沃顿商学院全套笔记-十四-
沃顿商学院全套笔记（十四）
沃顿商学院《商务基础》｜Business Foundations Specialization｜（中英字幕） - P19：18_媒体规划.zh_en - GPT中英字幕课程资源 - BV1R34y1c74c
As I mentioned earlier at the beginning of this module， media planning is one of the。
key aims but given our constraints， we are not going to spend too much time on it but。
I do want to give some important messages here。 There are three types of media when you look at it from a strategic perspective。
If you look at it from a tactical perspective， people will say media consists of newspapers， TV。
digital but when you look at it from a strategic perspective， we classify media， into three types。
Paid media， earned media and owned media。 So any communication campaign has to decide how much emphasis to put on paid。
earned and， owned。 What do we mean by paid media？ Paid media is what we know typically。
It's your television， it's your search advertising， it's your banner advertising， it could be。
videos on YouTube， on your own website。 So that will be paid media。
Earned media is what you earn based on what activities you do。
So this could be actually you conduct an event， you may sponsor a golf tournament or a tennis。
tournament and then people talk about it。 Or you might have a campaign where you give out free glasses to people who can't afford。
it or free shoes to people who can't afford it。 And then news media talks about it。
all of that we'll call as earned media。 And then there is owned media。
Own media is your own website， your own company's building， your name on it。
If it's at a very popular location people drive by it。
But owned media owned is also your own product。 Your product advertises itself。
If you look at a typical car， you know the name of the car is written on the back of the， car。
not the front of the car。 Why is it written on the back of the car？
Well people who are driving behind you can read the name。
If it were written on the front of the car and you'll see it in your heavy mirror you won't。
be able to read it。 Your own media is not just your own website but your also your products and services advertising。
itself。 I think a good important strategic choice in media is how much emphasis will be paid on。
paid media versus earned media versus owned media。
Once you've done that of course then there is a next step of the media planning process。
Who are you targeting？ What media channels you are using？ Where you are going to spend your money？
When you are going to spend your money， how much you are going to spend？
All of these are technical decisions that if you have a good advertising agency they。
can help you make these decisions。 So this is not an area where a typical person who is taking their own product or service。
to the market needs to specialize in。 If your advertising agency doesn't know how to do this please find another one。
But this is an area where their skill sets are strong and you should take advantage of。
that。 Money。 Next 10。 Once again there are many formal methods of deciding budgets。
Here we'll just give you some key insights。 Many companies when they are setting up their communications budget use heuristics or rules。
of thumb such as let's set our budget as a percentage of sales or let's set our budget。
to match or do a little bit better than competition。 All these are as the name suggests heuristics。
They are not very good ways because they are not very purposeful。
What you should be doing is what we call as use objectives and task methods。
Think of what the end goal of your communications campaign is。
For example the mill campaign had a very specific goal in mind。
We would like to have these many people aware of our product in these many months。
You start with that end objective in mind and then work backwards from there and ask yourself。
how much money you need to spend to get to that objective。
That's how you set a budget as opposed to percentage of sales or matching or doing something。
better than the competition。 Advertising agencies might encourage you to set a budget that is percentage of sales so。
that when your sales grows the budget grows and when the budget grows their fees may also， grow。
So you need to be very sensitive to that。 So always use objectives and task method which is start with the end goal in mind and。
then work backwards as to how much you need to spend and there are formal ways to do that。
Now let's talk about the last one which is measurement。
Now measurement is the last term but I always say don't decide at last。
You should decide it early on。 In fact before you spend a dime on communications decide what measurement method you are going。
to use。 There is no dearth of measurement methods。 We have methods that cover many different areas。
We can test creative strategy。 We can test print advertising。 We can test television advertising。
We have fancy methods that are physiological methods。 We can look at consumer skin responses。
We can look at their eye tracking。 So there is no dearth of these measurement methods。
The problem often is it's the will and willingness to measure that prevents measurement and it's。
not even the cost of measurement。 For a dollar that you spend on communication even the more sophisticated method does not。
cost more than one cent on the dollar。 So please decide on what the mission of your campaign is。
Set the measurement method in advance and then go ahead and develop your campaign and， execute it。
Finally when it comes to communication strategy I think a good idea is to keep it simple。
Your advertising agency may be more interested in winning awards but your job is to improve。
the sales of your products and services。 Oftentimes winning awards is not correlated marketplace outcomes。
A very nice ad that I would all like you all to see is the Miya mix ad。
Once you see it it's on YouTube anyone can go see it。
It's very simply a cat saying Miya Miya Miya Miya Miya。 I think more than 60 times in 30 seconds。
And under that ad you see the line which says what is good about this product。
It's a very simple execution。 It is one of the most memorable ads the day after recall of this ad has rarely been beaten。
The cost of the spokesperson is nothing。 It's a cat。
What are some of the key principles in this particular ad？
The company shows the product， mentions the brand name many many times。
Many of the advertisements you see whether it's on digital or TV。
You've seen the whole ad and then at the very end you see the brand name。
By that time many people have walked out， engaged in something different。
This particular ad mentions the brand name many many times。
It states all the positives about the product。 It shows the product in use。
avoids any unpleasant connection with your product。
And it also tells people where and how they can buy it。
It's never won any award but the day after recall of this ad in terms of people's recall。
of the brand name has been one of the highest。 So a quick summary of what we covered in this module align your communication strategy。
with your positioning and all the elements of your marketing mix。
A great communication campaign is a key element of your marketing plan but it is not all of it。
Once in a while it may help you sell what you can make but it will do wonders if you make。
what you can sell。 And again define mission and metrics before spending even a penny on your advertising and。
communication strategy。 So even though measurement is the last 10 you should be designing deciding it along with。
your mission and not executing your advertising before you combine both the mission and the。
measurement。 [BLANK_AUDIO]。
沃顿商学院《商务基础》｜Business Foundations Specialization｜（中英字幕） - P2：1_营销101建立强大品牌(二).zh_en - GPT中英字幕课程资源 - BV1R34y1c74c
So， in summary for just this little section， let me say that there's three principles。
of marketing that I've discussed。 And this is the essence of what marketing is。
The first principle is if you want to provide something to a customer， to a buyer， and get。
them to buy from you rather than the competition， you've got to give them real genuine customer。
value。 That's the principle of customer value。 The second principle is the principle of differentiation。
You have to provide customer value to that customer， what the customer wants， but you。
have to do it better than the competition。 So， you have to differentiate your offering。
And the third principle is the principle of segmentation， targeting， and positioning says。
when you're in a customer-focused market， you cannot deliver value to everybody and make， money。
It's just too difficult to do。 So what you do is segment the market into different segments。
You target or choose a segment you want to focus on， and you position your brand to meet。
the needs of that target segment。 And what are the tools that you use to deliver these three marketing principles？
They're the four-piece of marketing。 The four-piece of marketing are product， place， promotion。
and price。 Let's go back to that exchange。 And that exchange says you have a buyer and a seller。
What the seller puts into the exchange is the product。
What the buyer puts into the exchange is the price。
The way the seller communicates the benefits about that product to the buyer is called。
the promotion。 It could be advertising， sales， whatever。
And the way the seller delivers the product to the customer is the place decision。
It can be in a physical store， it can be online， it can be through downloading。
Whatever the method of distribution is， that's the place decision。
So those are the four-piece of marketing， product， place， promotion， and price。
Typically when you talk about marketing， you talk about the business world。
But you can use these principles of marketing and nonprofit marketing as well。
Think about blood donation。 The American Red Cross used marketing principles to get increased in blood donations。
Now let's think about what is the product for the American Red Cross when they want more， blood？
It's not blood， is it？ Because that's not what they're putting into the exchange。
Blood is actually the price。 It's what the customer puts into the exchange。 So what is the product？
The American Red Cross did was try to figure out ways to get people to be more willing。
to donate more blood。 So in one way they did， you don't feel good about yourself。
you're going to help save， lives。 That worked for some people。 For some people， that wasn't enough。
They needed a little sticker that said， "Yes， I saved blood today and I saved lives。"。
For other people， the orange juice and the cookies were enough。
And it turned out that some of the best blood donation successes they had were in high school。
You can give blood donation if I think if you're over 16。
And it turned out that one of the products that the American Red Cross could give to high。
school kids to give blood was to allow them to miss class。 So that was the product there。
The promotion again is the way they communicate the benefits of giving blood to the American。
Red Cross。 And the place decision was how they got the product delivered to the exchange made。
And in this case， the American Red Cross had the blood mobile and went to the customer。
So that was a very innovative distribution decision。
So you can play around with these four piece in very interesting ways。
And some of the new businesses that we see now are doing some very clever things with。
these four piece。
But the basic concept should be clear。 Product， place， promotion and price。
[MUSIC]。
沃顿商学院《商务基础》｜Business Foundations Specialization｜（中英字幕） - P20：19_定价.zh_en - GPT中英字幕课程资源 - BV1R34y1c74c
In this module， we will discuss pricing in more detail。
All companies， all businesses have to make a pricing decision。
Pricing is one of the four key piece that Professor Kant discussed earlier in her opening， module。
So first let's talk a little bit about the importance of pricing and by pricing is a key。
driver of profits。 This study was done by McKinsey many years ago and we replicated it in our book Smart。
Pricing More Recently using data from words which is a modern data service。
So what this study does is it looks at the improvement in your bottom line if you were。
to change or improve either your fixed cost， your sales volume， your variable cost or， your price。
So think about it as the following。 Let's say we were to look at all S&P 500 companies in the US and create a combined income。
statement of all 500 companies。 So once we have that combined income statement。
we say okay if these companies were to lower， their fixed cost by 1%。
what would happen to their operating profits？ And the answer is they will improve by 2。3%。
What if these companies could increase their sales volume by 1%， what would be the response。
on the bottom line？ It will be lower than 3%。 What if these companies could reduce their variable cost by 1%。
what would be the impact， on the bottom line？ Well close to 8%。
What if these companies could improve their price by 1%， what would be the impact on the。
bottom line？ And the answer is close to 11%。 So if you look at all the levers or drivers that are available to a manager。
