Test for Market Success

Since the value of information about market success is rather high, the company may decide to look into different options for obtaining additional information.  The frame of the problem may be revised to incorporate new alternatives for information gathering.  Options may be numerous here, but let's consider the following two.
 

Marketing Analysis

This analysis will be performed by a well-known consulting company.  The initial estimate shows that the total cost of this project will be about $3 million.  At the end of the analysis the consulting company will report if they expect the market success of the Virtual Assistant be High or Low.

However, this information is not perfect.  Historically their predictions turned out to be true in 80% of cases.  This means that if they say that the success will be high, there is 80% chance that the success will indeed be high.
 

Phone Survey

The company could hire a team of interns to make random phone calls to households and businesses describing the product and asking for their opinion.  Based on the responses they could draw a conclusion about the future market success of the product.

The cost of such project will be about $150,000.  Based on previous experience with phone surveys, the company expects a 75% chance that the survey will give the correct insight.
 

Revised Decision Diagram

We can modify the original decision diagram to represent the new decision and uncertainties.
 
 
Testing decision diagram
 
 Note that some of the arrows are omitted in order to simplify the diagram.
 

Revised Decision Tree

The new decision and uncertainties have to be incorporated into the decision tree.  The tree becomes rather large at this point and it would not fit very well on this page.  The general structure of the tree is represented by the generic decision tree which shows the sequence of the nodes in the full decision tree.
 
 
 
 

Choosing the Test

Calculating the Certain Equivalent of each new alternative yields the following information:

Marketing Analysis -  $82,160,996
Phone Survey -   $78,586,391
No test used -  $57,405,496

Even though the Phone Survey is much cheaper and almost as accurate as Marketing Analysis, it is much less valuable.  That 5% of extra accuracy is worth over $3.5 million!

However, there might be a problem with both tests that we have not taken into consideration.  Both tests may reveal product's features and company's strategy to a competitor.  This may affect the market price, demand, cost and all other uncertainties that we have identified.  Such impact should be further investigated in further revisions of the model.
 

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