Read the business case below and answer the following objective:

Configure and price a product line extension to Beat that will maximize company B's total profits in this market.

Introduction and Business Case In this exercise, imagine that you are a manager at a pharmaceutical firm called Company B. You are put in charge of developing a new over-the-counter (OTC) cold and flu medicine to be called Beat Cold & Flu. You have access to the market choice predictor to accomplish planning goals given to you by senior management. The market choice predictor uses data from a conjoint analysis survey of 300 respondents who are assumed to be representative of the roughly 50,000,000 consumers who purchase OTC cold and flu medicines. Each company's product(s) in the OTC market is associated with a brand, such as Company A's Away Cold & Flu, Company B's Beat Cold & Flu, or Company C's Cold & Flu Guard. A company may have more than one cold and flu medicine on the market under its brand name. For instance, Company A might market Away Cold & Flu and launch Away Cold & Flu 2 to leverage the brand equity of the original product. This study source was downloaded by 100000770245663 from CourseHero.com on 06-05-2022 08:38:34 GMT -05:00 https://www.coursehero.com/file/106920388/Conjoint-Exercise-Descriptionspdf/ MARKETING SIMULATION | USING CONJOINT ANALYSIS FOR BUSINESS DECISIONS Copyright 2015 President and Fellows of Harvard College. All rights reserved. Courseware # 515-713. Company B conducted market research that utilized the following attributes and levels in the conjoint analysis survey: Administration Method Duration (of symptom relief) Brand Side Effects Price Caplet (pill) 4 hours Away Cold & Flu Drowsiness $4.00 Spray 6 hours Beat Cold & Flu Anxiety $7.00 Liquid 12 hours Cold & Flu Guard Liver Damage $10.00 Effervescent (dissolvable tabs) 24 hours Generic Stomach Bleeding $13. Explanation of the Attributes and Levels The Administration Method attribute refers to the form by which the medicine is consumed. A caplet, or a pill, is taken with water. Medicine distributed in a spray form is to be inserted as a mist through the nose. A liquid form is to be poured in the right amount into a measuring cup (typically provided) or a tablespoon. Finally, an effervescent tablet is similar to a caplet, but it dissolves when placed on or under the tongue without needing water. Depending on the strength and formulation of the medicine, the Duration of symptom relief can range from 4 hours to 24 hours. Frequently, each type of medicine is associated with potential Side Effects that were observed in some cases during trials. As such, the side effects are fixed for each drug and cannot be changed in the Market Choice Predictor. The "baseline" profile includes the following levels: caplet, 4-hour duration, Away Cold & Flu, drowsiness, and $4.00. These levels are taken to be valued at 0 utils by each respondent in the survey. All other levels are scored relative to the baseline value of 0 within the given attribute type. For instance, if a respondent's partworth for a 12-hour duration of symptom relief is 0.45 utils, then that consumer prefers a 12-hour duration compared to a 4-hour duration of symptom relief, which has a partworth of 0 utils. To allow you to make more flexible pricing decisions than just the four levels included in the study, when relevant, the market choice predictor uses a method of estimation called interpolation to determine the value of intermediate price levels between $4 and $13 for each consumer. Within the market choice predictor the cost structure for each drug is included and allows accounting for the variable costs of production. Some attribute levels are associated with costs; other attribute levels have no additional cost. The following table provides the breakdown of additional costs for each attribute level relative to a baseline cost of $0.50: Baseline Medicine Cost Caplet, 4 hour Duration, Away Cold & Flu, Drowsiness, $4.00 $0.50 Attribute Level Additional Cost Caplet $0.00 Spray $0.50 Liquid $0.00 Effervescent $0.00 4 hour $0.00 6 hour $0.10 This study source was downloaded by 100000770245663 from CourseHero.com on 06-05-2022 08:38:34 GMT -05:00 https://www.coursehero.com/file/106920388/Conjoint-Exercise-Descriptionspdf/ MARKETING SIMULATION | USING CONJOINT ANALYSIS FOR BUSINESS DECISIONS Copyright 2015 President and Fellows of Harvard College. All rights reserved. Courseware # 515-713. 12 hour $0.50 24 hour $1.50 Generic -$0.10 For example, if a generic company is producing a medication in a spray formulation and a 6-hour duration of symptom relief, the total cost would be: baseline cost + additional cost of producing a generic + additional cost of a spray + additional cost of ensuring 6-hour duration, or $0.50 - $0.10 + $0.50 + $0.10 = $1.00. You will not have to memorize the product costs displayed above since they are available within the exercise and automatically calculated as you build products in the market choice predictor. In reality, manufacturers typically sell their medicines to retailers at a price that is lower than the price that retailers charge consumers (the manufacturer's price is often referred to as the "wholesale" price). In this exercise we ignore this issue for simplicity. Therefore, the profit margin per unit sold used by the market choice predictor, and which is relevant for goals involving profit maximization, is based on the price you set for the end consumer less the cost of production.