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? What is the potential market for this roduct? What makes it easy / hard to predict demand?

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 murder rate (debeaked) = 9% / yr murder rate (lenses) = 4.5% / yr cost of egg laying hen = $2.40 trauma from debeaking results in one fewer egg laid farmers get 53¢ for a dozen eggs total food consumed & spilled per day with 2' deep trough = pounds total food consumed & spilled per day with 1' deep trough = 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? BENEFITS Fewer homicides No debeaking trauma Feed Savings ECONOMIC VALUE $2.40 * (9%-4.5%) = 10.8 ¢ 1 extra egg * (53¢ / 12) = 4.5 ¢ ( ) * 3/8 * ($158 / 2000) * 365 = 8.7 ¢ TOTAL SAVINGS 10.8 ¢ ¢ ¢ = 24 ¢

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?

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

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"?

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

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

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

Last Year's Midterm Problem

Another example

.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

Another example

.7 * $8 = (5.6) +.3 *.1 * $46 = (1.38) +.3 *.9 * -$4 = (-1.08) = (with research) – 2 (without research) = 3.9