Midterm Problem

  13. Another example

  14. .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

  15. Another example

  16. .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

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