improving， your pricing has the biggest impact on the bottom line。
We have known this for a while and many good managers have known this for a while。
But now you combine it with the next piece of data。
When it comes to managers perceptions as to what they are better informed about， what。
do they focus on？ Well if you look at variable cost， that's the highest thing people focus on。
Number 2 is fixed costs。 Number 3 is comparative prices。 And then when you look at pricing。
those numbers are much lower than the first few numbers。 So what does that mean？
Even though people realize that pricing is one of the most important drivers， their knowledge。
about how to use and execute on pricing is limited and can be much better。
I think this highlights the importance of all of us learning a little bit more about。
pricing and becoming better prices。 There is a very nice Russian proverb that I often share with my students in the class。
There are two kinds of fools in any market。 One who charges too much and the other who charges too little。
Now there are many ways to interpret this problem。 One way to interpret this is。
well everyone is a fool because nobody can be charging the。
exact right price。 There is another way to interpret this problem which I think is a more appropriate way。
What it is really trying to say is that good pricing is a balancing act。
And in order to achieve the right balance， we need to be cognizant of a number of different， areas。
We need to understand economics because pricing is about economics。
We also need to understand psychology。 Both consumer psychology as well as psychology of people who make pricing decisions because。
human beings make pricing decisions and human beings respond to pricing decisions。
In this age and also in any other age， the knowledge of statistics is very important。
You need to be able to manage data。 You need to be able to analyze data。
You need to have a good understanding of operations research which means you need to learn how。
to optimize given some data。 These days you need some basics about computer science。
And you also more importantly need a lot of courage because good pricing decisions are。
not made by changing the price。 They are made by changing the pricing strategy in a company。
And also good pricing requires common sense。 So it's a combination of all these various areas that help us improve our pricing decisions。
[BLANK_AUDIO]。
沃顿商学院《商务基础》｜Business Foundations Specialization｜（中英字幕） - P21：20_理解价格敏感性.zh_en - GPT中英字幕课程资源 - BV1R34y1c74c
A key to making good pricing decisions is understanding the concept of price sensitivity。
and price elasticity。 In this module we will focus on this particular aspect in more detail。
We will do it in two parts。 In the first part we will think about what drives price sensitivity or price elasticity。
In other words， under what conditions are consumers more or less price sensitive。
If we know this we get some useful directional guidelines on when to price higher and when。
to price lower。 The next part of this module we will talk about formal methods of measuring price elasticity。
and of course before we do that we will define formally what price elasticity means。
So let's start with the first one， drivers of price sensitivity。
These are things we know from previous research and previous observations and are fairly robust。
findings。 So what are the things we are going to focus on？
We are going to focus on seven different drivers of price sensitivity starting with availability。
and awareness of substitutes。
I think it's not very complicated to recognize that if your product has more substitutes。
people will be more price sensitive。 So this is very straightforward。
More substitutes that exist greater will be the price sensitivity。
What is important is it's not just the availability of substitutes even awareness of substitutes。
matters。 So for example， I live close to Philadelphia， I work in Philadelphia， so I know a lot of。
restaurants in Philadelphia。 So if I am price sensitive about where to eat。
I have good information of various restaurants， their prices， I'll be more price sensitive。
But if I go on a vacation， let's say I go on a vacation to Paris or another city which。
I'm not very familiar with， I don't know many restaurants there， I'll be less price sensitive。
Probably there are more restaurants in Paris than there are in Philadelphia。
So there are more substitutes available in Paris， but my price sensitivity in Paris is。
going to be lower because I'm not aware of all of them。
Another important concept to keep in mind is it's not just availability and awareness。
how easy it is for us to make direct comparisons， makes price sensitivity higher or lower。
So let me give you an example from my own research。
I do a lot of work on private labels at generics。 Professor Kant talked about private labels earlier also in her module。
Private labels command a very high share in the US market。
Not just because they are priced lower than major national brands， but because they are。
kept right next to major national brands on the same shelf。
So consumers can easily see that national brands say Tylenol cost this much and Acinomifene。
produced by Walmart or sold under the Walmart name cost much less and they are kept right。
next to them。 So many people choose the store brand。 Think of the following scenario。
Suppose all these store brands were put on a separate shelf in the store。
Just like generics were put on a separate shelf many years ago in some stores。
If all the private labels of various categories were taken out and put on a separate aisle。
in another part of the store one of our papers that we did for a company indicated that the。
share of private labels will fall by 10%。 So it's not just it's not just the availability of private labels。
It's our ability to compare the private label price with the national brand in a very easy。
way that increases our price sensitivity。 So availability of substitutes。
awareness of substitutes and then how easy it is for us。
to compare the price of one product against another and even small changes there make a。
big difference in price sensitivity。 Another important driver of price sensitivity that we've observed is what is the total expenditure。
on the product and also what is the total expenditure on this product as a fraction。
of your total cost。 So let me give you examples of both。
If you spend more on a product or a service you are going to be more price sensitive。
Bigger families are more sensitive to the price of groceries。
Why because for a bigger family their expenditure on groceries is a bigger part of their budget。
So they are more price sensitive。 So if you spend more on a product or a service you are usually more price sensitive。
What is also interesting is the same product if it's a bigger part of your cost structure。
you will be more price sensitive。 If it's a very small part of your cost structure you will be less price sensitive。
So let's say if I'm making a steel furniture I'll be more sensitive to the price of steel。
than somebody who makes wooden furniture and uses steel nails。
Now steel is still steel but the cost of nails as a fraction of the total cost is much smaller。
for somebody who makes wooden furniture as compared to the price of steel that goes into。
steel furniture。 So even though we have the same metal steel the person who is more price sensitive to。
the steel is the person who makes a steel furniture as opposed to the person who makes。
wooden furniture。 Now this one is not very surprising。
If somebody else is sharing a part of the bill you are going to be less price sensitive。
So people observe this that if your company is paying for your airfare you will probably。
not as search as much for a lower cost of light。 How do you tackle that？
Well you may want to give your employees some incentive in terms of some shared benefit。
if they are finding a lower price。 Another example is when you are pharmaceuticals or the products that you buy in a pharmacy。
when they are covered by insurance you are likely to be less price sensitive。
So how do companies encourage people to become more price sensitive and buy the cheaper product？
If you go through the insurance company and lower the price let us say if a drug costs。
a hundred dollars insurance company pays 80 percent you pay only 20 you are going to。
pay 20 and the insurance company picks up 80。 Alright well if you lower the price from 100 to 50 what will happen？
You will pay 10 instead of 20。 Who is getting the biggest advantage it is the insurance company but if you can give。
a direct to consumer discount then the consumer sees a bigger benefit of that discount。
So whenever you have shared expenses and you want the consumer to actually be more more。
price sensitive you give a direct to consumer discount as as opposed to lowering the price。
of the product directly。 Your switching costs affects price sensitivity。
So if I already have a big car a big SUV for example I have a V8 SUV that I have owned。
for 10 years it still works well so I do not change it even though my kids tell me to buy。
a new one。 But because I already have a big SUV when the price of gasoline increases I still fill。
it up I am not very price sensitive to it even though I want to be I have no choice because。
I get only 15 miles per gallon if I were able to change my car then I would become more。
price sensitive but I am stuck with a particular car or a particular SUV in this case so when。
the price of gasoline changes my behavior does not change I still have to go to the office。
every week or every day of the week I pretty much go 6 days a week so I still consume as。
much gasoline as I did even when the price was lower。
An area that is also important to think about is price quality relationships。
There are many product categories where consumers infer the quality of the product from the price。
so many people say perfumes is one example of that。
Let me give you some more examples that may be even more relevant consulting services。
legal services， choice of a doctor， financial advisors or retirement planning。
In all these cases what we find is people infer quality of the product from the price。 Why is that？
What is the common driver？ The common driver here is consumers lack of knowledge about the product of the service。
I do not know who is the best legal professional because I do not use them very often but if。
I have somebody who is really cheap I might infer from their lower price that they are。
not very good whereas the somebody who charges a lot may be better because why？
Because if other people are willing to pay more for them they must be good。
I am not very knowledgeable about this service and if I find that the market is willing to。
pay more for them they must be good。 And this is consumers lack of knowledge that drives price quality relationship because。
the cost of error is very high in all these settings。
Price quality relationships happen in other areas too with a very similar kind of an idea。
The same wine when price differently people think that the wine that is more expensive。
is better。 Again this happens more with novice wine drinkers as opposed to knowledgeable wine drinkers。
Knowledgeable wine drinkers will not show as much price quality effects as as novices。
And by the way we have seen many studies which are brain scans where for novice drinkers。
you see this effect very strongly。 Another area that affects consumers price sensitivity is their ability to carry inventory。
If a consumer can buy an advance for future consumption they can take advantage of lower。
prices they become more price sensitive。
If a consumer is not able to carry inventory for example say products like milk fresh vegetables。
where you can't store them for a long time people are less price sensitive because when。
the product is on sale you can't buy it for the next month of consumption。
Whereas for cereal and many other products people find that if the product is on sale。
people buy a lot more of it because they can store the product for future consumption。
So these are some of the instances where we see people becoming more or less price sensitive。
based on the scenario they face。
[BLANK_AUDIO]。
沃顿商学院《商务基础》｜Business Foundations Specialization｜（中英字幕） - P22：21_测量价格弹性.zh_en - GPT中英字幕课程资源 - BV1R34y1c74c
In this session， we shall talk more about how do you actually formally measure price elasticity。
Earlier we discussed sort of drivers of price sensitivity。
What are the situations where consumers are more or less price sensitive？
Now let's talk about how do you actually go about measuring price elasticity。
So let's take note of one thing。 Earlier I was using the word price sensitivity。
Now I'm going to use the word elasticity。 So why am I using the word elasticity and how do we define elasticity？
So elasticity is defined in a very specific way。 Is defined as what is your percentage change in demand when you change your price by 1%。
So it looks very complicated。 So the first question you can ask is why worry about percentage change in price and percentage。
