would select and price those items which they hoped to sell. The 

 converse of this practice is now normal. A firm such as Sears will 

 examine a market; examine the price levels and all the features of compet- 

 itive products; will examine and predict the movement of technology in the 

 field; will examine the growth and dynamic development of the market 

 itself; and finally from this, prepare specifications for a line and range of 

 products aimed at fitting different segments of the market. Sears Roebuck 

 has "good, better, and best" based upon a three-level pricing strategy. 

 General Motors has its range of automobiles aimed at reaching into many 

 different strata of the predicted demand. 



The exploration of the demand curve for expendable BT was an 

 interesting journey. BT's are used for a number of purposes and in a 

 number of tactical settings, and in many cases the cost of making a BT 

 drop is obscured by the fact that most of the costs surrounding this drop 

 are fixed. It is known to all of us that all costs are variable in the long run, 

 yet it is hard to demonstrate the value of an expensive expendable device 

 when the destroyer and sailor will be there on the payroll anyway. However, 

 a long-run demand curve did materialize and it showed a highly elastic 

 demand. The total market for an expendable BT appeared to be perhaps 

 hundreds of units per year at the $100 plus price level. At the $50 to $60 

 price level the market was clearly one of thousands. At a $25 to $30 price 

 level the long-run market per year was in the tens of thousands. Another 

 50% reduction in price, or something approaching $12 to $15, produced a 

 potential market in hundreds of thousands of units per year, A demand 

 curve of this nature is what is known as a highly elastic demand. In other 

 words for successive 50% reductions, it showed ten-fold increases in items 

 called for; a 5X slope. Given this type of demand-curve evidence the 

 ground rules for engineering efforts were fairly clear. It is known from 

 learning curves and from production experience in many industries that 

 a 50% reduction in cost from initial high volume manufacture is often 

 feasible, especially if one has not backed oneself into a corner where the 

 basic prices of raw materials make an asymptote. It was therefore 

 concluded that to aim for a price of $30 and an initial per year usage in 

 the thousands. High volume manufacture from this point would perm.it over 

 the long run major reductions in price as long as the materials' price 

 "floor" was carefully observed. 



Granting the above market study, we were then in a position to place 

 some dollar constraints on the basic design of our device. If we granted 

 an original price of $30 and assumed that we were going to look for a profit 

 som.ewhat commensurate with the risk (as well as some amortization of 



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