Whirlswim Appliance is considering giving each of its customers free maintenance on each TV purchased. The company estimated that this proposal would require it to pay an average of $2.50 for each TV sold (the cost in dollars). The market consisted of 72,000 consumers whose last purchase was from Whirlswim and 86,000 consumers whose last purchase was from a competitor. In one year, 40 percent of all consumers purchased a TV. If their last purchase was a Whirlswim, there is a 60 percent chance that their next purchase will be a Whirlswim. If their last purchase was not a Whirlswim, there is a 30 percent chance that their next purchase will be a Whirlswim. A purchase during the year led to a $20 profit. The contribution to profit (and maintenance cost per purchaser) from a purchaser grew 5 percent per year. Profits (over a 30-year horizon) were discounted 10 percent per year.

Suppose you provided free maintenance on the TVs. If the customer’s last purchase was a Whirlswim, the probability that the customer’s next purchase will be a Whirlswim will increase by an unknown amount between 0 percent and 10 percent. Similarly, if you give free maintenance and the customer’s last purchase was not a Whirlswim, the probability that the next purchase is a Whirlswim will increase by an unknown amount between 0 percent and 10 percent. Do you recommend that Whirlswim adopt the free maintenance policy?