A Parable about Soup, Profits and Power
Once upon a time, Kahn's Chicken Soup Company was faced with an
interesting challenge. The company discovered that if it raised the price
of its chicken soup products to $1.25 per can, it made an extra twenty-five
cents of pure profit on every can, bringing the profit per can to a
Marketing geniuses at the company set about using a small portion of
that new profit to advertise the nationwide' availability of the soup,
although, of course, consumers who wanted soup already knew where to get
it. And the factory's 1,000-gallon vats were augmented with another set of
At first, the farmers were happy to sell all their chickens at a good
price; shortly, the farmer realized Kahn's really needed their birds, so
they plumped up the prices. This caused a slight drop in the Kahn's profit
margin, until Kahn's realized that it could shrink the cans by one ounce
and the consumers wouldn't notice, or, if they did, wouldn't complain.
(This lesson was learned from the airline industry, which had added more
flights to have more to sell to consumers at higher prices, while shrinking
seat size and cramming more cranky passengers in each cargoâ€.uh, passenger
For a short time, Kahn's Chicken Soup Company enjoyed a remarkable
return on its investment in bigger vats, a little advertising and higher
prices. It was winter, after all, and consumers thought chicken soup cured
But then spring arrived, and the market was glutted with soup;
consumers can only eat so much chicken soup, no matter how widely it is
available or how well it is advertised. So, in an effort to move the now-
excess soup off the shelves, Kahn's began doing two things; advertising it
as a garden fertilizer, and running sales nationwide.
Still, consumers just didn't want or need as much soup as before,
partly because the cold and f...