## How to

When solving these problems, learning by doing is much better than learning by reading. I encourage to you read only as far in the solution as you need, then trying to solve the problem. If you get stuck, try reading a little further. And of course, let me know if you find a better solution!

## Thursday, March 1, 2012

### Pricey light bulbs

Problem:  A new super light bulb (SLB) is invented which costs \$20 / bulb and last 4x longer than a standard bulb.  Is there a good market for this product?

Solution:

We're given some numbers and comparison with normal lightbulbs.  So, let's see if there is a cost benefit vs. normal light bulbs.

Let's start with some simple math and see if there is a business case for the light bulbs.  Well, what does a normal light bulb cost?  Let's say \$2.00.  So, if we do some math, we could by 10 normal light bulbs form 1 SLB.  This would give us 10x the time of lighting by just buying and replacing lightbulbs, vs. only 4x for an SLB.  So, this inventions seems not to have an economic payoff vs. normal light bulbs.

One strategy is to stop here and simply state that there will never be a good market for this product because while it delivers some benefits, they are too expensive vs. current technologies.

However, it's better not to stop here and think of other potential benefits.

One thing to question is power consumption.  Even though we're not given any data about the amount of power the SLB consumers, you should ask if it consumes less power, in which case there might be a total cost benefit vs. traditional bulbs.  Well, this is a good path to go down, and there may be variants where you're given additional data, but let's assume for now that power consumption is equivalent.

Again, it's best not to stop here, but to think of other potential benefits.  One thing that people may think of are environmental or green benefits.  If you have one vs. four light bulbs, there are benefits of less waste and manufacturing.  So, one thesis would be to market the environmental benefits of this bulb.

That's a possibility, but it seems niche, and let's keep going for a true cost benefit.

Well, we've shown from a straight cost of bulb and power consumption cost, there is either not benefit (as with power consumption) or even a penalty (for the cost of the SLB vs. the number of traditional bulbs you could purchase).  Are there any other costs that go into the light bulb experience?

What do you do when a light bulb burns out?  Typically, you look for or purchase a new bulb and then replace it, then run it until it burns out again.  One part of this experience is the replacement of the bulb.  To replace the light bulb in your house is negligible cost, but is this always the case?

Try to think of uses where it could be non-negligible to replace bulbs.  In any commercial or industrial setting, you need to pay someone to replace bulbs, and this costs money, so one other thesis is that in commercial or industrial settings, you would need to pay someone.  There  is some benefit here, but not we have a fundamentally different goal -- find occasions where it is very costly to replace a light bulb.

Some examples are street lights, traffic lights, airport signals, blinking lights on sky scrapers, etc.  In any of these cases, it takes time to roll a truck or a specialized person -- maybe more than 1 person if there is significant traffic.  The person may be unionized and much of the time is spent driving to the location. And, a burnt out light is a safety hazard, necessitating rapid replacement.  It could easily cost in excess of \$100 to replace a bulb when all costs are factored.

In these cases, there is an overwhelming case to replace traditional bulbs with the light SLBs.  And, you should even probably raise the price because you deliver much more value than just the small premium over traditional bulbs in these markets.

So, there are strong markets when it is expensive to replace a bulb, and there are many large niches where this occurs.

This is a good example of where you are given data which indicates one answer.  You should get that answer, but the interviewer want to see if you then try to stretch your answer and go deeper -- and if you in fact can come up with something interesting when you do.

As an aside, long-lasting light bulbs have found huge success in these cases; just look at any traffic light and you'll notice they're rapidly becoming LED and other other long lasting technology based.

/*Please let me know if you find any bugs or other solutions.  Thank you, Noah */