The situation is that a company has developed a new product and is now in a position to launch it onto the market.

There are three options:

Go ahead with a full launch of the product.
Carry out a test market to obtain extra information.
Abandon the product and cut the losses.
Cost of test market=$ 100,000
Probability (favorable test result)=60 percent
Probability (Unfavourable test result)=40 percent
Demand Payoffs ($,000) No test (Launch)
Strong 1000 0.5
weak 250 0.2
Non-existent -750 0.3
50.0%
1000
FALSE Different Markets
0 325
20.0%
250
30.0%
-750
Market Launch Decision
405
60.0%
0
TRUE Favorable/Unfavorable Test Market
0 405
Market Launch
Direct Launch
Strong Market Demand
Weak Market Demand
Non-Existent Market Demand
Test Market
Favorable
40.0%
0
FALSE 0.0%
0 0
EVSI= 80
50.0% 50.0%
1000 1000
Chance
550
20.0% 20.0%
250 250
30.0% 30.0%
0 0
50.0%
1000
TRUE Different Markets
0 550
20.0%
250
Abandon
Unfavorable
EVPI
Strong
Weak'
Non-existent
Direct Launch
Strong Market Demand
Weak Market Demand
30.0%
0
Market Launch Decision
550
FALSE 0.0%
0 0
FALSE 0.0%
0 0
EVPI= 225
EVPI FOR MARKET LAUNCH
Non-Existent Market Demand
Abandon
Test Market
The situation is that a company has developed a new product and is now in a position to launch it onto the market. There are three options:
100
0.6
0.4
Prob (Favorable test
market)
Prob (Unfavorable test
market)
0.7 0.2
0.2 0.2
0.1 0.6
0.0%
1000
0.0%
250
0.0%
-750
FALSE 0.0%
0 0
Launch Decision
675
70.0% 42.0%
1000 1000
TRUE Different Markets
0 675
20.0% 12.0%
250 250
10.0% 6.0%
-750 -750
TRUE 40.0%
0 0
Abandon
Direct Launch
Strong Market Demand
Weak Market Demand
Non-Existent Market Demand
Abandon
Launch Decision
0
20.0% 0.0%
1000 1000
FALSE Different Markets
0 -200
20.0% 0.0%
250 250
60.0% 0.0%
-750 -750
50.0%
1000
20.0%
250
Direct Launch
Strong Market Demand
Weak Market Demand
Non-Existent Market Demand
30.0%
0