Assignment task:
Honda is looking into leveraging its' expertise in gasoline engine technology to provide additional revenues especially in winter months. Initially the company faces two possible decisions: introducing the product globally at the cost of $850,000 or evaluate the test market in North America at a cost of $200,000. If it introduces the product globally, the company might find either a high or low response to the product. The probabilities of these events are estimated to be 0.7 and 0.3 respectively. With a high-response gross revenues or $2.4 million are expected, while in low response this figure is $650,000/. If the company starts with the test market it might find low response or high response as with probabilities of 0.4 and 0.6 respectively. This may or may not reflect global market potential. In any case, after conducting the market research, the company next needs to decide whether to keep sales only in its North American test market, market globally, or drop the product. If the North American response is high, the company stays only in North America, the expected revenue is $1.8 million. If it markets globally (at an additional cost of $200,000), the probability of high global response is 0.9 with revenues of $2.2 million; and $650,000 if the response is low. If the North American response is low and it remains in North America, the expected revenue is $200,000. If it markets globally (at an additional cost of $600,000) the probability of high global response is 0.05 with revenues of $2 million with $450,00 if the global response is low. Construct a decision tree, determine the optimal strategy. Evaluate the sensitivity of the optimal strategy to changes in the probability estimates. Summarize your results, including your recommendation, risk analysis if any, sensitivity analysis, in a formal report to the executive committee