New Product Launch
Cost of test market 5000 ('000)
Cost of launch 60000 ('000)
Unit margin 20
Demand Success Survival Failure
Global 5000 2000 800
Test 150 60 24
Probability of test market outcome 40% 50% 10%
Probabilities
Test Global Success Survival Failure
Success 60% 30% 10%
Survival 15% 70% 15%
Failure 10% 30% 60%
Intermediate computation
Global market outcome Success Survival Failure
Probability 32.5% 50.0% 17.5%
#NAME?
Yes
-60000
40.0% Launch?
Success
3000 #NAME?
#NAME?
No
0
#NAME? Outcome test market
Yes
-5000 #NAME?
#NAME?
Yes
-60000
50.0% Launch?
Survival
1200 #NAME?
#NAME?
No
0
#NAME?
Yes
-60000
10.0% Launch?
Failure
480 #NAME?
#NAME?
No
0
Test Market?
ePhone Product Launch
#NAME?
#NAME?
Yes
-60000
#NAME? Launch?
No
0 #NAME?
#NAME?
No
0
('000)
('000)
Challenge: What are appropriate probabilities for global market outcomes
in the case of no test?
On average 40 out of 100 test markets will end up as success,
of which 60%, i.e., 24 will turn into a global success. In addition 50
out the 100 test markets will, on average, end up as survival of which
15%, i.e. 7.5, will turn into global success. Finally 10 out of the 100
test markets will turn out as failures, of which 10%, i.e. 1, will turn
into a global success.
In summary, 24+7.5+1=32.5 out of 100 test markets turn into a global success
Similarly 50 out of 100 test markets turn into global survival and 17.5 out of 100
test markets turn into global failure. Therefore the probabilities that are consistent
with the given test market probabilities are 32.5%, 50%, and 17.5%
60.0% #NAME?
Success
100000 #NAME?
Outcome international market
#NAME?
30.0% #NAME?
Survival
40000 #NAME?
10.0% #NAME?
Failure
16000 #NAME?
#NAME?
#NAME?
15.0% #NAME?
Success
100000 #NAME?
Outcome international market
#NAME?
70.0% #NAME?
Survival
40000 #NAME?
15.0% #NAME?
Failure
16000 #NAME?
#NAME?
#NAME?
10.0% #NAME?
Success
100000 #NAME?
Outcome international market
#NAME?
30.0% #NAME?
Survival
40000 #NAME?
60.0% #NAME?
Failure
16000 #NAME?
#NAME?
#NAME?
32.5% #NAME?
Success
100000 #NAME?
Outcome international market
#NAME?
50.0% #NAME?
Survival
40000 #NAME?
17.5% #NAME?
Failure
16000 #NAME?
#NAME?
#NAME?
Cost of test market 5000 ('000)
Cost of launch 60000 ('000)
Unit margin 20
Demand Success Survival Failure
Global 5000 2000 800
Test 150 60 24
Probabilities
Test Global Success Survival Failure
Success 100% 0% 0%
Survival 0% 100% 0%
Failure 0% 0% 100%
Intermediate computation
Global market outcome Success Survival Failure
Probability 32.5% 50.0% 17.5%
#NAME?
Yes
-60000
32.5% Launch?
Success
0 #NAME?
#NAME?
No
0
#NAME? Outcome test market
Yes
0 #NAME?
#NAME?
Yes
-60000
50.0% Launch?
Survival
0 #NAME?
#NAME?
No
0
#NAME?
Yes
-60000
17.5% Launch?
Failure
0 #NAME?
#NAME?
No
0
Test Market?
ePhone Product Launch
#NAME?
#NAME?
Yes
-60000
#NAME? Launch?
No
0 #NAME?
#NAME?
No
0
('000)
('000)
100.0% #NAME?
Success
100000 #NAME?
Outcome international market
#NAME?
0.0% #NAME?
Survival
40000 #NAME?
0.0% #NAME?
Failure
16000 #NAME?
#NAME?
#NAME?
0.0% #NAME?
Success
100000 #NAME?
Outcome international market
#NAME?
100.0% #NAME?
Survival
40000 #NAME?
0.0% #NAME?
