4. Definition of Marketing Research
(The AMA formal deinition)
“Marketiing research is the sistematic and objective
identification, collection, analysis, dissemination, and use
of information for the purpose of improving decision
making related to the identefication and solution of
problems (or opportunities) in marketing”.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21. THEORETICAL FRAMEWORK
A theoretical framework is a conceptual model of how one
theorizes or makes logical sense of the relationships
among the several factors that have been identified as
important as the problem.
Variable:
A variable is a symbol to which numerals or symbols are
assigned.
22. Types of Variables
1.
2.
3.
4.
The dependent (criterion) variable: DV
The independent (predictor) variable: IV
The moderating variable: MV
The intervening variable: IVV
23. Variables Affecting Consumer Purchase
Action
A d E xpo sure
IV
P urc hase P ro duc t
o r S e rvic e
D V
N e e d fo r P ro duc t o r
S e rvic e
IV
B udget
C o n s tra in t
M V
24. Two-Way Affect of Moderating Variable
D e gree o f A d
E xpo sure
IV
A m o unt P urc hase d
D V
M o n th ly In c o m e
( 0 0 0 T L .)
IV
P ro duc t
Type
M V
25. Metric Expression of Variables in Purchase
Action
P ric e o f P ro d u c t o r
S e rvic e
IV
A m o unt P urc hase d
D V
A d E x p e n d itu re fo r
P ro d u c t o r S e rvic e
IV
M o n t h ly
H o u s e h o ld I n c o m e
(0 0 0 T L .)
M V
26. Decision-to-Buy Process as Intervening
Variable
A d E xpo sure
IV
D e c is io n t o B u y
P roc e ss
IV V
N e e d fo r P ro duc t o r
S e rvic e
IV
B udget
C o n s train t
M V
P u r c h a s in g P r o d u c t
o r S e r v ic e
D V
27. HYPOTHESIS FORMULATION
• Proposition and Hypothesis:
A proposition is a statement about concepts that
may be judged as true or false if it refers to
observable phenomena.
When a proposition is formulated for empirical
testing, it is called a hypothesis.
As a declarative statement, a hypothesis is of a
tentative and conjectural nature.
28. Types of Hypotheses
•
Descriptive Hypotheses:
These are propositions, that typically state the existence, size, form or
distribution of some variable.
e.g. “Market demand for 1600 cc. Cars will exceed 60.000 units next year”.
•
Relational Hypotheses:
These are statements that describe a relationship between two variables with
respect to some case.
e.g. “Females spend more on cosmetics than males”
• Explanatory (Causal) Hypotheses:
With these hypotheses, there is an implication that the existence of, or
a change in, one variable causes or leads to an effect on the other
variable.
e.g. “Loyalty to a particular store increases the probability of
purchasing the private brands sponsored by that store”.
29. Error Types in Hypothesis Testing
Real State
Ho TRUE
Ho FALSE
Decision
Ho ACCEPTED
Correct Decision
No Error
Type II Error
(β)
Ho REJECTED
Type I Error
(α)
Correct Decision
No Error
30.
31.
32.
33. EXAMPLE 01
“ABC Company is planning to implement a product differentiation project for a
high-technology electronic product, after a year-long observation and
followed-up of sales which dramatically decreased in the year 2012. The
results obtained from last ten years market (demand) analyses predicted
company’s demand for that particular product as 25.000 units/year for
undifferentiated and 38.000 units for differentiated product. These two
different demand distributins however, have a common standart distribution
of a relatively high value as 19.000 units/year.
If the company decides to make an investment for differentiating its existing
product, it will face up with an additional 15.000.000 TL. cost.. In this
respect the company would gain an extra profit of 2.000 Tl. per unit of
product sold.
The marketing manager of the company denies the idea of an additional
investment and claims that there will be no demand increase even if the
product differentiation would take place due to poor economical conjencture
and cut-throat competition. In contrast, R&D manager insists that this
differentiation process must be realized urgently since the company could
not survive long with this old technology.
The company conducted two nation-wide surveys (market tests) on dealers and
other channel members in the year 2013 and faced up with two different
demand levels as 27.000 and 35.000 demand units respectively...
The general manager of the company determined the risk levels of Type-I error
as 0.005 and Type-II error as 0.01 so as to minimize a probable loss.”
