1. The product manager at Jackson Products seeks to determine whether her company should market a new brand of shower gel. 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 gel. If the new product fails, however, the company expects that it will lose approximately $750,000. If the company chooses not to go ahead with the new brand, the product manager believes there will be little impact on the profit earned through sales of their other bands. Without any additional information, the manager has estimated that the new shower gel will succeed with a probability of 0.55
Before making her decision regarding the new shower gel, the manager could spend $75,000 on a market research study. Such a study of consumer preferences is expected to yield a positive recommendation with a probability of 0.60 or a negative recommendation with a probability of 0.40. If the study gives a positive recommendation and the company then decides to go ahead with the new gel, the probability of a successful outcome is estimated at 0.75 (payoff on this path would be $1,800,000 - $75,000). A failed outcome would have a probability of 0.25 (path total loss of -$750,000-$75,000).
If the study gives a negative recommendation and the company then decides to go ahead with the new get, the probability of a successful outcome is estimate at 0.25, failed outcome would have a probability of 0.75 (corresponding payoffs would be the same as given after a positive study).
In either case, if the decision is made not to go ahead after the study (positive or negative) the company would still have a "loss" on those paths of $75,000 (the cost of the study).
• Draw a decision tree and solve it to determine the recommended plan for Jackson Products.
• Write a clear, complete recommendation
In an excel file