Nestle and Cadbury are continuously competing in the market to grab the major share in chocolate industry, demand of which is booming, particularly among young and female customers. Nestle is seriously thinking of launching a new chocolate product or chocolate coated candy, which it named as “Chocondy”. But it knows that if Nestle introduces this new product, Cadbury will probably introduce a similar product. Further, if Nestle launches a new market strategy for this new product (major campaign, moderate campaign or minor campaign), Cadbury will also launch similar campaigning strategies of marketing. In this context, Nestle analyzed the situation and estimated some data for deciding on whether to launch Chocondy or not. Let us assume that developmental cost for introduction of Chocondy is Rs 1 million. The possible cost of marketing varies with the type of campaign. Nestle estimates the cost of major campaign as Rs 0.5 million, cost of moderate campaign as Rs 0.2 million and cost of minor campaign as Rs 0.1 million. It is further estimated that if Nestle introduces Chocondy, there is a chance of 0.6 that Cadbury will also introduce a similar product. Once Nestle launches a marketing campaign, there is also the chance of marketing campaign by Cadbury and the probabilities of the marketing campaign by Cadbury have been estimated as follows.

Strategy of Nestles	Strategy of Cadbury	Probability of Cadbury’s Strategy
Major Campaign	Major Campaign	0.5
	Moderate Campaign	0.3
	Minor Campaign	0.2
Moderate Campaign	Major Campaign	0.3
	Moderate Campaign	0.5
	Minor Campaign	0.2
Minor Campaign	Major Campaign	0.2
	Moderate Campaign	0.3
	Minor Campaign	0.5

1. Analyze the decision situation faced by Nestle management. Develop a Decision Tree model depicting this multi–stage decision problem distinctly showing the decision and chance / event nodes.

(i) Solve the above problem and explain the results

Answer rating: 100% (QA)

Decision Tree Analysis for Nestles Chocondy Launch Nestle is faced with a decision to launch a new chocolate product Chocondy considering the potentia... View the full answer