Scenario You are to undertake a study to find out whether the company Clean & Brite needs to market a new brand of toothpaste.
Case Study 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 future 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 sales of C&B’s other products. The manager has estimated that the new toothpaste brand will succeed with probability p1= 0.35. Before making her decision regarding this toothpaste product, the manager can spend $130,000 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 the product would actually be a success, with probability p2 = 0.8. It also believes that the study will predict a failure, given that the product would actually be a failure, with probability p3 = 0.7 1) To maximise expected profit, what strategy should the C&B product manager follow? 2) Discuss the risk (probability distribution of EMV) of adopting the strategy in (1) 3) Sensitivity analysis for EVSI a) Use a two-way data table (textbook or YouTube) to find EVSI for p1 from 0.05 to 0.70 and p2 from 0.5 to 0.95 in increments of 0.05, and chart EVSI versus p1 and p2 (p3 is fixed to 0.7). b) Use a two-way data table to find EVSI for p1 from 0.05 to 0.70 and p3 from 0.5 to 0.95 in increments of 0.05, and chart EVSI versus p1 and p3 (p2 is fixed to 0.8). c) Use a two-way data table to find EVSI for p2 from 0.5 to 0.95 and p3 from 0.5 to 0.95 in increments of 0.05, and chart EVSI versus p2 and p3 (p1 is fixed to 0.35). 4) calculate and interpret the EVPI when p1 = 0.35.