34. QUESTION
• Draw the diagram related to the example
above, where all variables and parameters
are shown explicitly.
• Convert propositions of the company
managers into testable hypotheses.
• Calculate the sample size of the market
test and the critical value (three decimal
points to the right of the whole number)
35. PRODUCT DECISION WITH TWO
POPULATION DISTRIBUTION
H o A ccep t
H 1 R e je c t
D e c is io n : D o n ' t
D i f f e r e n t ia t e t h e
P ro d u c t
H
A ccep t
H o R e je c t
1
D e c is i o n : D if f e r e n t ia t e
th e P ro d u c t
σ = 19
LO W D EM A N D
H IG H D E M A N D
α = 0 ,0 0 5
β = 0 ,0 1
µ 0= 25
C r it ic a l V a lu e
X1 = 27,3
µ 1= 38
X 2 = 35,8
D e m a n d ( 0 0 0 u n it s )
36. HYPOTHESES
• (Marketing manager) “No demand
increase should be expected even after
product differentiation”. (No significant
difference exists between high and low
demand levels.)
• (R&D manager) “Product differentiation
would lead to high demand level”. (High
demand level is significantly differentiated
from low demand level.)
40. !!!notice!!!
• * and x denotes multiplication.
• ** denotes power.
• difference between two different
approaches in critical value calculations is
due to roundup errors (even though three
decimal places are taken) BUT both will
be accepted as correct answer in the midterm exam.
41. FORMULAS
Z=
e
σ
n
σ
x
σ
n
=
nA =
t≡
R=
e
M
Z 2 PA(1,0 − PA )
n=t ≡
(e) 2
( X 1 − X 2 ) − ( µ1 − µ 2 )
s X1 − X 2
p1 − Ζ β
C=
σ
M
sX ≡
(X − µ)
sX
χ2 = ∑
µ1 − Ζ β
p1 (1 − p1)
n
2
n =
Ζ α Ρ0(1, 0 − Ρ0 ) + Ζ β Ρ1(1, 0 − Ρ1 )
(Ρ
1
2
− Ρ0 )
2
F( n1 −1),( n2 −1)
s
n
s
≡ 12
s2
σ
n
( Fi − Ti ) 2
Ti
43. EXAMPLE 2
ABC Company which is the leading manufacturing and marketing firm in electronics is planning to
introduce a new product in the year 2013. Unit cost of the product is 750 TL. (including
warehousing costs); and the planned annual production is 500.000 units. The cut-throat
competition in this sector leaves the company irresolute to determine the price of the product
either 1200 TL. or 1000 TL. Annual demand for the product is estimated to be (according to past
ten-year time-based analyses) 400.000 units (low) and 490.000 units (high) where economic
conjuncture and competitive environment plays an important role. Two different types of
marketing this product is in question: First, either a sales force of 140 individuals will be
established to sell the product to the wholesalers at a price of 1000 TL./unit or the product will be
mass distributed to the retailers with a 1200 TL. suggested price. In this respect TYPE I and
TYPE II errors are determined as 0.0025 and 0.005 respectively. Two different demand levels are
recorded as 455.000 units/year and 442.000 units/year via two different market tests conducted
in 2012. The company will incur an additional cost of 5.000 TL./month per salesperson if she
would establish a sales force. This cost will only be calculated on the amount of actual sales. A
retailer margin of 135 TL./unit sold will deducted from the sales revenue if retailers would be
employed in this plan. In addition 115 TL./unit distributed* will also be deducted as CIF if 1200 TL
price is applied. Both high and low demand distributions have a common standard deviation of
270.000 units.
The managers of the company remain indecisive to determine the marketing (distribution)
strategy of the product. The general manager denies the introduction of the new product since a
risky and turbulent competitive environment is waiting for them, and it would be better to buy
treasury bonds with 18 % interest rate using total investment. Marketing manager, on the other
hand defends the strategy of penetrating into the market by forming a sales force and company’s
CEO suggests to use individual sales points (retailers).”
“
* Total amount of production is distributed
44. QUESTION
•
•
•
•
Draw the diagram related to the example
above, where all variables and parameters are
shown explicitly.
Convert propositions of the company
managers into testable hypotheses.