change in demand。 Why not just talk about change in demand divided by change in price。
That could also be defined as elasticity but we don't do that。
Why do we use percentage change in demand and percentage change in price？
So there are two advantages of doing this and there are others too but let's focus on， those two。
The first important benefit is let's say you are looking at soap。
If you measured the quantity of soap in bars of soap you'll get one number。
If you measured it in tons of soap you'll get another number。
So if you just use change in demand and change in price you'll get a different answer depending。
on whether your demand is measured in tons or in bars of soap。
Same way if your price is measured in dollars versus euros you'd get a different answer。
We don't want that。 We want the measure of elasticity to be not dependent on the units in which we measure。
demand or the units in which we measure price。 So if you use percentage it's unit less。
If you use percentage demand it's also unit less。 So that's one advantage。
One advantage is because it is not specific to units you can also make good comparisons。
across industries and across firms。 You can say demand for gasoline is more or less elastic than say demand for soap or demand。
for orange juice。 So you can make comparisons across industries because it's not specific to a particular unit。
in terms of tons or dollars。 So across industries comparisons become easier and more meaningful。
Now that we've defined elasticity let's look at another concept which is elastic or， inelastic。
People often use the phrase demand for my product is elastic。
Others might say demand for my product or my service is inelastic。
What do we mean by it being elastic or inelastic？ What we are really talking about is the effect of price changes on revenues。
Let's say I were to increase my price by 1%。 If I increase my price by 1% the question we ask ourselves is what will happen to revenues。
If your demand is very elastic then you increase your price your unit sales will go down quite。
a bit your revenues will actually go down。 If your demand is inelastic and you increased your price by 1% then your unit sales are not。
going to go down as much and your revenue will increase。 So let's look at in specific terms。
I increase my price by 1% because I increase my price let's say my unit sales go down by， 2%。
What will happen to my revenues？ They will go down。 Why？
Because I increase my price by 1% but unit sales went down by 2%。
What is it or another condition where I increase my price by 1% but unit sales only went down。
by 1/2% percent。 Now my revenues will go up。 Why？ Because the increase in price was 1% the unit sales were only decreasing by 1/2% so my revenues。
will go up。 So what is the break even point？ The break even point is going to be 1 which means if my demand goes down by exactly 1%。
then my price goes up by 1% then my revenues will not change but if my demand goes down。
by more than 1% then my revenues are going to go down。
Now let's talk a little bit about how we measure price elasticity more formally。
Now there are thousands of ways to measure elasticity。 How do you put some structure on this？
The way to put some structure on this is ask ourselves what are we measuring and then how。
are we measuring it。 So we could be measuring actual purchases focusing on what people actually are buying。
or we could be focusing on people's intentions to buy。
On the other side we look at conditions of measurement。
Are we measuring price elasticity in natural setting where consumers habitually buy or。
are we controlling the setting using some experimental methods。
So if you combine the variables we measure along with conditions of measurement we broadly。
get four different ways to measure price elasticity。
So let's look at the very first one on the top left。 Actual purchases in a natural setting。
This is what we call as sales data。 We can get sales data from our products that are already on the market。
We can get sales and price data and then we can do something with it to figure out elasticity。
We'll talk more about it。 Alternatively we could in a very natural setting conduct a survey and ask people about their。
intentions to buy。 We could conduct some experiments and then finally we could do some even fancier analysis。
like trade off analysis or con joint analysis by the way con joint analysis was developed。
at the warden school by one of our senior colleagues Paul Green along with Professor， Jerry Wendt。
So it's a warden home grown product and we'll talk about this a little bit。
So let's look at each of these boxes in a little bit more detail。
Let's look at the example where we conduct surveys。
Let's say I have a new online news service and I want to estimate price elasticity。
So one of the things I could do is I could look at 600 representative potential uses。
of this product。 I could split them into six sub samples of 100 each and to each of these sub samples I。
describe in some detail what this new product is and then ask them whether they'll be buying。
this or not or using it or not。 So but the way I do it is to each of these six groups I give them a different price。
So everything else about the product is described in exactly the same way but to one group I。
say the price is $10 will you buy it to another group I say the price is $11 will you buy it。
and the next group I say 15 and then for each of these groups I count the number of yeses。
and then I plot them on a graph。 If you look at this graph you count the number of yeses it's higher at 10 lowest at 15。
I can look at this and I say I have a demand function which relates price to demand and。
from this I can compute elasticity。 So that's one way。
Now clearly as you listen to me you must have said there are many weaknesses of this method。
and yes there are but before we look at weaknesses let's look at some of the strengths。
It's quick it's not as expensive and of course there are many weaknesses。
One of the biggest weaknesses people often don't say don't do what they say they will。
do and this in marketing we call as the intentions behavior link。
There are ways to strengthen the intentions behavior link we are not going to cover this。
in this module but there are definitely ways to do that。
The method also does not explicitly account for competitor prices。
There's another important weakness especially in a service setting or a repeat purchase setting。
You ask the question will you buy this product？ You didn't ask the question how often will you buy it？
How long will you buy it？ Because your total revenues are not going to depend on whether people are going to just。
try this service but it's also going to depend on how long they are going to buy it。
How long they are going to use it and as Professor Feda said what is the customer lifetime value？
So that's one method。 Another alternative could be we launched this service in the marketplace。
we observed it， for a few weeks and we changed prices during that time and when we changed prices we observed。
different sales so now we have hard sales data。 Once we have these data we could plot these data or we could estimate some statistical。
models to estimate price sensitivity。 For example we could run a regression on sales against price and see what is the formal。
relationship and from that we could estimate price sensitivity。
We could conduct some field experiments。 For example we could change prices in one setting compared with another price in another。
setting and look at the difference。 So a very nice example of a field experiment is from a research paper published by one of。
our own faculty members at Wharton， Professor Steve Hooke and some of his colleagues。
He did this experiment when he was at Chicago and they co-opted a very well-known retail。
store in Chicago called Dominics。 If you happen to be from that area you may be familiar with this store。
This store had 90 odd stores and they split them into three groups about evenly。
For one of the groups they lowered prices by 9% for the second group they increased prices。
by 9% and the third group they kept the same。 And the third group is often referred to in experiments as the control group。
So what were the results？ Well the results were very intriguing。
For the stores where they lowered the price by 9% the unit sales went up by 3%。
For the stores where they increased the price by 9% unit sales went down by 4%。
So let me ask you what was the price elasticity observed based on what we covered？
We lowered the price by 9% sales went up by 3%。 What was the definition of price elasticity？
Percentage change in demand divided by percentage change in price。 Percentage change in price is 9%。
Percentage change in demand 3%。 Elasticity minus one third 3 divided by 9。 Why is it minus？
Because when you are raising price sales are going down and when you are lowering prices。
sales are going up。 So elasticity observed in the stores where we lowered the price by 9% was one third。
What does that mean？ Was the demand elastic or inelastic？ And the answer is it was inelastic。
When we increased the price by 9% how much did sales go down by？
They went down by 4% from 100 base to 96。 Then you see 4 divided by 9 is less than 1 which means we raised the price by 9% unit。
sales went down by 4%。 Again your revenues would have gone up。
So in both these cases we observed that the demand is relatively inelastic。
So what would be the conclusion from the grocery store managers perspective？
Well one conclusion could be because my demand is inelastic I can raise prices。
My revenues will go up。 That looks like a nice conclusion but you have to be a little bit careful。
Why do you have to be a little bit careful if consumers are able to compare prices more。
easily then maybe these effects will no longer remain valid。
So if another competitor store were to emphasize that Dominics has raised prices。 They highlight it。
they make it more accessible to the consumer， make consumers more sensitive。
Then maybe some consumers may shift stores but what do we find usually is consumers are。
quite sticky when it comes to the stores they buy from and maybe that's one of the reasons。
you are seeing low price elasticity in these settings。
So that's one way to measure elasticity is to conduct a field experiment。
The last method we are going to talk about is trade off analysis or conjoined analysis。
So I will just give you a sense of what this method is to give you an idea of how this。
is done and then of course there are more formal ways of doing it。
There are companies that specialize in conducting this。
You may talk to one of those or read more about it in a book。
So let's look at the following example。 Let's say we have six restaurants A， B， C。
D and E and F and we have these restaurants， are defined on two different characteristics or two different sort of attributes。
One is the quality of their food and other is the atmosphere or the ambiance。
So the food quality can be either excellent， good or fair and the ambiance is either intimate。
candlelight or bright lights。 Now with these three food quality and two types of ambiance we can create six different types。
of restaurants。 So I have done this in a very purposeful way。
Now let's say I ask one of the consumers or potential buyers， you know tell me which。
is your most preferred restaurant and let's say this person says is the most preferred， restaurant。
Then I ask them the next question。 Because A were not available which is the next restaurant you will pick。
Let's say this person says B and then I tell them if B is not available which one will， you pick。
They say C。 In effect what I'm trying to do is ask them to rank order these restaurants。
Now let's look at another customer。 Let's say ask them which is your most preferred restaurant。
They say A。 I ask say A is not available which one do you pick。
They say C and I say that's not available which one do you pick and they say E。
Now if you look at A B C versus A C E would you not agree with me that you learned something。
about these consumers。 What did we learn？ Consumer number one cares mostly about the food quality。
Consumer number two cares much more about ambiance than food quality。
Now this is just to give you an idea that we are able to judge from these choices in a。
very purposeful way。 Does the customer care more about food quality or ambiance？
We can then quantify it also more formally as to how much more do they care about food。
quality versus ambiance。 Now let's think about one of the variables instead of being food quality could be price。
So then we can say how much does the person make a trade-off between price and food quality。
and that will allow us to measure price sensitivity。
So looking back there are four broad ways of measuring price elasticity and these four。
broad ways come about from what do we measure and how do we measure。
Are we measuring people's actual purchase behavior or are we measuring their intentions， to buy it。
