Case_In_Point_7th_Edition_Page001_183_2

are people willing to pay? And is it enough to cover our costs and give us a nice profit?
The other main issue is that the more successful we are, the less successful we’ll be in the
future. For every eternal light bulb we sell, that’s 50 or 75 conventional bulbs we won’t sell in
the future. In a sense, we’re cannibalizing our future markets. So, we have to make sure that
there is enough of a margin or profit to cover us way into the future.
– Good point.
I’ll tell you, I have reservations about selling to the consumer market. I just don’t think the
opportunity for pricing is there.
– So, what do we do, scrap the project? We’ve already spent over $20 million in R&D.
Not at all. We turn to the industrial market. For example, the City of Cambridge probably has
2,000 street lamps. Those bulbs cost maybe $20 and have to be changed twice a year. The real
expense there isn’t the cost of the bulb; it’s the labor. It might take two union workers. In
addition, you have to send out a truck. It probably costs the city $150 in labor costs just to
change the light bulb. Now, if we were to sell them this ever-lasting bulb for $400, they would
make that money back in less than two years and we would make a handsome profit.
– Not bad.
Type of case: Pricing
Comments: First, the candidate looked at cost-based pricing and realized that the price
was too high and that the typical consumer would not shell out $75 for a light bulb. Then he
looked at price-based costing and concluded there wasn’t enough of a margin built in to make
it profitable. Thinking outside the outline given in the pricing case scenario, the student also
realized that he would be cannibalizing his future markets. Thus, he decided that neither
pricing strategy made sense for the retail market. So, instead of suggesting that GE just cut its
losses and walk away from the project, he went looking for alternative markets and concluded
that there was great potential in the industrial market.
Because this product has yet to be released, and is without competition, the supply and
demand theory doesn’t work in this case.