Calculate the sample size of the market test
and the critical value (three decimal points to
the right of the whole number)
Calculate annual profit, loss nd opportunity
cost values seperately with respect to different
price levels and different strategies (decisions)
45. MARKET PENETRATION DECISION WITH
TWO POPULATION DISTRIBUTION
H o A ccep t
H 1 R e je c t
D e c is io n : D o n ' t
P e n e tr a te
H
A ccep t
H o R e je c t
1
D e c is io n :P e n e t r a t e
σ = 270
LO W D EM A N D
H IG H D E M A N D
β = 0 ,0 0 5
µ 0= 400
α = 0 ,0 0 2 5
C r it ic a l V a lu e
X1 = 442
µ 1= 490
X 2 = 455
D e m a n d ( 0 0 0 u n it s )
46. HYPOTHESES
• Ho (Null Hypdthesis) : The Demand for our
product is LOW so DON’t ENTER into the
market (buy treasure bonds instead)
• H1a: (Alternate or Research) Hypothesis) : The
Demand will be HIGH so ENTER into the market
(establish a sales force and use wholesalers)
• H1b : (Alternate or Research) Hypothesis) : The
Demand will be HIGH so ENTER into the market
(use individual sales points (retailers)
50. SOULUTİON
• State 1
(General Managers Offer) Don’t Enter into
the Market – Buy Treasure Bonds Instead:
Return = Investment Required to Produce
500000 units/year x Interest Rate
Return = 500000x750x0.18
= 67 500 000 TL./year
51. • State 2
(Marketing Manager’s Offer) Enter into the Market with a
salesforce:
Profit per unit sold = Selas price-per unit cost = 1000 –
750 = 250 TL./unit
• State 2a : In case of low demand level (Type I error)
Revenue =400000x1000 = 400000000 TL./year
Labor cost : 5000x140x12 = 8.4x10**6 TL,/year
Profit before labor cost = 400000x250 = 100x10**6
Profit after labor cost (net profit) = 100x10**6 –8.4x10**6
= 91 600 000 TL/year
52. • State 2b : In case of high demand level
(Correct decision)
Revenue =490000x1000 = 490000000
TL./year
Profit before labor cost = 490000x250 =
122.5x10**6
Profit after labor cost (net profit) =
122.5x10**6 – 8.4x10**6
=114 100 000 TL./year
53. • State 3
(Corporate CEO’s Offer) Enter into the Market throughout
retailers:
Profit per unit sold = Sales price-per unit cost = 1200 –
750 = 450 TL./unit
• State 3a : In case of low demand level (Type I error)
Revenue =400000x1200 = 480000000 TL./year
Profit before retailer margin and CIF = 400000x450 =
180x10**6
Retailer margin : 135x400000 = 54x10**6 TL./year
CIF : 115x500000 = 57.5x10**6 TL./year
Total distribution cost: 54x10**6 + 57.5x10**6 =
111.5x10**6 TL./year
Profit after retailer margin and CIF (net profit) = 180x10**6
–111.5x10**6
= 68 500 000 TL./year
54. • State 3b : In case of high demand level (Correct
decision)
Revenue =490000x1200 = 588000000 TL./year
Retailer margin : 135x490000 = 66.15x10**6
TL./year
CIF : 115x500000 = 57.5x10**6 TL./year
Total distribution cost: 54x10**6 + 57.5x10**6 =
123.65x10**6 TL./year
Profit before retailer margin and CIF =
490000x450 = 220.5x10**6
Profit after retailer margin and CIF (net profit) =
220.5x10**6 – 123.65x10**6
=96 850 000 TL./year
55. COMPARISON OF DIFFERENT STATES
Ho True
Low
Demand
H1 is
true
High
Demand
Dont Enter
STATE 1
Correct Decision
Enter with Salesforce
STATE 2
Type I error (α)
Enter via Retailers
STATE3
Type I error (α)
67 500 000 TL./year
Type II error (β)
46 600 000 TL./year *
29 350 000 TL./year **
(opportunity cost)
91 600 000 TL./year
Correct Decision
68 500 000 TL./year
Correct Decision
114 100 000 TL./year
96 850 000 TL./year
* 114 100 000 – 67 500 000 = 46 600 000 TL./year
** 96 850 000 - 67 500 TL./year
56. EPILOG BEFORE THE MID-TERM EXAM
Dear Students:
The above example supports marketing managers
claim. Nevertheless, type I errors did not yield a
concrete loss (as is supposed to be). In the
exam, however you’ll get a more complicated
and more realistic question of this type.