In terms of how we are measuring are we measuring it in their natural setting and then are we。
measuring it in a controlled experimental setting。
So this 2 by 2 table that we discussed gives you four broad different ways and what we。
did in this module was to give examples of each one of those four different ways of。
measuring price elasticity。 Thank you。 [BLANK_AUDIO]。
沃顿商学院《商务基础》｜Business Foundations Specialization｜（中英字幕） - P23：22_定价的心理因素.zh_en - GPT中英字幕课程资源 - BV1R34y1c74c
Along with economics and statistics， psychology is another important aspect and we need to。
understand psychological aspects of pricing as we make pricing decisions。
Psychologists have studied pricing in great depth and there are many key findings。
Let's start with the first one which is very popular。 That's nine price endings。
In much of the US and many parts of the western world， you will see prices ending in either。
nine or five。 And there are many experiments and studies that have been done to illustrate the effect。
of nine price endings。 So here is one。 This is a very popular study that was done many years ago。
Price of margarine in a field experiment。 The regular price of margarine is 83 cents。
Unit sales is 2817。 What the price in the field experiment to 63 cents， sales increased by 194%。
So a 20 cent reduction in price increased sales by nearly 200%。
But the next four cents which is going from 63 to 59 increased sales by over 400%。
So what is this study trying to say？ The first 20 cents， even though it was larger。
had a much lower impact on sales than the， next four cents。
But the next four cents involved adding the price at 59 cents which is a nine ending。
So this is an example of a nine ending being effective in terms of increasing sales。
Here is another interesting study that has been reported in journals which is in a catalog， setting。
These researchers sent out in a catalog setting the same dress to different consumers but it。
was priced differently depending on who received the product or who received the catalog。
In one case the price was set at $34 in the other case at $39 and in the third case at， $44。
What you would expect is that the sales would be the highest at $34。 Why？
Because it's the lowest price。 What did this study find？
That the sales were higher at $39 as compared to $34。
One would expect sales at $39 to be higher than sales at $44 because 39 is lower。
But then you would have expected the sales to go up at 34 because 34 is lower than 39。
But somehow the nine ending is perceived as a sale。 So sales were highest at that。
So these two studies illustrate why nine endings often lead to higher sales than non-nine endings。
It is also case that there are many studies that have not found this effect。
But the practice continues because there is not much evidence to change this practice。
So we still continue to use nine endings and five endings especially in the United States。
Another very interesting psychological finding when it comes to price is we often refer to。
as the Weber-Fecner law。 I would put the word law in quotes because this is really not Newton's law or Charles。
law that we see in physics is more of an empirical generalization based on many studies put together。
So what did these two researchers find？ What they found was consumers reacted to prices more in percentage terms as opposed to absolutes。
So in simple words what does that mean？ What that means is a typical consumer will be happy to drive five miles to say five dollars。
in a product costing ten dollars。 But the same consumer will not be happy to drive the same five miles to say five dollars。
in a thousand dollar product。 Now if a consumer rational if you are willing to drive five miles to say five dollars it。
should not matter whether the product is ten dollars or product is a thousand dollars。
What we find empirically is that consumers are reacting more to a percentage price change。
as opposed to an absolute price change。 And you all you can look in your heart whether you will be consistent with the consumers in。
this study will you also be driving more likely to drive five miles to say five dollars in。
a ten dollar product versus five dollars in a thousand dollar product。
My sense is most of you will be consistent with what the subject in this study did。
Another very interesting effect that psychologists have found and is labeled as what we call。
as endowment effects。 It's a big word for something simple which is a sense of ownership increases the customer's。
willingness to pay。 I have often conducted this experiment in my class many times and it's just very simple。
I asked the students a very simple question I put them in this hypothetical setting that。
end of the course I will be distributing mugs and to one group of students I tell them you。
are fortunate enough to get the mug at what price will you be willing to sell it to someone。
who was less fortunate than you。 And to the other group I tell them you were not fortunate you didn't get the mug。
And I ask each of these groups a what will you be willing to sell the mug at that's the。
first group and the second group I ask them at what price what price will you be willing。
to pay for the mug。 And consistently what I find is that those who were put in the hypothetical situation that。
they own the mug are asking more for the mug than those who are willing to pay willing to。
buy the mug。 Even though both groups are told that the list price of the mug is 750。
What is also important here is to know that neither one of them actually has the mug they。
are just put made to assume that either they have the mug or don't have the mug。
So endowment effects don't rely on actual ownership but a perception of ownership。
So what are the implications the implications for this is make consumers feel they own the。
product before they buy。 So if you look at car test drives many years ago if you went for a car test test driving。
a car the usually the salesperson actually sat down with you and then was there with。
you all the time when you test drove the car。 These days when you test drive a car they just take your driver's license in many settings。
even though it's an expensive car they let you and your spouse drive the car on their。
own you just bring it back they know that you have to collect your driver's license anyway。
But what's the benefit？ A) they don't have the salesperson doesn't have to spend time but B) most importantly。
is you are in the car yourself without the presence of anyone it creates a sense of ownership。
and if the belief is that if you can create a sense of ownership people will be willing。
to pay more for the car or and therefore are more likely to buy it。
Another very interesting and powerful effect that psychologists have found is what we call。
as reference prices。 Most of us do not look at a price in isolation we compare it with some reference price we。
have in our mind and ask ourselves is the price we are going to pay today better or worse。
than that some reference price we have in our mind and most of the time these reference。
prices are based on the past history of prices。 So if I have seen higher prices in the past and today I am seeing a lower price I have。
a reference price in mind I compare today's price with that price。
Now how do you manipulate reference price one way you can manipulate reference price。
or increase it is by comparing your today's price against a list price or oftentimes you。
will see in an infomercial people will start with a very high price to create that as the。
reference price and then slowly go down to make it sound like a deal。
A very interesting effect that psychologists have found in terms of pricing is what they。
call as context effects。 What it really means is what is the impact of the choice set that is offered to a consumer。
on their mind decisions。 So look at two possible settings we have in one setting consumers go to a store and they。
see two cameras on the shelf。 One price at 169 and the other price at 239。
Think of another set of consumers who go to a store where they see three cameras on the， shelf。
One price at 169 other at 239 which is the same as the other consumers but one price。
much higher say at 469。 What do you observe in these cases？
What do you observe in these studies in a very robust way is that when you add the higher。
priced option consumers are more likely to gravitate towards the intermediate option。
Normally what you would expect is if I added a camera that is costing 469 much of its sales。
will come from the camera that was costing 239 as opposed to the camera that was costing， 269。
What do you actually find is the higher price camera draws more from the lower price camera。
and in fact oftentimes boost the sales of the intermediate option。
So in this case what you are seeing is something that you would not expect in a pure rational。
setting but we see this many times and this is really the foundation of what we call as。
companies offering good better best strategy。 What do you mean by good better best？
Instead of offering just two versions of a product good and better offer three versions。
of the product good better and best and more people are likely to buy the better version。
which is the middle version than the highest or the lowest version。
So if we reflect back on our module on pricing what do we conclude？
Effective pricing captures value and leaves as little as possible on the table。
It's not that hard to get that extra 1% once we know how to do these things better。
Price sensitivity is a major input into your pricing decisions and we learnt in this module。
what are the drivers of price sensitivity and we also learnt how to actually measure price。
sensitivity and price elasticity。 I think it's also important to keep in mind that consumers are not purely rational and。
incorporating psychological effects into your pricing decisions can also improve profitability。
[ Silence ]。
沃顿商学院《商务基础》｜Business Foundations Specialization｜（中英字幕） - P24：23_定价的分析基础.zh_en - GPT中英字幕课程资源 - BV1R34y1c74c
In this lecture， we will discuss some basic analytic foundations for pricing decisions。
And we will focus on three key topics。 One， we call margin and contribution analysis。 Second。
breakeven analysis and the third concept is economic value to the customer。
So let's start with margin analysis and let's do it in the context of a mini case。
And this case comes from a company called Wistecon。
So Wistecon is a subsidiary of Johnson & Johnson and they were the first to launch disposable。
lenses。 And the first lens they launched was called HECU view， which was produced by a very unique。
proprietary technology and it costed about 50 cents per lens。
Patients were advised to wear these lenses for one week and then dispose them away and。
then next week insert another pair of lenses in their eyes。 Soon after they launched HECU view。
for a number of reasons， some IKEA professionals suggested。
that patients remove these lenses and clean these lenses each night and replace them after。
two weeks。 Which was not exactly what Wistecon had suggested。
But in response to this particular usage pattern， Wistecon decided to launch a new product called。
Shor View， which was specifically designed for this type of usage， which is two week， usage。
They priced it the same as AkuView， which is $2。50 to IKEA professionals and who charged， then $4。
50 to end users。 At the time of this， Wistecon was thinking of launching a very different type of lens。
disposable lens， which they called as one day AkuView or daily disposables。
This would be a product that would be daily wear， single use， truly disposable lens that。
offered both convenience and reduced health risk。 And these lens costed Wistecon about 25 cents to manufacture and they were priced at 65。
cents to the IKEA professionals。 And then the plan was to sell it to the customer at about 83 cents。
So let's think through this planned launch of one day AkuView and ask ourselves what。
issues should Wistecon be concerned about as they launch this new product to complement。
their existing product line of AkuView and Shor View。 So typically when I pose this question。
I get several answers， but the one answer on， top is will the new product cannibalize existing products？
The other responses I get is will consumers really want it？
Another answer here is will channel partners or IKEA professionals want to support it？
And then there are operations and production side issues。 Can we produce so many units？
Do we have the supply chain and the distribution network to support it？
So all these are important issues， but let's see how many of these we can address by doing。
simple margin analysis。 So let's start with that process of margin analysis。
If you look at the margin for each of the three products， so let's start with Shor View。
the price to the patient is 450， the price to the ECP is 250， unit cost is 50 cents， so。
Wistecon's contribution is $2。 If you look at AkuView， it's exactly the same。
But if you look at the one day which is the daily disposable， it's 83 cents to the patient。