Failure
16000 #NAME?
#NAME?
#NAME?
0.0% #NAME?
Success
Success
100000 #NAME?
Outcome international market
#NAME?
0.0% #NAME?
Survival
40000 #NAME?
100.0% #NAME?
Failure
16000 #NAME?
#NAME?
#NAME?
32.5% #NAME?
Success
100000 #NAME?
Outcome international market
#NAME?
50.0% #NAME?
Survival
40000 #NAME?
17.5% #NAME?
Failure
16000 #NAME?
#NAME?
#NAME?
Cost of test market 5000 ('000)
Cost of launch 80000 ('000)
Unit margin 20
Marginal cost of capacity 10 ($ '000/unit)
Fixed cost 10000 ($ '000)
capacity 7000 ('000 units)
Demand Success Survival Failure
Global 7000 2000 800
Test 150 60 24
Probability of test market outcome 0.4 0.5 0.1
Probabilities 0 0 0
Test Global Success Survival Failure
Success 0.6 0.3 0.1
Survival 0.15 0.7 0.15
Failure 0.1 0.3 0.6
Intermediate computation
Global market outcome Success Survival Failure
Probability 32.5% 50.0% 17.5%
Updated
#NAME?
Yes
-80000
40.0% Launch?
Success
3000 #NAME?
#NAME?
No
0
#NAME? Outcome test market
Yes
-5000 #NAME?
#NAME?
Yes
-80000
50.0% Launch?
Survival
Survival
1200 #NAME?
#NAME?
No
0
#NAME?
Yes
-80000
10.0% Launch?
Failure
480 #NAME?
#NAME?
No
0
Test Market?
ePhone Product Launch
#NAME?
#NAME?
Yes
-80000
#NAME? Launch?
No
0 #NAME?
#NAME?
No
0
Capacity Exp. Profit
#NAME?
4000 #NAME?
4200 #NAME?
4400 #NAME?
4600 #NAME?
('000) 4800 #NAME?
('000) 5000 #NAME?
5200 #NAME?
5400 #NAME?
5600 #NAME?
5800 #NAME?
6000 #NAME?
6200 #NAME?
6400 #NAME?
6600 #NAME?
6800 #NAME?
7000 #NAME?
7200 #NAME?
7400 #NAME?
7600 #NAME?
7800 #NAME?
8000 #NAME?
Updated
60.0% #NAME?
Success
140000 #NAME?
Outcome international market
#NAME?
30.0% #NAME?
Survival
40000 #NAME?
10.0% #NAME?
Failure
16000 #NAME?
#NAME?
#NAME?
etc.
15.0% #NAME?
Success
140000 #NAME?
Outcome international market
#NAME?
70.0% #NAME?
Survival
40000 #NAME?
15.0% #NAME?
Failure
16000 #NAME?
#NAME?
#NAME?
10.0% #NAME?
Success
140000 #NAME?
Outcome international market
#NAME?
30.0% #NAME?
Survival
40000 #NAME?
60.0% #NAME?
Failure
16000 #NAME?
#NAME?
#NAME?
32.5% #NAME?
Success
140000 #NAME?
Outcome international market
#NAME?
50.0% #NAME?
Survival
40000 #NAME?
17.5% #NAME?
Failure
16000 #NAME?
#NAME?
#NAME?
Cost of test market 5000 ('000)
Unit margin 20 0
Marginal cost of capacity 10 ($ '000/unit)
Fixed cost 10000 ($ '000)
Cost for land to enable flexibility 5000 ('000)
Initial capacity 2000 ('000 units)
Expansion capacity 4000 ('000 units)
Fixed cost of expansion 10000 ('000)
Demand loss due to late expansion 20% of projected demand
Demand Success Survival Failure
Global 7000 2000 800
Test 150 60 24
Probability of test market outcome 0.4 0.5 0.1
Probabilities 0 0 0
Test Global Success Survival Failure
Success 0.6 0.3 0.1
Survival 0.15 0.7 0.15
Failure 0.1 0.3 0.6
Intermediate computation
Global market outcome Success Survival Failure
Probability 32.5% 50.0% 17.5%
#NAME?
