You are brand manager at Arrow Cosmetics and responsible for Silkskin body lotion. Silkskin's annual contribution is currently $2.1 million. The R&D department has just developed a new Aloe Vera-based body lotion formula. You must decide whether you want to change the formula for the Silkskin lotion or stay with the old one . The variable costs will be slightly higher for the new formula ($7.00 per bottle), but you guess that an increase in sales might compensate for the higher costs. You plan on selling the new Silkskin for $ 12.00 per bottle. You can imagine three annual sales scenarios: 600,000 , 300,000 and 200,000 units sold, which you estimate the chances to be 30, 40, and .30, respectively.

1. Under which scenario (s) would you introduce the new Silkskin?

2. Would you introduce the new formula?

3. Imagine a market research firm that provides perfect information. In other words , if the firm tells you that annual sales will be "x", then sales will in fact be x. What is the maximum price you would be willing to pay for the services of such a company?

Answer rating: 100% (QA)

Silkskins annual contribution is currently 21 million The variable costs for the new formula is 700 per bottle Proposed selling price the new Silkskin ... View the full answer