65 cents to the ECP and the unit cost is 25 cents， which means it has 40 cents margin to， Wistecon。
So a question worthwhile asking at this stage is based on these margins， which of these three。
products is most profitable？ People when they look at this。
students or executives invariably they'll say， "Presraju， the most common answer is one day。
That's what I hear。"， And when I probe further， I ask why are you coming up with one day when $2 is actually。
more than 40 cents？ And I think they rightly say， "Look， it's not the margin per lens。
It's margin per consumer， which is each customer is going to buy many more of the daily disposables。
than they are going to buy Shor View。"， So that is a good way of thinking。
So let's look at that a little bit more carefully now as we go deeper into this。 So $2。
which is the margin per lens for Shor View， we multiply that by 52。 Where do we get 52？
It's replaced by weekly， which is 26 weeks。 You have two eyes， so you're usually 52 lenses。
So 52 times 2 is $104。 And then for AccuView， again， the per lens is $2。
multiply that by 104 because you're， changing it every week。 Two eyes， 52 times 2 is 104。
You get $208。 But then you multiply the 40 cents margin on one day， which is the daily disposable。
Multiply that by $730， you get $292。 So clearly once you look at it on a per-consumer basis。
you find that the daily disposable is， more profitable。
This is where now the real discussion begins。 I asked under what conditions would actually show you be more profitable even when we look。
at these data。 This is not an easy question。 But as we think about it。
the answer comes in the following way。 If you were told that you can make only 100，000 lenses。
which ones will you make， then the， answer would be you will make only show views。 Why？
Because from those 100，000 capacity， you can make $2 per lens and there'll be 200，000。 But with 100。
000 capacity to manufacture， you'll be able to satisfy very few customers。 And on each customer。
you'll make only $292。 So if your capacity were limited， then suddenly。
show view looks more profitable。 So the next question is。
what capacity are we talking about when we are thinking of， $292， $208 versus $2。40？
And the answer there is you're assuming that the number of customers you have is fixed。
and you're going to be able to change each customer from one lens to another lens。
So if your number of customers is fixed or limited， then clearly the daily disposable。
looks profitable。 But if your number of lenses you can make is fixed。
then show view is more profitable。 So let's now put this in some perspective。
We all worry about when we compute margins， we all worry about what is the numerator。 By numerator。
I mean， is it $2， $2， $1。2， $2。40， $40。 $41 is it $292 or $293？
What I urge you to do is also think about the denominator。 Should it be margin per lens？
Should it be margin per customer？ And what does that depend on？
It depends on what is your key resource or your binding constraint。
If your key resource happens to be or your binding constraint happens to be production， capacity。
then you should be looking at margin per lens。 If your binding constraint happens to be the number of customers you can access。
then， you should be looking at margin per customer。 So think about it， a traditional retailer。
when you ask them how do you compute your， margins。
they say we compute margins per square foot of shelf space。 Why do they do that？
They do that because for a traditional retailer， shelf space is their critical resource。
They can't change that in the short run。 But now if you ask a law firm or a consulting firm。
they don't say we compute margins per， square foot of office space。
Why do they not compute margins per square foot when a retailer does？ Well。
because office space is not their key constraint。 Their key constraint is the number of consultants they have。
So they compute revenue per consultant hour in deciding which opportunities are more interesting。
or more attractive。 So let's reflect on this。 We all worry about the precision by which we compute margins。
which is I often refer to， as the numerator。 What is strategically more important actually is the denominator。
Should it be margin per lens， should it be margin per customer， should it be margin per。
square foot or should it be margin per consultant hour。
It all depends on what is your key resource。 So if you do not do that right。
everything else goes wrong because if you are computing。
margin per lens when customer is your key constraint， then you are most likely to make。
wrong decisions。 So keep a focus on the right denominator。 So in this particular case。
we assume going forward that there is no capacity constraint。 So for Wisticon。
the key constraint is actually the number of customers。
So now let's start looking at another question that comes up in the discussion which is， will。
the IKR professionals like this product？ So now let's start looking at the margins of the IKR professional。
As you look carefully in the table， what do you find？ What you find is for the new product。
the IKR professional is going to make $131。40 per， customer。
Compare that with what they were making for AccuView。 For AccuView。
they are making $208 per customer。 And for sure， we of course they were making less which is $104。
So once you look at the channel margins or the margin to your channel partner， I think。
you can conclude that there is a good likelihood that your IKR professionals will not be as。
interested in this product。 But then I think a deeper discussion might lead us to say。
what if it is cheaper for them， to sell daily disposables？
If it's cheaper for them to sell daily disposables， then maybe $131。40 is sufficient。
But the answer to that is it's probably harder for them to sell daily disposables。
They'll have to stock more， they'll involve more working capital and more space。
But it is not likely to be easier to sell daily disposables than it is to sell either。
one week or biweekly lenses。 Also look at profit sharing。
When we look at the table for the earlier two products， SureView and AccuView， it's very。
interesting to see that the annual contribution for ECP and Wistecon was exactly the same。
Which means whatever was the total size of the pie， they were splitting it equally。
But now we look at daily disposables， their plan is to actually split the pie unevenly。
What does that mean？ It means most likely it's not just about lower margins to the channel。
it's also about fairness， or lack of fairness。 Why？
Because now you're not going to split the pie evenly。 Let's say if you were to split the pie evenly。
which is change the price in such a way that， the two products now。
all three products are shared 50/50 between you and the channel partner。 How do you get to that？
Well you have to lower the price to the ECP at 54 cents instead of 65 cents。 Once you do that。
you get 211， 211， 211， 270， 211， 270。 Now all channel margins are equal between Wistecon and ECP。
But then what you see is this product is really not that great。 Why？
Because it makes just a little bit more than what they were making on the weekly product。
What do we conclude from this？ What we conclude from this is a good thoughtful margin analysis can peel the onion and help。
us identify A is the new product really better than our existing products。
B if we look at the margins more thoughtfully and include our channel partners also， then。
we can understand their incentives or lack thereof。
And then finally we can also look at what the retail price to the customer is going to， be。
And of course in the daily disposable case it's going to be higher than it was for show。
view and active view。 So we have to worry about consumer response also。
So simple margin analysis of the type we did lays open many interesting insights that。
one has to keep in mind has been launches new products or prices them appropriately。
So what is margin analysis？ It's simply a table of costs and prices for every member of the value chain。
The person who's taking the idea to market channel partners and users for every relevant。
product within the product line and often across competitors。 What it does？
It reveals everyone's incentives in a purchase transaction and a careful examination allows。
us the discovery of potential problems such as cannibalization and channel conflict。
And it also provides useful input for subsequent analysis。
Now let's move to the next concept which is break even analysis。
And again this is extremely useful in making pricing decisions。
It's also extremely useful in making other business decisions。
And here we are going to talk about three different types of break even analysis。
The first one we are going to talk about is let's hypothesize that the ACKVUE team or。
the daily disposable teams in this case is planning to spend $2 million advertising budget。
How do they justify such a budget to their senior management？ Second。
we already discussed this partly， what if they were thinking of lowering the wholesale。
price from 65 cents to 54 cents in order to satisfy the IKL professionals？
How much more would they have to sell to break even？
And the third break even concept we are going to focus on which again is very critical is。
how much cannibalization can we tolerate from ACKVUE when we are launching a new product。
So again recall when I posed this question to most of our students， the very first thing。
they ask is this product will cannibalize。 So we look at all these three very carefully as we go forward。
Let's start with the first one， the $2 million advertising。
What kind of analysis can the team do to either justify it or to realize whether it's worthwhile。
or not？ We do this in a very simple way。 We ask ourselves how much money do we make per lens？
Well the answer is we make 40 cents per lens。
Again remember it's 65 cents minus 25 cents is 40 cents。 So each lens we sell we will make 40 cents。
We are planning to spend $2 million in advertising。
So $2 million divided by 40 cents is 5 million lenses。
That means we will have to sell 5 million more lenses in order to be able to justify。
a $2 million expense on advertising。 That's a nice analysis but I don't think it's good enough。
To make it even better I think you need to translate this into not lenses as the denominator。
but again consumers as the denominator。 So if we translate it into consumers as the denominator。
each consumer lets assume if， we can get them stays with us for about a year in which year they will consume about。
730 lenses so 5 million divided by 730 is 6，849 new users。 What does that mean？
The $2 million of advertising will pay off if we can get 6，849 new users。
This I believe is a better way to present your results rather than saying I need to sell。
5 million more lenses。 Advertising does not affect lenses it affects users。
So again keep in mind the choice of the denominator when you justify your recommendations to the。
committee， to the senior management。 Try to use the right denominator it helps you convey your message better。
So this is break even of type 1 which is you are thinking of spending some money on advertising。
Similar analysis can be done if these two million were to be spent on advertising to。
improve the quality of the product how much more we would have to sell。
Now let's go to the next type of break even analysis which is reducing price。
So we considered this case earlier if Wisticon wanted to have equal margins to both the ECPs。
as well as themselves they would have to reduce the whole sale price from 65 cents to 54 cents。
So the question then we ask ourselves is that's great it will make our ECPs happier but how。
much more will we have to sell if we reduce the price from 65 cents to 54 cents and how。
would we analyze that。 Let's do this slowly step by step。 At 65 cents our margin is 40 cents。
Why 65 minus 25 is 40 cents。 If we are proposing a new wholesale price of 54 cents our margin will be 29 cents。
How do we get 29 cents？ How much more we would have to sell at a margin of 29 cents relative to a margin of 40 cents。
to break even。 What we have to think about this is the following。
Let's suppose we were selling 100 lenses at 40 cents。
How much money we would make it will be 100 times 40 cents。
And the question is how much do we have to sell at 29 cents to break even。
So that will be 100 times 40 is equal to this unknown number times 29 cents。
So what is this unknown number it will be 100 times 40 divided by 29 which is 137。9 which。
means we need a 37。9% increase in unit sales for us to break even if we are thinking of。
lowering the price from 65 cents to 54 cents。 The next question is is this possible。
How does this help？ What we could do is we could do a small test market in a small region where we lower the。
price from 65 to 54 and see whether we get a boost of at least 37 to 38 percent if we。
do at least it's worth considering further。 Let's think of another possibility。
What if we did this analysis and the answer turned out to be 200 percent which is we need。
to increase our unit sales by 200 percent。 Then maybe there is no need to probe further because you know from past experience that。
