Picasso Paints closest rival, Tulux recently introduced a paint that is suitable to paint on polymer products. Picasso Paints are noticing they are losing customers to Tulux. Picasso Paints has the technology to manufacture the paint, however, are unsure about what pricing strategy to adopt because of Tulux possible reaction.

The following data for a month has been gathered:

  Loss of profit if Picasso does not introduce the new product                      $2,000

   Additional monthly fixed cost to manufacture the new product                  $16,000

   Variable manufacturing costs per litre                                                             $3.00

   Tulux current selling price per litre                                                                   $14.00

   Lowest possible selling price for Picasso                                                       $12.00

   Volume for the month (litres)                                                                               5,000 

   

 Picasso market share is estimated to be:

  Picasso Paints Strategy        Tulux Reaction                   Picasso Market Share

  Sell for $14 per litre                 Sell for $14 per litre                              25%

   Sell for $14 per litre              Sell for $12 per litre                                  1%

   Sell for $12 per litre              Sell for $14 per litre                                90%

   Sell for $12 per litre                  Sell for $12 per litre                               5%

   

Required:

Construct a matrix based on the information provided. From it, choose the best strategy when applying the following decision criteria:

1. Maximax          
2. Maximin           
3. Laplace criterion  
4. Minimax regret    
5. Expected monetary value assuming there is an 80% probability that Tulux will reduce its price to $12 when it finds out that Picasso is introducing the new product.