nstructions

Week $2$ Homework Assignment: Decision Analysis in Marketing Strategy

Background:

TechTrend, a leading electronics firm, is considering launching a new smartwatch model to rival its competitors. The marketing team has conducted a preliminary analysis, gathering data about potential sales, marketing strategies, and costs. Your task is to assist in the decision$-$making process using the concepts learned in Week $2.$

Data Table:

Strategy Marketing Cost Expected Sales $($Units$)$ Expected Price per Unit $($$$)$ Competitor$-$response Probability Potential Market Share Loss due to Competitor

A $500,00060,0002000\mathrm{.}615$

B $700,00080,0002200\mathrm{.}720$

C $900,000110,0002100\mathrm{.}825$

Questions:

For each strategy, calculate the potential revenue without considering competitor response. Which strategy offers the highest potential revenue?

Using the concept of expected value, estimate the revenue for each strategy considering the potential loss of market share due to competitor response.

Construct a decision tree for Strategy A detailing the potential outcomes with and without competitor response. What is the expected value of Strategy A considering both scenarios?

Which strategy carries the highest risk, given the combination of marketing costs and competitor response probability?

Using sensitivity analysis, determine how much the Expected Sales would have to increase for Strategy C to be the most favorable option in terms of expected value.

If TechTrend is risk$-$averse, which strategy would you recommend they consider? Justify your answer.

Given a fixed budget of $$800,000$ for marketing, which strategies can TechTrend afford?

Calculate the return on investment $($ROI$)$ for each strategy without considering competitor response. Which strategy offers the best ROI?

Suppose TechTrend has prior data that suggests a $10\%$ increase in market share loss for every $5\%$ increase in competitor response probability. Recalculate the expected values based on this new information. Does the optimal strategy change?

If a new market survey suggested that Strategy B$\text{'}$s price per unit could be increased to $$240$ without affecting sales volume, how would this change your recommendation? Calculate the new expected revenue for Strategy B$.$