Decision Analysis
New Product Introduction
You are a marketing manager for a newly developed tablet computer - ISurf. You are considering whether your company needs to produce this product or not. You estimate that the market for ISurf will be either strong or weak. Furthermore, the information you gathered so far about the potential market for table computers and lour intuition suggest the following:
• If the market for the product becomes strong, then your company will earn $18 *million on sales.
•If the market for the product becomes weak, then your company will lose $8 million due to not being able to cover your production costs.
You know that your competitors are also bringing up new products. Based on your experience and intuition about similar products that your company introduced in. 'the past, you estimate that there is a 30% chance that the market for this new product will be strong; and, similarly, there is a 70% chance that the market for this new product will be weak.
Before you decide whether or not to introduce this new tablet computer, you would like to gather more information from potential consumers through a market survey. This market survey may result in two outcomes:
• Positive result → indicates that the market for the new product will be strong
• Negative result → indicates that the market for the new product will be weak
You estimated that the cost of the market survey will be $2.4 million. You are aware of the following known facts about the reliability of market surveys:
• Market surveys cannot predict the market for new products with certainty,
• Market surveys sometimes misread the market for new products.
You have the following past data about market surveys that you carried out on similar products:
• If the market is weak, there is a 10% chance that the market survey will be positive.
• If the market is strong, there is a 20% chance that the market survey will be negative.
As a marketing manager, possible actions you can take:
-You can decide not to produce this new tablet computer at all, or
-You can decide to produce this new tablet computer, or
-You can decide to carry out the market survey first, and then depending on the result of the market survey, you can decide whether to produce or not to produce
What should be your decision strategy for ISurf?