The Sensual Cosmetic Co. has developed a new perfume which management feels has a tremendous potential. It not only interacts with the wearer's body chemistry to create a unique fragrance but is also especially long-lasting. A total of $ 10 bn. has already been spent on its development. Two marketing plans have been devised: (a) The first plan follows the company's usual policy of giving small samples of the new products when other items in the company's product lines are purchased and placing advertisements in women's magazines. The plan would cost $ 5 bn. and it is believed that it might result in a high, moderate, or low market response with probability of 0.2, 0.5, and 0.3, respectively. The net profit excluding development and promotion costs in these cases would be $ 20 bn., $ 10 bn., and $1 bn., respectively. If it later appears that the market response is going to be low it would be possible to launch a TV advt. campaign. This would cost another $ 7.5 bn. It would change the market response to high or moderate as previously described but with probability of 0.5 each. (b) The second marketing plan is much more aggressive than the first. The emphasis would be heavily upon TV advertising. The total cost of this plan would be $ 15 bn., but the market response would be either excellent or good, with probabilities of 0.4 and 0.6, respectively. The profit excluding development and promotion costs would be $ 30 bn. and $ 25 bn. for the two outcomes.