Yes
-35000
40.0% Launch?
Success
3000 #NAME?
#NAME?
No
0
#NAME? Outcome test market
Yes
-5000 #NAME?
#NAME?
Yes
-35000
50.0% Launch?
Survival
1200 #NAME?
#NAME?
No
0
#NAME?
Yes
-35000
10.0% Launch?
Failure
480 #NAME?
#NAME?
No
0
Test Market?
ePhone Product Launch
#NAME?
#NAME?
Yes
-35000
#NAME? Launch?
No
0 #NAME?
#NAME?
No
0
DATA TABLE FOR EXPECTED PROFIT
Initial capacity
#NAME? 1000 1500 2000
Expansion capacity 3000 #NAME? #NAME? #NAME?
3500 #NAME? #NAME? #NAME?
4000 #NAME? #NAME? #NAME?
4500 #NAME? #NAME? #NAME?
5000 #NAME? #NAME? #NAME?
5500 #NAME? #NAME? #NAME?
('000) 6000 #NAME? #NAME? #NAME?
('000)
#NAME? #NAME?
Yes
30000 #NAME?
60.0% Expand?
Success
40000 #NAME?
#NAME? #NAME?
No
0 #NAME?
Outcome international market
#NAME?
#NAME? #NAME?
Yes
-50000 #NAME?
30.0% Expand?
Survival
40000 #NAME?
#NAME? #NAME?
No
0 #NAME?
#NAME? #NAME?
Yes
-50000 #NAME?
10.0% Expand?
Failure
16000 #NAME?
#NAME? #NAME?
No
0 #NAME?
#NAME?
#NAME?
#NAME? #NAME?
Yes
30000 #NAME?
15.0% Expand?
Success
40000 #NAME?
#NAME? #NAME?
No
0 #NAME?
Outcome international market
#NAME?
#NAME? #NAME?
Yes
-50000 #NAME?
70.0% Expand?
Survival
40000 #NAME?
#NAME? #NAME?
No
0 #NAME?
#NAME? #NAME?
Yes
-50000 #NAME?
15.0% Expand?
Failure
16000 #NAME?
#NAME? #NAME?
No
0 #NAME?
#NAME?
#NAME?
#NAME? #NAME?
Yes
30000 #NAME?
10.0% Expand?
Success
40000 #NAME?
#NAME? #NAME?
No
0 #NAME?
Outcome international market
#NAME?
#NAME? #NAME?
Yes
-50000 #NAME?
30.0% Expand?
Survival
40000 #NAME?
#NAME? #NAME?
No
0 #NAME?
#NAME? #NAME?
Yes
-50000 #NAME?
60.0% Expand?
Failure
16000 #NAME?
#NAME? #NAME?
No
0 #NAME?
#NAME?
#NAME?
#NAME? #NAME?
Yes
30000 #NAME?
32.5% Expand?
Success
40000 #NAME?
#NAME? #NAME?
No
0 #NAME?
Outcome international market
#NAME?
#NAME? #NAME?
Yes
-50000 #NAME?
50.0% Expand?
Survival
40000 #NAME?
#NAME? #NAME?
No
0 #NAME?
#NAME? #NAME?
Yes
-50000 #NAME?
17.5% Expand?
Failure
16000 #NAME?
#NAME? #NAME?
No
0 #NAME?
#NAME?
#NAME?
2500 3000 3500 4000
#NAME? #NAME? #NAME? #NAME?
#NAME? #NAME? #NAME? #NAME?
#NAME? #NAME? #NAME? #NAME?
#NAME? #NAME? #NAME? #NAME?
#NAME? #NAME? #NAME? #NAME?
#NAME? #NAME? #NAME? #NAME?
#NAME? #NAME? #NAME? #NAME?