I advise you to review the above examples
carefully so as not to make a mistake.
I wish you all success in the mid-term exam. Prof.
Dr. Nuri Çalık
57. i. The main purpose of visits.
H1: There is a significant difference between the main purpose of the visits and
consumer demographics.
M a in P u r p o s e
( W a lk A r o u n d a n d
S p e n d T im e )
A g e o f V is it o r s
L o c a tio n
(D is ta n t/
N earb y
58. ii. Major complaints and requests
directed by the visitors.
H2: Shoppers who complain about noise and pollution in food courts and
recreation areas are infrequent visitors.
M a jo r c o m p la in t s
( N o is e , p o llu t io n
e tc .)
F r e q u e n c y o f V is its
A g e o f th e
v is ito r s
59. iii Social dimension of the shopping
centers
H3: Especially Young People and Bachelors Regard Shopping Centers as
Places Where They Meet Their Friends and Establish New Friendships
S o c ia l I n te r a c tio n
a n d F r ie n d s h ip
A g e o f t h e V is it o r s
N o of
R e c re a tio n
A reas
60. iv. Different types of shoppers and
different types of products and/or
services.
H4: People spend more on durable goods than on foodstuffs non-durables and
recreation in shopping centers
A m ount TL . Spent
fo r P ro d u c t
P u rc h a se s
.
T y p e o f P ro d u c t
P u rc h a se d
In c o m e o f
V is ito r s
61. v. Novelties offered by the
shopping centers.
H5: Innovators, early adapters and experience seekers visit shopping centers
to seek novelties offered.
T y pe of C on sum er
(a s to n e w p ro d u c t
a d o p t io n p r o c e s s )
F r e q u e n c y o f V is it s
N o v e ltie s
O ffe re d
62. EXPERIMENTAL DESIGN
Sample Question 1
Question “ “ABC Company has designed a experiment in 2013 so as to test
the efficiency of the junior marketing manager candidates who are planned
to be promoted to the different branches of the company nationwide. Six
groups of 60 candidates, each involving different employee characteristics is
included in the design as follows:
1. Recent graduates of private Turkish universities 30 males 30 females
2. Project leaders with minimum 5 years of experience all males
3. Graduates of foreign universities, inexperienced but with a minimum MBA or
MS degree
4. Superintendents from different branches of the company all high school
graduates
5. Inexperienced group of PhD holders all females
6. Marketing vocational school graduates with field experience all males..
“Marketing skill and adaptation” course was given to groups 1, 4, and 5 for
three months; whereas no manipulation is made on the rest of the groups.
Management ability of the groups are measured at the end of the period
throughout an extensive exam and interview. Grading is made over 100. Pre
observations related to some groups are not available.
63. Groups
1
2
3
4
5
6
Pre observation Pre observation Post
observation Post
observation Test
variances (s)
means (X)
variances (s)
means (µ )
79
13
83
12
X
78
10
84
9
85
7
81
4
X
82
8
87
9
X
83
10
86
8
64. Formulate null and alternate hypotheses for
groups 1 and 5 (one sample) and for
groups 1-2, 3-4 and 5-6 (two samples) at
0.01 significant level compare your results
and derive logical conclusions.
65. Formulas and Test Statistics
(X − µ)
t≡
sX
( X 1 − X 2 ) − ( µ1 − µ 2 )
t≡
s X1 − X 2
2
F( n1 −1),( n2 −1)
s1
≡ 2
s2
s
sX ≡
n
69. EXPERIMENTAL DESIGN
Sample Question 2
Question: “ABC Company, a leading manufacturing company of electric and
electronic appliances, computers and computer parts, kitchen utensils,
glassware, stationery and office supplies is planning a three-month,
nation-wide promotion campaign for some of its products so as to keep
up with her competitors.
The campaign covers three different product lines (Group 1,3 and 5) where
each line includes 60 different product types (models, mixtures etc.) and
three other lines (Groups 2,4 and 6) are also included in the experiment
free of campaign as follows:
1.
Specialty items, at the maturity phase, under strict competition.
2.
Shopping goods, novelty items, relatively at higher price.
3.
Office supplies, mass distributed, with highprofit margin.
