An advertising company has a proposal to make to its customer who wants to launch a new cosmetic product.
The client is motivated by the potential profits. Therefore, the advertising company should evaluate the potential sales that each marketing strategy can
generate:
Marketing strategy 1: Advertise on the TV;
Marketing strategy 2: Advertise in TV and in supermarkets;
Marketing strategy 3: Advertise in TV, in supermarkets and via internet.
For simplicity, the demand the new cosmetic product is categorized as low, medium or high.
The table below shows how the sales the company will generate for each option depends on the level of demand in the market.
Marketing
strategy
1
2
3
Low sales
-4000
-12000
-20 000
Medium sales
-8.000
-4000
-12 000
High sales
20 000
12 000
4000
It is estimated that if strategy 1 is adopted the probabilities of low, medium and high demand are 0.4, 0.4 and 0.2, respectively. For strategy 2 the respective
probabilities are 0.2, 0.4 and 0.4 while for strategy 3 they are 0.1, 0.2 and 0.7.
Determine the marketing strategy that the advertising company should recommend to its client based on expected sales. Draw the decision tree.
