Charlotte Rothstein, CEO, major shareholder and founder of Cerebrosoft, sits in
ID: 3323123 • Letter: C
Question
Charlotte Rothstein, CEO, major shareholder and founder of Cerebrosoft, sits in her office contemplating the decision she faces regarding her company's newest proposed product, Brainet. This has been a particularly difficult decision. Braiet might catch on and sell very well. However, Charlotte is concerned about the risk involved. In this competitive market, marketing Brainet also could lead to substantial losses. Should she go ahead anyway and start the marketing campaign? Or just abandon the product? Or perhaps buy additional marketing research information from a local market research company before deciding whether to launch the product? She has to make a decision very soon and so as she slowly drinks from her glass ofhigh protein-power multivitamin juice, she reflects on the events of the past few years. Cerebrosoft was founded by Charlotte and twofriends afterthey had graduated from business school. The company is located in the heartof Silicon Valley. Charlotte and herfriends managed to make money in their second year in business and continued to do so every year since Cerebrosoft was one of the first companies to sell software over the World Wide Web and to develop PC-based software tools for the multimedia sector. Two of the products generate 80 percent of the company's revenues: Audiatur and Videatur. Each product has sold more than 100,000 units during the pastyear Charlotte isinterruptedin herthoughts bythe arrival JeannieKorn. Jeannieisinchargeofmarketingfor on-line products and Brainethas had her particularattention the beginning. She is more than ready to provide the advice that Charlotte has requested. "Charlotte, think we should really go ahead with Brainet. The software engineers convinced me that the current version is robustand wewant to be on the market with this as soon as possible! From the data for our product launches during the past two years we can get a rather reliable estimate of how the market will respond to the new product, don't you think? And look!"She pulls out some presentationslides. "During that time period we launched 12 new products altogether and 4 of them sold more than 30,000 units during the first 6 months alone! Even better:thelasttwowelaunched even sold more than 40,000 copies during the firsttwo quarters!" Charlotte knows these numbers as well as Jeannie does. After all, two of these launches have been products she herselfhelped todevelop.Butshe feels uneasy about this particularproductlaunch. The companyhas grown rapidly during the pastthree years and its financialcapabilities are already rather stretched. A isn't available right now due to the investments Cerebrosoft has recently made poor product launch for Brainet would cost the company a lot of money, something that Later in the afternoon, Charlotte meets with Reggie Ruffin, a jack-of-all-trades and the production manager. Reggie has a solid track record in his field and Charlotte wants his opinion on the Brainet project.Explanation / Answer
a. Given Competition is High, They can sell (50000*0.20 + 30000*0.25+ 20000*0.55)= 28500 units at $50. Hence the total revenue would be, $1,425,000.
Similarly, Given Competition is High,
31000 units would be sold at $40 with total revenue $1,240.000
34500 units would be sold at $30 with total revenue $1,035,000
Given Competition is Medium,
30500 units would be sold at $50 with total revenue $1,525.000
33000 units would be sold at $40 with total revenue $1,320.000
37000 units would be sold at $30 with total revenue $1,110,000
Given Competition is Low,
32500 units would be sold at $50 with total revenue $1,625.000
37000 units would be sold at $40 with total revenue $1,480.000
39500 units would be sold at $30 with total revenue $1,185,000
Now, given the chance of getting high competition is 20%, medium is 70% and low is 10%, we can estimate the sales and revenue at different price points.
at $50, estimated sales=30300 units, estimated revenue= $1,515,000
at $40, estimated sales=33000 units, estimated revenue= $1,320,000
at $30, estimated sales=36750 units, estimated revenue= $1,102,000
Now, since the company has already spend $800.000 and there are short of promotion money and that means tehy need to borrow investment, their target should be maximising revenue by selling the product at a higher price so that the initial cost can be covered up at the earliest.Then they can bother about capturing the market. Given that tehy are already in a steady market share scenerio, they should not be bothered about capturing market right now at the cost of hampering revenue.
b. The performance matrix of the m,arket reasearch company looks like this:
Therefor the overall probability of success is: (80+80+90)/300=0.83 (considereing 100 as base number)
This is quite a high probability of correct prediction and they should be hired.
c. The fixed cost is $800.000 and variable cost is $50,000 per year. Considering they would earn minimum from the product launch, they could pay ($1,102,000- $ 850,000)= $252,000 at max to break even in the first year.
Predicted High Medium Low Actual High 0.80 0.15 0.05 Medium 0.15 0.80 0.05 Low 0.03 0.07 0.90