Cost of test market 5000 ('000)
Unit margin 20 0
Marginal cost of capacity 10 ($ '000/unit)
Fixed cost 10000 ($ '000)
Cost for land to enable flexibility 5000 ('000)
Initial capacity 2000 ('000 units)
Expansion capacity 4500 ('000 units)
Fixed cost of expansion 10000 ('000)
Demand loss due to late expansion 10% of projected demand
Demand Success Survival Failure
Global 7000 2000 800
Test 150 60 24
Probability of test market outcome 0.4 0.5 0.1
Probabilities 0 0 0
Test Global Success Survival Failure
Success 1 0 0
Survival 0 1 0
Failure 0 0 1
Intermediate computation
Global market outcome Success Survival Failure
Probability 40.0% 50.0% 10.0%
#NAME?
Yes
-35000
40.0% Launch?
Success
3000 #NAME?
#NAME?
No
0
#NAME? Outcome test market
Yes
0 #NAME?
#NAME?
Yes
-35000
50.0% Launch?
Survival
1200 #NAME?
#NAME?
No
0
#NAME?
Yes
-35000
10.0% Launch?
Failure
480 #NAME?
#NAME?
No
0
Test Market?
ePhone Product Launch
#NAME?
#NAME?
Yes
-35000
#NAME? Launch?
No
0 #NAME?
#NAME?
No
0
DATA TABLE FOR EXPECTED PROFIT
Initial capacity
#NAME? 1000 1500 2000
Expansion capacity 3000 #NAME? #NAME? #NAME?
3500 #NAME? #NAME? #NAME?
4000 #NAME? #NAME? #NAME?
4500 #NAME? #NAME? #NAME?
5000 #NAME? #NAME? #NAME?
5500 #NAME? #NAME? #NAME?
('000) 6000 #NAME? #NAME? #NAME?
('000)
#NAME? #NAME?
Yes
35000 #NAME?
100.0% Expand?
Success
40000 #NAME?
#NAME? #NAME?
No
0 #NAME?
Outcome international market
#NAME?
#NAME? #NAME?
Yes
-55000 #NAME?
0.0% Expand?
Survival
40000 #NAME?
#NAME? #NAME?
No
0 #NAME?
#NAME? #NAME?
Yes
-55000 #NAME?
0.0% Expand?
Failure
16000 #NAME?
#NAME? #NAME?
No
0 #NAME?
#NAME?
#NAME?
#NAME? #NAME?
Yes
35000 #NAME?
0.0% Expand?
Success
40000 #NAME?
#NAME? #NAME?
No
0 #NAME?
Outcome international market
#NAME?
#NAME? #NAME?
Yes
-55000 #NAME?
100.0% Expand?
Survival
40000 #NAME?
#NAME? #NAME?
No
0 #NAME?
#NAME? #NAME?
Yes
-55000 #NAME?
0.0% Expand?
Failure
16000 #NAME?
#NAME? #NAME?
No
0 #NAME?
#NAME?
#NAME?
#NAME? #NAME?
Yes
35000 #NAME?
0.0% Expand?
Success
40000 #NAME?
#NAME? #NAME?
No
0 #NAME?
Outcome international market
#NAME?
#NAME? #NAME?
Yes
-55000 #NAME?
0.0% Expand?
Survival
40000 #NAME?
#NAME? #NAME?
No
0 #NAME?
#NAME? #NAME?
Yes
-55000 #NAME?
100.0% Expand?
Failure
16000 #NAME?
#NAME? #NAME?
No
0 #NAME?
#NAME?
#NAME?
#NAME? #NAME?
Yes
35000 #NAME?
40.0% Expand?
Success
40000 #NAME?
#NAME? #NAME?
No
0 #NAME?
Outcome international market
#NAME?
#NAME? #NAME?
Yes
-55000 #NAME?
50.0% Expand?
Survival
40000 #NAME?
#NAME? #NAME?
No
0 #NAME?
#NAME? #NAME?
Yes
-55000 #NAME?
10.0% Expand?
Failure
16000 #NAME?
#NAME? #NAME?
No
0 #NAME?
#NAME?
#NAME?
2500 3000 3500 4000
#NAME? #NAME? #NAME? #NAME?
#NAME? #NAME? #NAME? #NAME?
#NAME? #NAME? #NAME? #NAME?
#NAME? #NAME? #NAME? #NAME?
#NAME? #NAME? #NAME? #NAME?
#NAME? #NAME? #NAME? #NAME?
#NAME? #NAME? #NAME? #NAME?