New Product Decision Tree Model : Foundations

Market Market Size (units) Monopoly Mkt Share Duopoly Mkt Share 500,000 50% Assumes monopoly pricing Assumes market sharing, competitive lower prices and MKT share for 35% both companies

New Product Launch Costs Variable Costs $ Fixed Costs $ Pricing Monopoly Duoploy Predicted Profit & Loss

Existing Product 30.00 5,000,000

$ $

100.00 75.00

Monopoly Senario Revenue $ Total Costs $ Annual Profit $ Duopoly Senario Revenue $ Total Costs $ Annual Profit $

25,000,000 12,500,000 12,500,000

13,125,000 10,250,000 2,875,000

Revenue Total Costs Annual Profit

3,000,000

Present Value Calculation

Monopoly Present Value Discount Rate 10% Period (Yrs) 3 Annual Profit $ 12,500,000 Present Value $31,085,649.89 Duopoly Present Value Discount Rate 10% Period (Yrs) 3 Annual Profit $ 2,875,000 Present Value $7,149,699.47 Existing Product Present Value Discount Rate 10% Period (Yrs) 3 Annual Profit $ 3,000,000 Present Value $7,460,555.97

Doesn't Enter Market

20% $31.09

#NAME? #NAME?

Success

30% $2.00

#NAME?

Competition Enters Market

80% $7.15

#NAME? #NAME?

Launch ($3.00) #NAME?

Failure

70% $0.00

#NAME? #NAME?

#NAME?

Retain $7.46

#NAME? #NAME?

Note : All values in millions of dollars

First Order Source Cell : Prob of Success

Target Cell 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1

0 7.5 7.5 7.5 7.5 10.2 13.5 16.9 20.2 23.5 26.8 30.1

0.1 7.5 7.5 7.5 7.5 9.3 12.3 15.4 18.5 21.6 24.6 27.7

0.2 7.5 7.5 7.5 7.5 8.3 11.1 14.0 16.8 19.6 22.5 25.3

0.3 7.5 7.5 7.5 7.5 7.5 10.0 12.5 15.1 17.7 20.3 22.9

Second Order Source Cell : Prob of Entry 0.4 0.5 0.6 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 8.8 7.6 7.5 11.1 9.7 8.2 13.5 11.8 10.1 15.8 13.9 12.0 18.2 16.0 13.9 20.5 18.1 15.7

35.0 30.0 25.0 Target Cell 20.0 15.0 10.0 5.0

Target Cell New Product Tree'!$C$20 First Order Source New Product Tree'!$G$5 Second Order Source New Product Tree'!$J$9

0.0
0 0.2 0.4 0.6 0.8 1 0

Prob of Entry

Prob of Success

First Order Source Cell : Prob of Success

Target Cell 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1

0 Retain Retain Retain Retain Launch Launch Launch Launch Launch Launch Launch

0.1 Retain Retain Retain Retain Launch Launch Launch Launch Launch Launch Launch

0.2 Retain Retain Retain Retain Launch Launch Launch Launch Launch Launch Launch

0.3 Retain Retain Retain Retain Retain Launch Launch Launch Launch Launch Launch

Second Order Source Cell : Prob of Entry 0.4 0.5 0.6 Retain Retain Retain Retain Retain Retain Retain Retain Retain Retain Retain Retain Retain Retain Retain Launch Launch Retain Launch Launch Launch Launch Launch Launch Launch Launch Launch Launch Launch Launch Launch Launch Launch

: Prob of Entry 0.7 7.5 7.5 7.5 7.5 7.5 7.5 7.5 8.4 10.1 11.7 13.3 0.8 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 8.1 9.5 10.9 0.9 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 8.5 1 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5

New Product Tree'!$C$20 First Order Source New Product Tree'!$G$5 Second Order Source New Product Tree'!$J$9

: Prob of Entry 0.7 Retain Retain Retain Retain Retain Retain Retain Launch Launch Launch Launch 0.8 Retain Retain Retain Retain Retain Retain Retain Retain Launch Launch Launch 0.9 Retain Retain Retain Retain Retain Retain Retain Retain Retain Retain Launch 1 Retain Retain Retain Retain Retain Retain Retain Retain Retain Retain Retain

Doesn't Enter Market 20% 31.09 Success 30% 0

28.09 Terminal Node

Probability Node

8,936,890 Competition Enters Market 80% 7.15

4.15

Launch (3) 581,067 Failure 70% 0 2 Payout Value 7.46 Retain 7.46 7.46 Node #1 not selected as node #2 higher (3)

Terminal Value

Decision Node, with selected node #

Node #2 selected as maximizes the payout

Note all links have been removed from this decision tree

Terminal Value