Dimbleby Ltd. produce vacuum cleaners and have developed a new product called the Ricardo model. The company do not know exactly what economic conditions will be like when they launch the product but they believe that there is a 10% chance that demand for the Ricardo model will be strong at 1300 units in the next accounting period, a 60% chance that demand will be moderate at 1000 units and a 30% chance that demand will be weak at 600 units. The net profit on each unit of the Ricardo model will be 25 after all relevant costs except for marketing. The marketing department are considering three alternative product launches; Blitz - this launch will incur total marketing costs of 6,000 but will increase demand by 10% in all conditions. This increase in demand will enable Dimbleby Ltd. to produce the Ricardo model at a lower cost and yield 27 net profit per unit before marketing costs. General - this launch will incur total marketing costs of 2,500 and will only increase demand in weak market conditions from 600 units to 750 units. All other demand levels will remain the same. There will be no impact on product costs. Trial - this launch will incur total marketing costs of 1,000 and will increase demand in moderate market conditions from 1000 units to 1250 units. All other demand levels will remain the same. There will be no impact on product costs.

REQUIRED:

a. Identify the optimal launch campaign for the Ricardo model and show your workings to reach this conclusion. [20 marks]

b. A consultancy firm has offered to provide an economist's report for 1,000 to Dimbleby Ltd. The report will provide Dimbleby Ltd. with perfect information about demand for the Ricardo model. Should Dimbleby Ltd. pay for this report? You should show your calculations in arriving at your answer. [13 marks]