4.
Expensive durables, sales on order basis, low profit margin.
5.
Electronics and other appliances, mostly at tne decline phase, reduced
prices.
6.
Computers and computer parts, mostly at the growth phase, high prices.
71. Formulate research hypotheses for groups 1
and 5 (one sample) and for groups 1-2, 34, 1-5, 1-6, 2-5, 2-6 and 5-6. (two
samples) at 0.01 significant level compare
your results and derive logical
conclusions.
72. Group 1
H1: The sales of the Specialty items, at
the maturity phase, under strict
competition increased significantly
after the campaign.
t≡
21
sX ≡
60
(123 − 115)
2.711
8
t≡
2.711
H1 is accepted
sX ≡
21
60
s X ≡ 2.711
t ≡ 2.660(table value)
t ≡ 2.951
t ≡ 2.951(test result )
2.951 2.660(table value)
73. Group 5
•
H2: The sales of the Electronics
and other appliances, mostly at
tne decline phase, reduced
prices increased significantly
after the campaign
t≡
(167 − 147)
2.582
t ≡ 7.746
7.746 2.660(table value)
H 2 is accepted
74. Groups 1-2
H3:There is a significant difference
between specialty items and shopping
goods in terms of sales increase,
where campaign is applied to the
former. (The increase in sales in
specialty items is significantly more
than the increase in the sales of
shopping goods to which no campaign
applied.)
1.291 2.660(table value)
H 3 is rejected
t≡
( X 1 − X 2 ) − ( µ1 − µ 2 )
s X1 − X 2
t≡
(123 − 69) − (115 − 63)
2.711 − 1.162
54 − 52
t≡
1.549
t ≡ 1.291
75. Groups 3-4
H4:Campaign applied to office supplies,
mass distributed, with highprofit
margin has a greater (positive) impact
on sales than expensive durables,
sales on order basis, low profit margin
to which no campaign applied.
2.388 1.840(table value)
2
F( n1 −1),( n2 −1)
F( 59),( 59) ≡
s1
≡ 2
s2
289
121
F( 59),( 59) ≡ 2.388
H 4 is accepted
76. Groups 1-5
H5: Although campaign is applied both of
the product groups the increase in the
sales of electronics and other
appliances, mostly at tne decline
phase, reduced prices is more
remarkable (is significantly more) than
specialty items, at the maturity phase,
under strict competition
93.023 2.660(table value)
H 5 is accepted
t≡
( X 1 − X 2 ) − ( µ1 − µ 2 )
s X1 − X 2
t≡
(167 − 123) − (147 − 115)
2.582 − 2.711
t≡
t≡
(44) − (32)
0.129
(44) − (32)
0.129
t ≡ 93.023
77. Groups 1-6
H6: If campaign is applied to one of two
different product groups with similar
features, the sales increase of the first
group will be significantly higher than
the sales increase of the second group
to which no campaign is applied.
0.861 2.660(table value)
t≡
( X 1 − X 2 ) − ( µ1 − µ 2 )
s X1 − X 2
t≡
(123 − 107) − (115 − 100)
2.711 − 1.549
t≡
(16) − (15)
1.162
t ≡ 0.861
H 6 is rejected
78. Groups 2-6
H7: If no campaign is appied to two
diffedent durable product groups with
higher prices the difference in their
sales growth will be insignificant.
( X 1 − X 2 ) − ( µ1 − µ 2 )
t≡
s X1 − X 2
t≡
2.583 2.660(table value)
(107 − 69) − (100 − 63)
1.549 − 1.162
t≡
H 7 is accepted
(38) − (37)
0.387
t ≡ 2.583
79. Groups 5-6
•
H8: If campaign is applied to durable
goods with reduced prices even at
decline phase shows significantly
better performance than those durable
goods without campain applied at the
growth phase with high prices
.
12.585 2.660(table value)
H 8 is accepted
t≡
( X 1 − X 2 ) − ( µ1 − µ 2 )
s X1 − X 2
t≡
(167 − 107) − (147 − 100)
2.582 − 1.549
t≡
(60) − ( 47)
1.033
t ≡ 12.585
80. DECISION TREE SAMPLE QUESTION 1
Question: ABC Company which is a manufacturer of consumer durables and
industrial products wants to position its new product in Black sea Region of
Turkey. The Company is planning to implement three different strategies in
this respect. First strategy (S1) is to form a 10-person sales force and apply
direct marketing; second strategy (S2) is sell the product by means of local
dealers; and third strategy (S3) is establishing company’s sales points. The
price of the product is 2000s TL./unit and per unit cost is 1200 TL.
