Reference no: EM133327743
Case Study: In Western markets, sales were currently stagnant, so the company's CEO was considering entering the African market. The population in Africa is expected to increase from the current 1.3 billion people to 2.5 billion in the year 2050. The population of Nigeria is expected to increase from 225 million to 400. With these perspectives, Nigeria was the country to consider.
The problem in Africa was a poor supply chain that could make entry into the continent a failure. The team in charge of analyzing the entry into new markets estimated that there was a 60% chance that the entry would be successful, in which case it was expected a profit of $800 million, and a 40% chance that the entry would be a failure, in which case the losses would be $350 million.
Using the information provided so far, answer these questions:
Is it appropriate to use the expected value criterion in this decision, why or why not?
Should Creative Chocolates enter the Nigerian market?
What is the value of perfect information on whether the entry into the Nigerian market will be a success or failure?
What should be the probability of a successful entry to Nigeria that makes you change the decision taken in b)?
CC would consult with the company with which he works to do market research. This company would tell you if your entry into Nigeria was going to be a success or a failure. But this information is not perfect. It has 90% accuracy. When the company predicts success, it is right 90% of the time and when it predicts failure it is also right 90% of the time.
Question: Answer now the following questions:
- Would you pay 150 million for that market research?
- If the market research firm predicts success, what is the probability that the entry into the Nigerian market will be successful?
- If the market research firm predicts a failure, what is the probability that the Nigerian market entry will be a failure?
- What is the value of the information provided by the market research company?