The manager of the Regal Beverage Company (RBC) must decide whether or not to ma
ID: 2654120 • Letter: T
Question
The manager of the Regal Beverage Company (RBC) must decide whether or not to market a new soft drink flavor. The new drink's success depends heavily on consumer reaction to it. An initial decision analysis based on available data reveals that the expected monetary value of marketing the new drink is -$200,000. The EMV of buying perfect information for this decision is $50,000, as shown in the tree below. A market research firm offers to do market research for RBC at a cost of $30,000. Although not perfect, the market research should give RBC some information about potential customer reaction to the new flavor. Based on an EMV analysis, RBC's manager should:
A) Buy the research firm's sample information.
B) Not buy the research firm's sample information, but market the new drink.
C) Not buy the research firm's sample information and not market the new drink.
D) The answer cannot be determined from the information provided
Cost of Sample Information: $30,000 EMV Buy Perfect Information $50,000 Market Drink 200,000 Don't Buy Perfect Information Don't Market Drink SoExplanation / Answer
The answer to this question depends on the perception of the management.
RBC's manager should ideally not buy the sample information, but yet market the drink. Although it will be having an initial cost of $ 250,000 (including the Perfect Information expenses), yet there maybe a gain from the product in later stages.
However, since what are the expected sales from the product is not mentioned, the technically correct answer would be D) = The answer cannot be determined from the information provided.
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