According to the demand forecasting studies this product lies between three
demand levels as; 5000 units/year (low); 7000 units/year (medium), and
10000 units/year (high). The contracts enacted with the local vendors reveal
that they are likely to sell the Company’s product only, at a 40 % chance
(probability) (E1=0.40); and sell the product together with similar pnoducts
of the competitiors at 60 % probability (E2=0.60). The margin offered to the
dealers is 20 % on gross profits. Annual cost of the sales force is 300
000/person. The cost of establishing sales points is 10 million TL., which is
subject to ten years depreciation. In addition these points have 500
thousand TL. operating costs.
81. • The probabilities for demand levels tied to
Company’s strategies (low, medium and high)
are respectively as follows:
• S1: establishing sales force: : (E3=0,10
E4=0,20 E5=0,70)
• S2: selling by dealers: Only Company’s
product= E1 (E6=0,10 E7=0,30 E8=0,60)
• S2: selling together with competitors’ similar
products=E2 (E9=0,30 E10= 0,60
E11=0,10)
• S3: establishing Company’s sales points:
(E12=0,20 E13=0,50 E14=0,30)
82. Taking into consideration the above data::
1. Draw a decision tree diagram depicting
the Compan’s strategies and the states
of nature (with probabilities) neatly. (15
pts.)
2. Calculate the annual expected monetary
values (EMV’s) for all strategies and
demand levels and determine the most
profitable strategy that the Company
must follow. (25 points.)
83. L ow D em and
5 0 0 0 u n i ts /y e a r
S1
M edium D em and
7 0 0 0 u n its /y e a r
E 3 = 0 .1 0
EV 1
E 4 = 0 .2 0
EV 2
E 5 = 0 .7 0
EV 3
Sale s F o r c e-D ir ec t Se llin g
H ig h D em and
1 0 0 0 0 u n its /y e a r
5 0 0 0 u n its/y e a r
L ow D em and
5 0 0 0 u n i ts /y e a r
O n l y C o m p a n y 's P r o d u c t
E 1 = 0 .4 0
M ed iu m D em and
7 0 0 0 u n i ts /y e a r
H ig h D em an d
1 0 0 0 0 u n i ts /y e a r
S2
L ocal D ealers
L ow D em and
5 0 0 0 u n i ts /y e a r
E 2 = 0 .6 0
C o m p e tito r s' P r o d u c ts A llo w e d
M edium D em and
7 0 0 0 u n i ts /y e a r
H ig h D em an d
1 0 0 0 0 u n its/y e a r
L ow D em and
5 0 0 0 u n its /y e a r
S3
C o m p a n y 's S a l e s P o i n ts
M edium D em and
7 0 0 0 u n its /y e a r
H ig h D em and
1 0 0 0 0 u n its /y e a r
E 6 = 0 .1 0
EV 4
E 7 = 0 .3 0
EV 5
E 8 = 0 .6 0
EV 6
E 9 = 0 .3 0
EV 7
E 1 0 = 0 .6 0
EV 8
E 1 1 = 0 .1 0
EV 9
E 1 2 = 0 .2 0
E 1 3 = 0 .5 0
E 1 4 = 0 .3 0
EV 10
EV 11
EV 12
84. SOLUTION
All conditional probabilities are given in the example. Joint probabilities belong
to second strategy. (selling via dealers)
The first step is to calculate the unit gross profit:
2000 TL./unit - 1200 TL./uunit = 800 TL./unit
Per unit gross profit is now multiplied by low, medium and high demand levels
and annual gross profits are determined at each level:
5000units/year x 800TL./unit =4 000 000 TL./year
7000units/year x 800TL./unit =5 600 000 TL./year
10000units/year x 800TL./unit =8 000 000 TL./year
Annual Total cost of the sales force: 300 000 TL./person x 10 people
=3 000 000 TL./year
!!! IMPORTANT NOTE!!!
All calculations and comparisons should be made on annual basis.
