You are a marketing manager for a food products company, considering the introduction of a new brand of organic salad dressings. You need to develop a marketing plan for the salad dressings in which you must decide whether you will have a gradual introduction of the salad dressings (with only a few different salad dressings introduced to the market) or a concentrated introduction of the salad dressings (in which a full line of salad dressings will be introduced to the market). You estimate that if there is a low demand for the salad dressings, your first year’s profit will be $1 million for a gradual introduction and million (a loss of $5 million) for a concentrated introduction. If there is high demand, you estimate that your first year’s profit will be $4 million for a gradual introduction and $10 million for a concentrated introduction. The payoff table for the organic salad dressings marketing is given as follows: Low Demand High Demand Gradual 1 4 Concentrated -5 10 If nothing is known about the probabilities of the chance outcomes, what is the recommended decision using the pessimistic, and minimax regret approaches? Suppose you believe that the probability of demand being low is 0.75. Use the expected monetary value approach to determine an optimal decision. (Provide the expected monetary value for each decision alternative.) Given the information in part b), what is the EVPI?
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You are a marketing manager for a food products company, considering the introduction of a new brand of organic salad dressings. You need to develop a marketing plan for the salad dressings in which you must decide whether you will have a gradual introduction of the salad dressings (with only a few different salad dressings introduced to the market) or a concentrated introduction of the salad dressings (in which a full line of salad dressings will be introduced to the market). You estimate that if there is a low demand for the salad dressings, your first year’s profit will be $1 million for a gradual introduction and million (a loss of $5 million) for a concentrated introduction. If there is high demand, you estimate that your first year’s profit will be $4 million for a gradual introduction and $10 million for a concentrated introduction. The payoff table for the organic salad dressings marketing is given as follows:
|
|
Low Demand |
High Demand |
|
Gradual |
1 |
4 |
|
Concentrated |
-5 |
10 |
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If nothing is known about the probabilities of the chance outcomes, what is the recommended decision using the pessimistic, and minimax regret approaches?
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Suppose you believe that the probability of demand being low is 0.75. Use the expected monetary value approach to determine an optimal decision. (Provide the expected monetary value for each decision alternative.)
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Given the information in part b), what is the EVPI?
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Use graphical sensitivity analysis to determine the range of demand probabilities for which each of the decision alternatives has the largest expected value
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