Would that change your first choice

Assignment Help Management Theories

Reference no: EM133674584

Question: Customers are concerned with three attributes in evaluating a vehicle:

performance (time in seconds to get from zero to 60),
quality (# problems per hundred vehicles), and
fuel efficiency (miles per gallon)

Performance Quality Problems Efficiency
Malibu 7.1 138 24
Camry 6.5 123 27
Fusion 6.8 165 25
Accord 7.3 170 30

Exercise:
Please answer the following questions:

(a) Calculate the normalized score using the following steps:

Calculate the difference between the worst score on each attribute and the best score on each attribute. Performance is measured by the time in seconds required to get from 0 MPH to 60 MPH. Since lower zero to sixty time is better, the best score on performance is the Camry's score while the worst score is the Honda's. Since higher fuel efficiency is better, the best score on fuel efficiency is the Honda's while the worst score is the Malibu's. (Do not worry if the difference is sometimes negative. The normalization will correct for it. You should also not worry if the difference between worst and best for raw scores is sometimes positive and sometimes negative. In calculating swing weights, you will not use the difference between raw scores. )
For each vehicle's attribute, calculate the difference between the vehicle score for each attribute and the best score (you will have a 4x3 matrix). Label the vehicle with the 2nd and 3rd worst score for each attribute.
Using the two points above, calculate the normalized score for each of the four levels associated with each attribute.
Suppose that marketing staff finds that the willingness to pay to go from the worst score to the best score on performance is $5,000, the willingness to pay to go from the worst score to the best score on quality is $8,000, the willingness to pay to go from the worst score to the bests score on fuel efficiency is $10,000

(b) Calculate the swing weight for each attribute using the marketing information

(d) Determine the best choice

Suppose that marketing staff indicates that the estimated willingness to pays for performance, quality and fuel efficiency could be in error.

(e) How much (if any) increase in the willingness to pay (in $) for performance would lead you to choose a different vehicle as your best choice ? (Note that a change in the WTP for performance will change the sum of the WTP's for all attributes and thus the swing weights.) How much (if any) decrease in the willingness to pay for performance would lead you to choose a different vehicle as your best choice

(f) Now suppose performance was fixed at its original value. How much (if any) increase in the willingness to pay (in $) for quality would lead you to choose a different vehicle as your best choice ? How much (if any) decrease in the willingness to pay for quality would lead you to choose a different vehicle as your best choice

(g) Now suppose performance and quality were fixed at their original values. How much (if any) increase in the willingness to pay (in $) for fuel efficiency would lead you to choose a different vehicle as your best choice ? How much (if any) decrease in the willingness to pay for fuel efficiency would lead you to choose a different vehicle as your best choice .

Hint for Question (e), (f), and (g):

There is currently a product with the lowest score. For (e), you are asked to increase the WTP for performance (without changing the WTP for other attributes) until a different product has the lowest score. Note that the WTP range might change which changes the swing weight. Write down the minimum increase in the WTP for performance that changes the product with the lowest score. Then return the WTP for performance back to its original value. This time, decrease the WTP for performance until a different product has the worst score.

The easiest way to do is this question is through excel:

You set the WTP range as the total of WTP for all the attributes.
The swing weight for each attribute is set a function of the WTP for each attribute divided by the WTP range (If you change the WTP for each attribute, the swing weight will also change).
The weighted average for each vehicle is the sum of the swing weight multiplied by the normalized score for each attribute.
You could solve this as an optimization problem by defining constraints so that the weighted average score for the current best choice cannot exceed the willingness to pay score for another other choice and then maximizing the amount of change you can make in willingness to pay without violating that constraint.

Alternatively, you can then change the value of WTP for each attribute (performance for example) manually and see how it can affect each vehicle score. Try to get to the closest to the exact value possible that will result in a new best option.

(h) Suppose the score of the Fusion on problems per hundred improved from 165 to 123 (the Camry level). Would that change your first choice vehicle? Please do not change the formula which you used for calculating normalized scores and swing weights --- even if there were based on the old Fusion. Changing the score attached to the Fusion should not change the scores attached to other vehicles.

(i) Suppose the score of Fusion on problems per hundred is still 165. Suppose you improved the score of the Fusion on the performance to the best score (3.1). Would that change your first choice? If so, what is the minimum change in performance required to change your first choice

Reference no: EM133674584

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