Happy Jack wants to capitalize on the health craze that is gaining momentum
in the United States and introduce a new line of nutritious salads.
Happy Jack is particularly cautious in launching new products and typically
performs an extensive consumer acceptance test in several metropolitan areas
before launching a new food product such as a salad line.
Occasionally the company will take new food products directly to market
without a consumer acceptance test, especially when the costs to do the
consumer acceptance test are not warranted. The costs of such a test are
usually about $2 million in total.
The probability of a successful product launch is 0.70 when Happy Jack's
consumer acceptance test results indicate that consumers like the product, and
0.20 when they have little to no interest in the product.
When Happy Jack goes to market without a consumer acceptance test, the
likelihood of a successful product launch is 0.25. Usually about 30 percent of
products put through a consumer acceptance test are successful, according to
historical data. To help Happy Jack make decisions on new product launches,
they have created a new business analysis team.
The supervisor of this new group, Harry Seitz, decides to assign you to this
new product opportunity. Conducting a preliminary analysis, Harry concludes
that the value to the Happy Jack, should the new salad line be successful, is
approximately $25 Million over the life of the product.
If the line is not successful, the company will likely lose $5 Million. This $5
Million would be in addition to the $2 Million for any consumer acceptance
test. All product development costs are considered "sunk costs" and are not
included in these calculations of product success or loss. Harry outlines the
specific tasks that he wants you to complete. These specific tasks are outlined
in Week 10 Assignment Sheet.