that is unlikely to happen。 So this break even analysis gives you some interesting guidelines of what to do next。
and also helps us rule out some really dominated alternatives in certain cases。
Now let's look at the third type of break even analysis which is what we call as cannibalization。
break even。 Whenever cannibalization is often the first comment that comes up whenever we ask the question。
in this particular case or other cases when a company is adding a new product to the product， line。
But now reflect back is cannibalization really a concern in this case？
It's truly not because in this particular case this new product gives us $292 per customer。
whereas the previous ones were giving us either 208 or 104。
So cannibalization is really not an issue here why because we would like all our customers。
to move from a product that gives us $104 per customer to $292 per customer。
So even though early on this is the first comment that comes up when you think a little。
bit deeply cannibalization is really not a concern for daily disposables。
But for us to study the concept of cannibalization which we'd like to do because it's an important。
concept let's look at another event from this very case study。
This company at some point in time launched SureView when it already had AccuView on the， market。
So let's use that as an example。 AccuView gives us $208 per customer whereas SureView gives us 104。
How do I know what level of cannibalization can I tolerate from SureView before it becomes。
unprofitable？ How do we think through this carefully？ So this is one way to consider this。
Let's say we have a sample of 100 customers who are currently buying SureView。
So we have them in front of us。 How much money are we making from these customers？
And the answer is 100 times 104。 Why 104？ Because they are buying SureView。
Let's say we ask each of these customers what were they buying before they bought SureView。
And we go one by one。 Let's say we do this hypothetical exercise where we ask each one of them what were they。
buying before they bought SureView。 And the first one says I was buying AccuView。
The second one says I was buying AccuView。 The third one says I was buying I was using glasses。
What is the maximum number of AccuViews we can hear before we say SureView is not profitable？
In other words， what is the maximum draw SureView can have from AccuView before we deem it unprofitable？
Let's call this number max。 Then how do we arrive at this max number？
How much are we making today from these 100 customers？ It's 100 times 104。
SureView to be profitable this 100 times 104 has to be greater than this max we can tolerate。
times 208。 Why 208？ Because these people were earlier buying AccuView and we were making 208 dollars from each one。
of them。 So the max has to be less than 100 times 104 divided by 208 which is 50。
That means we can at most tolerate 50% cannibalization from AccuView if we were launching SureView。
If the cannibalization is more than 50 then SureView is going to lead to lower profits。 Why？
Because it's drawing more customers from AccuView than we can handle。 Exactly at 50 it's equal。
So now let's put this in some perspective。 More generally than break even cannibalization is equal to the margin on the new product divided。
by the margin on the existing product。 In this particular case it's 104 divided by 208 which is 50%。
Let's ask another question。 What if we have more than one product？
In this particular case the company just had AccuView and they are launching SureView。
What should we use in the denominator if we have more than one product？
One possible answer is we can use the weighted margin on existing products in the denominator。
That's an approximation but it's a good enough approximation is better than using one product。
So let's reflect back on what we have covered in this lecture。
We covered margin or contribution analysis and in this particular case the one thing I。
do not want you to forget is remember the importance of the denominator。 We have finance people。
accounting people who spend a lot of time and a lot of effort。
in precisely determining what the numerator is。 Is it 208 dollars？ Is it 209 dollars？
Is it 42 cents？ Is 43 cents？ But if you have the denominator wrong everything else is wrong。
Why does the retailer use dollars per square foot of shell space and why does the consulting。
company use dollars per consultant are？ They use it because that is their critical resource for the retailer the critical resources。
shell space and for the consultant it's consultant hours。
So make sure you have the denominator right。 Just look at this example。
Had we used lens as the denominator we would have concluded that daily disposable is less。
profitable but when you use customer as a denominator we conclude that daily disposable。
is actually the most profitable product for the company。 But break even analysis。
These provide very useful insights for pricing decisions。
Cannibalization break even can give us input into branding decisions also。
For example if you use an umbrella brand which professor can't talk about cannibalization。
may be higher because the two it will be very visible to the customer that both products。
come from the same brand。 So these analysis margin analysis and break even analysis help us make better pricing decisions。
but I would go step further and say they help us make better business decisions。 Thank you。
[BLANK_AUDIO]。
沃顿商学院《商务基础》｜Business Foundations Specialization｜（中英字幕） - P25：24_客户的经济价值.zh_en - GPT中英字幕课程资源 - BV1R34y1c74c
In this module， we will focus on a very important concept called the economic value to the customer。
In short， we often refer to this as EVC also。 This concept can be very useful on a number of things。
One， it helps us set a price for a new product or a new service that you are planning to take to the market。
It is also useful to identify whether or not this new idea。
new product or new service you have is economically worthwhile。
It can be used also very effectively to decide who or which type of customers you want to target。
You may recall Professor Kahn spoke about segmentation and targeting。
And we can use economic value to the customer to help make these decisions in a sound manner。
It also helps us identify who your true competition is and what is their relative economic power。
It also is just as useful about helping you rethink about how to price what you already have on the market。
So let's start with a small case study。 This is a very popular case study。
It was written by me and it is used extensively at Vartan。 And it uses my own personal example。
So we used to have a swimming pool in our house and every winter I used to worry about what to do with the pool。
The pool was about 20，000 gallons and it was in my backyard and every winter the water would get dirty。
And then next spring I will have to clean up the water。
run the filter for many hours and I didn't like that。 So what I did was something simpler。
Every fall or late fall I used to just drain the entire water of the pool and then refill it again in this spring。
The problem with this method was that my suburb has very strict laws regarding water disposal。
So I can't just throw the water on the street。 So I have to have a township truck that comes and takes the water away。
And this township truck charges roughly one dollar per thousand gallons of swimming pool water。
And then come next spring when I have to refill the pool I have to get fresh water which I think I just put the tap on。
And that is about a dollar for each hundred gallons。
You know there are many times I have thought about not refilling the pool but if I did that my kids would never talk to me again。
So I have to refill it。 I gathered many years ago that there was a new product on the market that was very easy to use。
All you do is drop the tablet in the pool water and put your safety cover on which I had to do anyway whether I drained or not because if I don't have the safety cover on my guests would fall into the pool。
So I just took the spring。 The idea was to just take the cover off next spring and the claim from the inventor of the new tablet was that the pool will be sparkling here and clear in the spring just as it was the day I closed it。
So I think the question to ask is we have a new innovation that will help Professor Raju do his job faster。
better。 How much would he be willing to pay for this little tablet？
So this is where economic value to the customer comes in as a very handy tool。
So let's look at Professor Raju's cost of draining the pool。 So it's dollar per thousand gallons。
20，000 gallons so that's 20 dollars。 Then refilling the pool is a dollar per hundred gallons that's 20。
000 gallons which is 200 dollars。 So you put the two together it's $220。
Now let's start thinking a little bit more about what this 220 means and what is its economic significance。
If the tablet is priced more than 220 and somebody comes to me and says its price is 240。
what am I likely to say？ Most likely what I'll say is that the current method is cheaper。
I'm not interested in this new idea。 If the product happens to be priced at less than 220。
I'll probably show some interest。 But if it's priced exactly at 220， I'm going to say in my mind。
I'm indifferent between the existing technology， which is throwing the water away and refilling。
I'll call that as a method of working or a technology and the new technology which is using the tablet。
So what is the meaning of economic value to the customer？
What it means is trying to identify a price at which the customer is indifferent between their existing method of doing things。
and the new idea that is being proposed。 So as far as the tablet is concerned。
its economic value to the customer which in this case happens to be me is exactly 220 dollars。
assuming we have done everything correctly。 So what can this be used for？
Can be used now for many things。 It's a very useful input on pricing decisions。 For example。
we already discussed this。 This is the maximum price I might be willing to pay and so this is the maximum price。
The innovator of the tablet or the inventor of the tablet will be able to charge。 Now。
if the maximum is not good enough to make your financials work。
now we are thinking about the inventor of the product。
Then the new product you have is probably not worth taking to market。
So it helps in a go-no-go decision and we'll talk about this quite a bit later also。
Now let's think about another issue that this can be very useful for which is who are your best customers and who you should target。
Again， this is going back to Professor Kahn's session on segmentation and targeting。
Using the analysis we just did， can we identify who will be willing to pay more for the new tablet based on our analysis？
So when I ask this question from my students and also senior executives。
the first answer I get always is those who have bigger pools。 Well， that is true。
If the same tablet works for 30，000 gallons also， then the homeowner who has a 30。
000 gallon pool will be willing to pay more。 Assuming they are of the same type。
then instead of 220 it will become 330。 But then there is a next question when it comes to segmentation and targeting。
which is how will you find out who has a bigger pool。 And when I ask this question。
most of my students remain silent because pools are in the backyard。
And if I am this inventor of this new tablet， how would I know who has a bigger pool or a smaller pool？
Sometimes a clever student will say， "Professor， I can look at Google Maps and see who has a bigger pool。
"， But at least we know it's not easy to identify who has a bigger pool and who has a smaller pool。
especially when you are new in the market。 So I think it's very important to recognize that while size of the pool is a good segmentation variable。
identifying who has a bigger pool and who has a smaller pool is very hard。
So conceptually it's a good segmentation variable， but in practice it will not work as well。
So now let's think of a second answer。 Those who live in areas with the cost of water disposal or fresh water is high。
Now that will be easier to identify because going back to our session on segmentation。
this will be segmentation based on geography。 Certain zip codes will have a higher cost of disposal。
Certain zip codes may have zero cost of disposal。 So this is very easy to identify。
So now we can now segment customers based on geography based on the cost of water disposal or the cost of fresh water。
So it gives us an idea as to how to segment the market and then also decide who to target。
There is another possible answer that I often get when I ask this question。
And students will often say， "Professor， why don't we target those who are more environmentally conscious？
"， So my response always is， how do we define who is more environmentally conscious？
And the economist answer to that is for those whom the market price of resources does not truly reflect their societal costs are people who are environmentally conscious。
