Scary Toys, Inc. must decide how to promote a new singing Zombie doll. Initially, the company must
Question:
Scary Toys, Inc. must decide how to promote a new singing Zombie doll. Initially, the company must decide whether to market the doll or test market it first. Following the test marketing, the firm must decide whether to abandon the doll or nationally distribute it. If the product is a success, it will increase the company’s profits by $400,000. By contrast, a failure will reduce the company’s profits by $120,000. Abandoning the product will not affect the firm’s profits. The test marketing will cost Scary Toys an additional $12,000. If no test marketing is conducted, the probability of the product’s success is judged to be 0.40. The estimated probability of a favorable test-marketing result is 0.50. The probability that the product will be a success if its test marketing is favorable is 0.80. The probability that the product will be a success if its test marketing is unfavorable is 0.10. Construct a decision tree and analyze it to determine the optimal course of action.
Step by Step Answer:
Operations Management Managing Global Supply Chains
ISBN: 978-1506302935
1st edition
Authors: Ray R. Venkataraman, Jeffrey K. Pinto