The marketing manager of an apparel retail company is considering the introducti
ID: 3208744 • Letter: T
Question
The marketing manager of an apparel retail company is considering the introduction of a new brand of t-shirts made using organic cotton. The marketing manager needs to develop a marketing plan for the organic cotton t-shirts in which s/he must decide whether the retail company will introduce this new line of products progressively (a few products will be introduced to the market in a few retail stores) or aggressively (a full line of products will be introduced to the market in all retail stores).
The marketing manager estimates that if there is a low demand for the organic products, the first year's profit will be $11 million for a progressive introduction and minus$33 million (a loss of $33 million) for an aggressive introduction. If there is high demand, the manager estimates that the first year's profit will be $44 million for a progressive introduction and $10 million for an aggressive introduction. Fill in the payoff table below for these two alternative courses of action.
Courses of action
Profit ($1 million)
Low demand
High demand
Progressive introduction
?
?
Aggressive introduction
?
?
Assume that there are two states possible for the demand: low and high. If the probability of low demand is 0.58, which strategy would you recommend to the marketing manager?
What is the expected monetary value of this alternative?
The expected monetary value of Aggressive Introduction is ?
Courses of action
Profit ($1 million)
Low demand
High demand
Progressive introduction
?
?
Aggressive introduction
?
?
Explanation / Answer
Payoff table for two alternative courses :
Given probability of low demand is 0.58, P(Low) = 0.58
So probablity of high demand is 0.42, P(High) = 0.42
Progressive introduction ==> P(Low) * 11 + P(high)*44 =
= 0.58*11 +0.42*44 = 24.86
Aggressive introduction= P(Low)*(-33) + P(High)*10
= - 0.58 *33+0.42*10 = -14.94
Progressive introduction strategy will be better for marketing manager.
Expected monetary value for progressive introduction = 24.86
Expected monetary value for Aggressive introduction = -14.94
Course of Action Profit ($1 million Low demand High demand Progressive $11 $44 Aggressive -$33 $10Related Questions
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