That's a very nice and a succinct definition。 But then I ask my students。
how would you know who is more environmentally conscious and who is less environmentally conscious？
Do environmentally conscious people live in certain types of homes？ Do they wear a green t-shirt？
And usually the response is， "Professor， yeah， it's a good idea to go after environmentally conscious people。
but it's very hard to identify who is who。"， So in summary。
the computation of EVC also gives us some insights into how to segment the market and who to target。
And the key decisions in develop， these are all key decisions in developing a good go-to-market plan。
Another area that we can focus on in this very domain is trying to combine what Professor Fader talked about。
which is customer lifetime value and the concept that we discussed just now。
which is economic value to the customer。 Let's think of the following 2x2 table。
You can have customers who have a low CLB， Professor Fader talked about some of those。
and customers who have a high CLB。 And he talked about some of those also。
Now we just learned this concept， economic value to the customer。
Some customers may value the tablet higher， some customers may value the tablet lower。
So now we have this 2x2 gives us 4 possible scenarios。
So let's identify these scenarios and see their managerial usefulness。
I think the obvious one is the ones in the low-low box。
The low-low box is these people are not interested in us。 Why they are not interested in us？
Because they don't value our product。 And they are also not interesting to us。 Why？
Because they have a low customer lifetime value。 These may be people who use the tablet once every 5 years。
They also don't value the tablet。 So these are obviously customers we will not target。
Now look at the bottom right box。 These are the people who are interested in us and also interesting to us。
Why are they interested in us？ Because they have a high economic value to the customer。
They value our product and services higher。 And why are they interesting to us？
Because their customer lifetime value is higher。 These will be obviously the segments to go after。
This will be the best segment to target。 But now let's look at the 2 cross-diagonal boxes。
Low customer lifetime value but high customer economic value。
These people are interested in us but costly to deal with。 Why are they costly to deal with？
Because they have a very low customer lifetime value。 They probably don't buy us frequently。
They ask a lot of questions。 They need a lot of help。 But they do value our product。
So their economic value to the customer is high but the CLV is low。
And then look at the lower left side。 The lower left side is interesting but not interested in us。
Why are they interesting？ Because they have a high customer lifetime value。
And why are they not interested in us？ Because they don't value our product。
Maybe they have smaller pools or they rather do their work themselves。
So I think this combining of customer lifetime value concept。
that Professor Fader described very vividly and nicely combined that with this concept of economic value to the customer that we just discussed。
I think you put these two together。 It gives you very deep insights into your customer base。
of the types that we typically don't think about。 Which is two variables interested in us or interesting to us。
And when you combine these two， I think it really gives you deep insights about your customer base。
And we use this extensively in deciding which customer groups to target and which ones not to target。
Now let's ask another question。 What else can we use EVC or economic value to the customer for？
We can also use it to identify who our true competition is and what their response might be when we launch a new idea。
So let's say we are thinking of the person who invented this tablet。
And you ask the question who will this person compete with？
And the typical answer you will get is other people who make such tablets or those who might make such tablets in the future。
That's a good answer but I don't think it's a great answer。 I think we can do better。
And a better answer begins by redefining what is competition。 A broader in my view。
if not a better view of defining competition is who all will suffer if we succeed。
So let's think about that。 If our new tablet becomes successful and people like Professor Raju start to use it。
who will lose business？ Well， the first person who lose business is companies that take the water away。
companies that haul the water away。 Why？ Because now people like Professor Raju will not have companies haul the water away because all they do is put the little tablet。
Water companies that supplies water will also have lower business because now their billings will go down。
So whenever we take a new idea to market or a new product to market。
value shifts from one industry to another。 And the concept of economic value to the customer helps us identify where will the value migrate from。
It's not about one tablet competing against another tablet。
It's the launch of a tablet takes money out of certain other industries。
And once we identify where the value is going to migrate from。
we know they are going to respond in some way to prevent that from happening。
So we can expect some response for those who lose if we win。 And this， I believe。
gives us a broader understanding of who our competitors are。 These are people who lose when we win。
Again， economic value to the customer gives us some insights into where value gets migrated from。
We talked a little bit about making go-no-go decisions using economic value to the customer。
Let's get back to that in a little bit more detail。
We can define the value of an idea by estimating the value it creates for the company。
Let's assume for the moment that all customers are exactly like me。
Then each will be willing to pay a maximum of $220 for the tablet。
If we were told that the cost of making this tablet is $240 per tablet and you put $220 next to $240。
it's not rocket science to conclude that this is not a very useful idea because it costs $240 to make。
but the maximum that a customer is going to be willing to pay is $220。
But what if we were informed that the cost of making this tablet is only $20？
Then the company has created or the innovator has created a value which is $200。
which is 220 minus 20。 Now this is the value we can now put to work and more on this as we go forward in terms of improving pricing decisions。
So let's say the economic value as we computed is 220， the cost is 20。 In this chart。
I have drawn 220 at the top and 20 at the bottom。 And let's say we are hypothesizing a price of $100。
If we are hypothesizing a price of $100 and we put 100 on this chart， what insight does it give us？
Well， it tells us that we are giving the customer $120 incentive to switch from whatever they are doing today to this new method of working。
And the inventor of the tablet is going to get a margin of $80。 Where am I getting $80 from？
It's 100 minus 20。 And where am I getting 120 from？ It's 220 minus 100。 Remember。
it costed him $220 to keep the pool fresh by spring。 Now if the price of the tablet is 100。
he is going to save $120。 Now if we shift the price higher or lower。
let's say we increase the price to 140。 What are we really doing？
What we are doing is balancing the incentive given to the customer against the margin for the inventor of the product。
So in this particular framework， price becomes a sharing rule。
A rule by which we decide how much of the created value is shared between the inventor and the customer。
And it's a very useful way of thinking about making good pricing decisions。
We could now bring our channel partner in the analysis。
If the inventor of the tablet is not going to go to people like Prose Raju directly。
but maybe go through a store， a swimming pool store， then we have to keep their interest in mind。
Let's say we charge a price of $70 to our channel partner。
and the channel partner then charges a price of $100 to the end user。
The channel partner is going to make $30。 Is the $30 margin per tablet good enough for the channel partner？
Well， how will we answer that question？ What are his or her other alternatives？
What can he sell that will give him $30， maybe more than that？
If there are many things that he can sell that will give more than $30， then $30 is not enough。
But it helps us identify each person's incentives。 And then the next question we ask ourselves is。
have we created enough value or has the innovation created enough value to keep all three parties happy？
Our channel partner， our end user， would they be interested in switching to us？ And also ourselves。
is it enough of a margin to us？ If the difference between the cost and the EVC is not very high。
then it's unlikely that all three parties are likely to be happy。
And the innovation is not likely to succeed。 So in summary。
what do we learn from economic value to the customer？ And what can it be used for？ First。
it helps us set a price for a new product or service that you're planning to take to the market。
Number two， an equally important decision， if not more important， is who you should target。
Remember， Professor Kahn spoke about segmentation and targeting。
We can use EVC to actually bring that to life and help us make these decisions in a sound manner。
It also helps us identify who your true competition is and their economic power。
And then correspondingly， whether the new idea you have is economically worthwhile。
Do you have enough for our channel partners？ That's another area that this concept can help us answer a few questions。
And the analysis here is useful whether you are thinking of taking a new idea to market。
And in my view， it's equally useful when you already have a product or a service on the market。
and you want to rethink about how to price what you already have there on the market。 [ Silence ]。
沃顿商学院《商务基础》｜Business Foundations Specialization｜（中英字幕） - P26：25_创造客户便利.zh_en - GPT中英字幕课程资源 - BV1R34y1c74c
In this lecture， we will talk about creating customer access for our products and services。
that we've developed。 When we develop a go-to-market plan。
there are four areas where we need to make key decisions。
What will our product and service look like， what features and benefits it will have。
how will we price it， how will we promote it through advertising and price discounts。
and then finally， place。 What we mean by place， broadly speaking。
is making sure your product or service is accessible， to the customer at the right place。
at the right time， and of the right type and quantity。 In old-school marketing。
this was referred to as distribution channels or just channels。 Why is this important？ By this time。
you know how to understand your customer， develop a great product or service。
based on that customer input， created a great brand as Professor Khan spoke about， and communicated。
the value through your advertising campaign and even priced it appropriately。
But what if your customers are not able to find it？ All that you have done may not matter。
Many times， a customer's decision on what product to buy is also based on their experience。
in the store at the point of purchase， whether it's a bricks and mortar store or an online， store。
It's also important to recognize that most businesses often spend significantly more。
money on creating appropriate customer access for their product or service than they spend。
on advertising or promotions。 In many cases， it's been studied extensively that you are spending three to four times as。
much on creating customer access。 So it's expensive。
Some companies are spending 40 to 50% of their revenues on creating customer access。
And what's interesting is that most companies don't even know the cost of it because it。
does not show up on your income statement。 Think of a company like Unilever。
Your revenues are recognized based on how much you sell to your distributors and the。
distributors then sell the product to the end user。
What you recognize is the price at which you sell to your channel partner or your distributor。
The difference is what they charge the end user。 So if you think of a standard department store。
they make 50% margin。 It means you are getting half of what the customer is paying for your product。
Just think about that。
How expensive that is。 And it is not even showing up on your income statement because it's really you not recognizing。
that channel margin because that's from the income statement of the channel partner。
How we create customer access or what we call traditionally creating a distribution channel。
can also be a great source of competitive advantage and a disruptor in the marketplace。
Many businesses have been disrupted。 Many industries have been disrupted nearly because somebody else came up with a better。
distribution channel to access the customer。 If we look at this concept of disruption and especially if we look at retail and you look。
