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 p_1 = 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 p_2 = 0.8. It also believes that the study will predict a failure, given that the product would actually be a failure, with probability p_3 = 0.7 To maximise expected profit, what strategy should the C&B product manager follow? Discuss the risk (probability distribution of EMV) of adopting the strategy in (1) Sensitivity analysis for EVSI Use a two-way data table (textbook or YouTube) to find EVSI for p_1 from 0.05 to 0.70 and p_2 from 0.5 to 0.95 in increments of 0.05, and chart EVSI versus p_1 and p_2 (p_3 is fixed to 0.7). Use a two-way data table to find EVSI for p_1 from 0.05 to 0.70 and p_3 from 0.5 to 0.95 in increments of 0.05, and chart EVSI versus p_1 and p_3 (p_2 is fixed to 0.8). Use a two-way data table to find EVSI for p_2 from 0.5 to 0.95 and p_3 from 0.5 to 0.95 in increments of 0.05, and chart EVSI versus p_2 and p_3 (p_1 is fixed to 0.35). calculate and interpret the EVPI when p_1 = 0.35.
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