86. S3: establishing sales points:
(It should be noted here that 10 million TL. (10
year) depreciation value should be divided by
ten so as to arrive at the annual depreciation
value. In addition annual operation cost of 500
000 TL. should be taken into account).
S3: E12: 0,20x(4 000 000-1 500 000)=500 000
+ E2: 0,50x(5 600 000-1 500 000) =
2 050 000 + E3: 0,30x(8 000 000 - 1 500
000)=1 950 000
= 4 500 000 TL
Total Expected Monetary Value of the second
strategy (S2) maximizes the annual net profit
of the Company. Consequently the Company
must sell its product via dealers.
87. !!!İmportant Notice!!!:
When you are confronted with a similar
question in your final exam you should
follow the same steps as shown above.
Different approaches may cause grade
loss on your part.
Dr. Çalık
88. DECISION TREE SAMPLE QUESTION 2
Question. “ABC company which is a leading firm in electronics sector is planning a three-month
“personnel development” program covering most of its employees There are four main alternate
ways of action for the firm as follows: (Costs are given for a three-month period)
A- an extensive program on 1500 employees which costs 2400 TL. per employee.
B- an on-the-job program for 1300 employees with a cost 1400 TL. per employee
C- an overseas program for 500 employees costing 3500 TL. per employee
D- a high-technology program for 900 employees costing 3000 TL. per employee
The company follows four more way of action for actions C and D as follows:
E and G- take on full burden of cost
F and H- charge 35 % of cost from employees.
At the end of the period increase in productivity is measured on two distinct levels as low (10 TL. per
employee per day) and high (30 TL: per employee per day) along all ways of action. Probabilities
tied to each outcome (state of nature) is as follows:
For A : low (40 %): high (60 %)
For E low (20 %); high (80%)
For B low (70 %): high (30 %)
For F: low (40 %): high (60%)
For G: low (30 %); high (70%)
For H; low (50 %); high (50%)
(E and F follows C - G and H follows D)
Draw the decision tree depicting all actions, outcomes and probabilities (15points)
Calculate the shortest period (in terms of workdays that the company meets break-even point. (25
points)*
* Three month-period workdays= 60
89. 40 %
A - a n e x t e n s iv e p r o g r a m o n 1 5 0 0 e m p lo y e e s
lo w
w h ic h c o s t s 1 4 0 0 T L . p e r e m p lo y e e .
1 0 9 .0 9 1 w o r k d a y s
hig h
60 %
70 %
lo w
B - a n o n - t h e - jo b p r o g r a m f o r 1 3 0 0 e m p lo y e e s
hig h
w it h a c o s t 7 0 0 T L . p e r e m p lo y e e
8 7 .5 0 0 w o r k d a y s
30 %
20 %
lo w
EV
2
EV
3
EV
4
EV
5
1 3 4 .6 1 5 w o r k d a y s
hig h
E
EV
1
80 %
EV
6
C
F
40 %
lo w
hig h
EV
7
1 0 3 .4 0 9 w o r k d a y s
60 %
30 %
EV
8
EV
9
lo w
1 2 5 .0 0 0 w o r k d a y s
G
hig h
70 %
EV
10
D
H
50 %
lo w
EV
11
9 7 .5 0 0 w o r k d a y s
hig h
50 %
EV
12
90. SOLUTION
•
•
•
No joint probabilities take place in this example. The rest 12 percentages
represent conditional probabilities.
Note that the EMV’s should be calculated first and then return on investment
(in terms of workdays) ROI should be found so as to arrive at the breakeven points.
The first thing to do is to calculate the cost of each program:
Strategy A: an extensive program on 1500 employees
which costs 2400 TL. per employee.
Total Cost = 1500 x 2400 = 3 600 000 TL. (for 60 days)
Increase in productivity per worker per day: low : 0.40 x 10 TL. = 4 TL.
Increase in productivity (for 1500 workers): 4 TL. x 1500 = 6 000 (low)
Increase in productivity per worker per day: high : 0.60 x 30 TL. =
18TL.
Increase inproductivity (for 1500 workers) : 18 TL. x 1500 = 27 000 TL,
(high)
91. Total increase in productivity (for strategy A) :
6 000 TL. + 27 000 TL. = 33 000 TL.