around us， so many changes that are happening in 2017 for which we have some data。 Nearly 9。
000 bricks and mortar stores closed in the US。 So as the rest is out of business。
Circuit City has gone well known department stores， that many of us left such as Philines， Hex。
Merwins， Masha Fields are all gone。 Righted close 600 stores， sports authority 460 stores。
Even companies like Walmart are closing stores， Macy's is closing 100 stores。
But when you also compare it with other things， Warby Parker。
I glass retailer has opened approximately， 100 retail locations。
Casper that we'll talk about in more detail later is opening 200 stores。 Amazon。
the big killer of bricks and mortar retail just bought whole foods for 13。4 billion。
and bought their bricks and mortar stores and we'll hope we'll plan to continue them。
and use them to the best of their capability。 So I think all this makes us wonder that if online is the place to be。
why are companies， opening physical stores？ What's really going on？
How do we make sense of what is happening here？ And let's also not forget that some of those being disrupted today were actually the disruptors。
You can go back to the 1980s and late 1980s when Toys R Us， Circuit City and Sports Authority。
were once deemed as category killers。 They were the innovators of the day。
Department stores were an innovation that went on to change the very face of detail and。
how customers bought products and services。 Harding and Howell to the best of my knowledge in 1796 in London was the very first department。
store。 Macy's opened in 1878 in New York and Selfridges opened in 1909 in London。
These were the innovators of the day and disruptors of their times and some are still around。
In order to understand all this， I think we need to get to basics and start with foundations。
of how we understand distribution channels and creating customer access。
So let me start by giving what often people call as an old school tutorial on channels。
that is still just as relevant。 In order for any of us to buy a product or a service。
two things are important。 We need to have access to。
One is what we call as relevant information needed to make the purchase and we'll talk。
more about this in a minute。 And the second is I should be able to execute my purchase through the right logistics。
Now the skill of the provider and the importance to the buyer of information logistics drives。
optimal channel structure。 So let's think through this a little bit more。
What do we mean by information？ What do we mean by logistics？ So let's think about information。
First piece of information I need to know is why should I buy this product or service？
Why should I pay so much for a new idea？ How will it work？ How will I use it？
We call this primary information。 And then there is what we call as comparative information。
Why should I buy from you and not someone else that is comparative information？
Every customer needs this in order to decide whether or not to buy a new product or a service。
And the second part is logistics。 There are many components of logistics。
Convenience and accessibility。 How far will I have to travel to buy it？
I am hungry now or I need diapers for my young child。 How much will I have to travel to get those？
Will I have to buy 24 bottles of one a day vitamins with each having 120 capsules？
Can I buy just one instead of having to buy so many？ How long will it take for me to get it？
Time between order and receipt of goods is important。
Who will I go to if the snow blower I just bought doesn't work？
Who will I ask if I have a problem in assembly？ A part is missing or broken。
Where will I get it from？ All this falls under logistics。
So we can see a consumer when they are making a decision to buy a product or a service。
They need to have information about its value， its price， how it works， but also needs to。
make sure that the product is accessible at the right time， at the right place， in the。
right quantity and of the right type。 Now how do we put together all of this in a reasonable。
easy to understand framework？ It requires making a few sort of starting assumptions as we call it。
Traditionally one can start by assuming that a manufacturer， somebody let's say who makes。
shoes say Nike is in a better position to provide information about their shoe。
Why is this shoe more interesting than another shoe？
But intermediary say a retailer of a shoe is probably better at providing logistics。
Now these are starting assumptions and over time these assumptions change and with that。
frameworks will also change。 Now different products and services may have different levels of information requirements。
and logistic requirements。 Some are high， low on both sides。 So for example。
if a hospital is purchasing a radically new equipment for say proton therapy。
they require a lot of information on whether to buy， which one to buy， but the lead for。
logistics is low because they are going to buy it once and never again。
It's not like they are going to buy this every day， every month， so the product has to be。
available to them at the right time。 It's a one time purchase。 On the other hand。
if the same hospital is going to adopt a new drug that will be used， extensively in the hospital。
say it's an antibiotic that will be used extensively for many patients， at many different times。
then the need for information is high。 Why should they adopt this new antibiotic？
But also they are going to have to purchase it extensively repeatedly。
So the need for logistics is also high。 Think of another situation where either us as the warden school or a hospital is going。
to replace table lamps that are sitting on a desk。
While table lamps are not that complex of product， we are going to buy it maybe once every few。
years。 So the need for information is also low and the need for logistics is also low because。
low because it's infrequently purchased。 On the other hand。
think of buying a surgical supply for a hospital， which is used extensively。
but I bought it many times before。 So I really don't need to know too much about it because I've already purchased it before。
but I need to make sure it comes to me at the right place at the right time， so I'm not。
out of stock。 So in this case， the need for information is low， but need for logistics is high。
Now depending on various combination， we can set up different types of customer access， structures。
So for example， if the need for information is high and the need for logistics is low。
it's a one-time purchase， we can go direct to the customer。
And that's what happens most of the time is these companies have their own salespeople。
they go have interactions with the hospitals and then directly install the equipment。
On the other hand， if it's a new drug that is going to be adopted by a hospital or a。
set of physicians， then of course the pharmaceutical company sales reps will go。
convince the doctor， in the hospital why this drug makes sense， why it should be adopted。
But then the hospital does not buy the drug directly from the pharmaceutical company。
There are many intermediaries who do that for us。 So we'll call that system a pull system。
why do we call it pull？ Because the job of the company is to actually create the demand for the product and then。
the product is then purchased from ancillary and wholesalers。
So this is a framework that we often use to design what we call as structure customer。
access or channel design decisions。 Now this is the traditional view of thinking。
What has happened over time is something different。
But let's first focus on this to understand how disruptions can happen within this framework。
So what this framework argues for is that a particular product or a service， the nature。
of the product or the service determines whether you need high logistics or low logistics or。
high information or low information。 Once you have that。
then disruption occurs by reallocation of functions。 So I'll just give one example。
Furniture is a complex product。 We buy it once in a while。
It requires high level of information and also high level of logistics。 But what did IKEA do？
What IKEA said was you can come to IKEA and pick up the furniture but you will install， it yourself。
you will assemble it yourself。 So they outsource the assembly and installation to the end user。
That does not mean that installation and assembly was no longer needed。
People often think of disintermediation as saying something is not needed。
The delivery and installation and assembly we still needed in a furniture is just that。
who did it changed。 Earlier a furniture company did everything themselves。
Now IKEA outsourced it to us。 And in the process， we paid less for the furniture。 Why？
Because we are doing part of the activity ourselves。
So in some ways logistics was spun off to us partly。 Not everything but partly to us。
And so IKEA was able to sell the furniture at a lower price to us。 You can look at the other side。
Apple stores now have consultative selling in house or online instead of relying on。
value added resellers。 So what Apple did was actually bring in some of the activities that the value added resellers。
did in their own house and in the process change the business model。
So I think what this framework says is disruptions can happen through reallocation of activities。
or functions but activities or functions do not go away。
And then the channel margin should be a function of what activities is being done。
If a channel partner does more then you have to pay them more。
If you are doing more then you can pay them less。 Now in today's world when we step back a little bit there are other disruptions that are。
possible。 And one of the key disruptors here is technology。
So let me think about technology a little bit more broadly than we typically think about。
And typically we think about technology in retail and distribution channels we think of。
online buying that we can order something online。 But technology is much bigger than that。
And the impact on customer access is far deeper。 Let's think of three industries。 Books。
music and let's say money。 I ask my students which of these three industries has been most disrupted by technology。
And the typical answer I get is books， Amazon started as a book seller but now it's much。
bigger and books have been disrupted。 But oftentimes that's not the right answer。
Why have these three industries been disrupted the most？ It's not because we can buy books online。
It's really because today all these three products which were earlier hard goods。
The hard goods I mean book is a hard good。 It's a physical product has been converted to a soft good。
What do we mean by a soft good？ Book is now a soft product。
You can download it on your computer or on your iPad or on your Kindle。
Think about what music was many years ago。 If you were rich enough， you were a king or a queen。
the musician came and played music， for you and all the poor people may be sat on the side and if the wind blew in their。
direction they could hear the music。 But then music gets codified into a tape。
Then it gets codified into a record。 Some of you may still remember seeing a record。
They are coming back because they apparently have still better quality。
Then it went from a record to a tape， sorry a CD。 And now what is music？
Music is basically bits and bytes and now it's become a soft good。
Money at one point in time was gold。 Then we got paper。
then from paper we went to plastic and now what is money？ Most people say it's just a number。
It's sitting in your account and sometimes you know it and sometimes you don't。
So what technology has done in all these three industries is convert a hard good to a soft， good。
When a product changes from being a hard good to a soft good， that's when disruption happens。
And in my view， the biggest disruption has been for money。
Money today is transacted very differently than money used to be transacted many years， ago。
If you think of books， still many many people read regular books。 They prefer to read regular books。
Very few people want to have cash。 Many countries have gone cashless。
Many industries have tried to go cashless。 So this is an example of disruption of technology where a hard good got converted to a soft good。
So the answer is really not the method of purchase。 It's not online versus bricks and mortar。
It's the product itself。 What else we can ask ourselves can change from a hard good to a soft good？
What will the world look like 10 years from now？ What will in-home 3D printing do 10 years from now？
Will we be able to print a shoe at home？ How about a new car？ I think that world is not too far。
People are arguing that within the next 20 years， many products that are what we consider。
as hard goods today will become soft goods that people will be able to just print at home。
with additive manufacturing。 I can only visualize what customer access will look like when that happens。
So I think it's really important to understand the role of technology in this area more broadly。
than just online versus bricks and mortar。 Thank you。 [BLANK_AUDIO]。
