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Internalizing Externalities

Thursday, July 07, 2005 at 3:09 PM

The chicken and egg story

Number of chickens and chicken farms in US, how much they eat, the social hierarchy among chickens and establishment of peck order, homicidal rates among chickens, egg production rates. These are some of the things that plagued my mind for last couple of days.

I furiously tried to write a marketing plan in one slide - those were the instructions, present whatever info you want on one slide. And what was to be marketed – contact lenses for chicken…if you don’t believe me click on the following link:

HBS Case link

Prof. Raju also showed us a promotional video for the product. This is one of Harvard’s best selling cases – sells about 6000 copies a year – and is used to give insights into marketing radically new products.

As always Prof. dealt with the case very well – when everybody said that the best way to sell is door to door, he asked people to enact a sales call. And boy it was tough – I mean what do you go and say – knock on a farmers door on a quiet Tuesday afternoon and say – eh, look I have this tremendous new breakthrough technology – contact lenses for chicken and these are the benefits – cost savings, they eat less, fight less with each other, lay more eggs – just buy these and you will save thousands!!

Apart from the door slamming shut on your face there not too many alternate end game scenarios. Even though the lens has been proven to offer cost savings and in all possibility is a great product, it is very difficult to make people try it and adopt.

What’s more interesting is the number of insights and angles Prof. Raju makes you think transcends the boundaries of the case. All those who say that the case method of teaching is outdated should take a seat in his class – it will be a humbling experience. Another great insight he shared was the diffusion of new technology in markets – cost reduction technology diffuses much slower – if one person sees the advantage he would want it to be exclusive and is not willing to share it – once other people recognize the benefit and adopt it – there no longer remains a cost advantage.

Another mistake the entrepreneur, in this case a Harvard graduate made was that he had very high targets. He thought this would revolutionize the farm industry and animal behavior just like IBM revolutionized the processing of data. Sometimes it is necessary to think small – with a market of about $50 million there is so little you can do.

Another virtue is patience – new ideas don’t get assimilated easily – sometimes it takes years and you need to have the capital and resolve to pursue it.

Often people get lost in numbers – when presenting to venture capitalists they try to push numbers across – but VCs can see through these and questions like where will you get sales from, what’s your positioning come up. Everything needs to tie together.

Fixed costs – in most cases because of the name we think that these costs are inevitable – but these are the costs actually in our control and we should track them more diligently - the first thing turnaround specialists do is attack fixed costs to bring back a company!!

One case discussion can lead to a myriad of thoughts. Some professors just repeat case facts and fail to give any insights to its applicability and context. Its not that the case method of teaching is a thing of the past – what has gone wrong is the way people are teaching which has lead to its perceived ineffectiveness.

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