Payback (break-evn) period = Total Cost / Total Benefts
= 3 600 000 / 33 000 = 109.091 workdays
Strategy B: an on-the-job program for 1300 employees
with a cost 1400 TL. per employee:
Total Cost =1300 x1400 =1 820 000 TL. (for 60 days)
Increase in productivity per worker per day: low : 0.70 x 10 TL. = 7 TL.
Increase in productivity (for 1300 workers): 7 TL. x 1300 = 9 100 TL.
(low)
Increase in productivity per worker per day: high : 0.30 x 30 TL. = 9 TL.
Increase inproductivity (for 1300 workers) : 9 TL. x 1300 = 11 700 TL,
(high
92. Total increase in productivity (for strategy B) :
9 100 TL. + 11 700 TL. = 20 800 TL.
Payback (break-evn) period = Total Cost / Total Benefts
= 1 820 000 / 20 800 = 87.500 workdays
Strategy C: an overseas program for 500 employees costing 3500
TL. per employee
Strategy C Strategy E: take on full burden of cost
Total Cost = 500 x 3500 = 1 750 000 TL. (for 60 days)
Increase in productivity per worker per day: low : 0.20 x 10 TL. = 2 TL.
Increase in productivity (for 500 workers): 2 TL. x 500 = 1 000 TL.(low)
Increase in productivity per worker per day: high : 0.80 x 30 TL. = 24 TL.
Increase inproductivity (for 1300 workers) : 24 TL. x 500 = 12 000 TL, (high
93. Total increase in productivity (for strategy C E ) :
1 000 TL. + 12 000 TL. = 13 000 TL.
Payback (break-evn) period = Total Cost / Total Benefts
= 1 750 000 / 13 000 = 134.615 workdays
Strategy C Strategy F: charge 35 % of cost from employees.
Total Cost = 500 x 3500 = 1 750 000 TL. (for 60 days)
Less 35% x1 750 000 -612 500 = 1 137 500
Increase in productivity per worker per day: low : 0.40 x 10 TL. = 4 TL.
Increase in productivity (for 500 workers): 4 TL. x 500 = 2 000 TL.(low)
Increase in productivity per worker per day: high : 0.60 x 30 TL. = 18
TL.
Increase inproductivity (for 500 workers) : 18 TL. x 500 = 9 000 TL,
(high
94. Total increase in productivity (for strategy C F ) :
2 000 TL. + 9 000 TL. = 11 000 TL.
Payback (break-evn) period = Total Cost / Total Benefts
= 1 137 500 / 11 000 = 103.409 workdays
Strategy D: a high-technology program for 900 employees costing 3000
TL. per employee
Strategy D Strategy G: take on full burden of cost
Total Cost = 900 x 3000 = 2 700 000 TL. (for 60 days)
Increase in productivity per worker per day: low : 0.30 x 10 TL. = 3 TL.
Increase in productivity (for 500 workers): 3 TL. x 900 = 2 700 TL.(low)
Increase in productivity per worker per day: high : 0.70 x 30 TL. = 21 TL.
Increase inproductivity (for 1300 workers) : 21 TL. x 900 = 18 900 TL, (high
95. Total increase in productivity (for strategy D G ) :
2 700 TL. + 18 900 TL. = 21 600 TL.
Payback (break-evn) period = Total Cost / Total Benefts
= 2 700 000 / 21 600 = 125.000 workdays
Strategy D Strategy H: charge 35 % of cost from employees.
Total Cost = 900 x 3000 = 2 700 000 TL. (for 60 days)
Less 35% x2 700 000 -945 000 = 1 755 000
Increase in productivity per worker per day: low : 0.50 x 10 TL. = 5 TL.
Increase in productivity (for 500 workers): 5 TL. x 900 = 4 500 TL.(low)
Increase in productivity per worker per day: high : 0.50 x 30 TL. = 15
TL.
Increase inproductivity (for 900 workers) : 15 TL. x 900 = 13 500 TL,
(high
96. Total increase in productivity (for strategy D H ) :
4 500 TL. + 13 500 TL. = 18 000 TL.
Payback (break-evn) period = Total Cost / Total Benefts
= 1 755 000 / 18 000 = 97.500 workdays
!!!İmportant Notice!!!:
Dear Students; this second example is a minimization
problem. So the optimum strategy to be followed is
Strategy B where the payback period is the shortest
value (87.500 workdays).
