It is the 22nd November 2021 and the South City store has been operating for a few weeks. The senior management team are pleased with the performance of the store, but they feel that sales and profits could be boosted even further through two different initiatives. You receive the following email from Ben Numa:

From: Ben Numa [Finance Manager]
To: Finance Officer
Subject: South City store initiatives

The South City store has been reasonably successful so far. However, the senior management team (SMT) believes that the performance of the store could be improved even more if a dedicated marketing campaign is launched to raise awareness of the store among South City residents.

Jack Tang, Sales and Distribution Director, has approached a marketing firm to discuss the promotion of our South City store. The marketing firm has come up with three different potential marketing packages. Each of the packages costs the same, however the marketing firm has prepared information showing that each package has a different standard deviation and co-efficient of variation. In addition, each package has a different expected value of additional contribution that it will generate for TreadCushy. The information have unfortunately been lost due to a technical issue and Jack could only supply me with some information in regards to the different potential marketing packages A,B and C. Will you please use this information to calculate the expected value of contribution, standard deviation and co-efficient of variation for the three potential marketing packages we can choose from?

Jack Tang wants to implement the package with the highest expected value. I have a meeting with the SMT in the next few hours pertaining to these new store initiatives and so I need you to prepare some briefing notes which include:

• The values needed to completed Table 1, and whether you think choosing a package based on expected values would be the best approach. Can you also explain a risk averse and risk seeking approach to decision making and the package that would be chosen for both of these approaches.

The SMT believes that profits could also be increased by offering an in-store “gait analysis”. The analysis will be performed in-store for a fee, and will involve a customer running on a treadmill, where their movement will be analysed by our team. After the analysis, the customer is given information about their running style and is also recommended a shoe from our range. This initiative will require specialised equipment which can be leased from a company based in Keyland. I have attached the proposed leasing schedule (Table 2) for this equipment.

Reference materials for this task can be found below.
Table 1
Package A Package B Package C
Expected value of additional contribution ? ? ?
Standard deviation ? ? ?
Co-effiecient of variation ? ? ?
Note: Southland uses the S$ as its currency, but there is no material difference in the exchange rate between the S$ and the K$ so all figures have been stated in K$ for ease of interpretation.
Package A Additional Contribution Estimated probability
K$ 120 000 25%
K$ 85 000 35%
K$ 60 000 40%
Package B Additional Contribution Estimated probability
K$ 70 000 35%
K$ 90 000 25%
K$ 65 000 40%
Package C Additional Contribution Estimated probability
K$ 60 000 15%
K$ 65 000 25%
K$ 55 000 60%
Required:
An explanation of the figures shown in Table 1, and whether you think choosing a package based on expected values would be the best approach. Can you also explain a risk averse and risk seeking approach to decision making and the package that would be chosen for both of these approaches?

Answer rating: 100% (QA)

Expected value of additional contribution Amount Estimated probability Package A 120000 025 8500... View the full answer