What should be the strategy that clean & brite

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Reference no: EM133990888

Assignment:

A product manager at Clean & Brite (C&B) wants to determine whether her company should market a new brand of toothpaste. If this new product succeeds in the marketplace, C&B estimates that it could earn $1,800,000 in profits from the sale of the new toothpaste. If this new product fails, however, the company expects that it could lose approximately $750,000. If C&B chooses not to market this new brand, the product manager believes that there would be little, if any, impact on the profits earned through the sales of C&B's other products. The manager has estimated that the new toothpaste brand will succeed with probability 0.50. Before making her decision regarding this toothpaste product, the manager can spend $75,000 on a market research study. Based on similar studies with past products, C&B believes that the study will predict a successful product, given that product would actually be a success, with probability 0.75. It also believes that the study will predict a failure, given the product would actually be a failure, with probability 0.65.

a. What should be the strategy that Clean & Brite, must adopt to maximize its expected profits?

b. If the cost of the market research study decreases, would it change the optimal strategy for C &B?

c. What is the largest amount C & B should be willing to pay for perfect information about the market.

d. What is the average value that C & B should be prepared to pay to obtain information through the market research?

e. Which of the three values - cost of market research, future profits from sale of toothpaste, and potential loss from failed product - is most influential on the expected payoff?

f. Perform a two-way sensitivity analysis on the cost of the market research and the value of the future profits to understand the ranges over which the optimal strategy would change.

Reference no: EM133990888

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