University Case Study: Clean & Brite New Toothpaste Launch Analysis

This case study analyzes the decision-making process of Clean & Brite Limited regarding the launch of a new toothpaste brand. The study uses Expected Value of Information (EVI), Expected Value of Sample Information (EVSI), and decision probability trees to evaluate the profitability of the new product. The product manager is uncertain about the success of the new product and must determine whether to invest in market research. The analysis reveals that purchasing market information significantly increases expected profits. The study calculates the probabilities of success and failure and determines the optimal range for maximizing profits. The report concludes that Clean & Brite should purchase market research, as the expected profits are maximized when the probability of launching a new product in the market lies between 0.25 and 0.45. The study also provides detailed calculations and a decision tree diagram to illustrate the decision-making process and provides a comprehensive analysis of the financial implications of the decision to launch a new product.

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CASE STUDY: CLEAN & BRITE LIMITED COMPANY
By (Student’s Name)
Course Name
Professor’s Name
University Name
City, State
Date

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Abstract
The study aimed to determine if it is profitable for Clean & Brite to introduce new product
alongside the existing products. The study employed EVI, EVSI, and decision probability trees
to evaluate the profitability of launching a new product. The results showed that the purchase of
information significantly increases the expected profits. Also, the study found out that the
expected (mean) profits are at maximum if the probability of launching a new product in the
market lies between 0.25 and 0.45. Therefore, the probability of success outside the range of 0.25
and 0.45 do not maximize the profits.
Introduction
Clean & Brite is a toothpaste manufacturing company which aims at introducing a new
toothpaste brand in the market. However, the product manager for Clean & Brite limited is not
sure whether introducing a new toothpaste product in the market would be a success. The new
toothpaste product can either succeed or fail. Therefore, it is important to study the expected
market value for each outcome as a way of making an informed decision. This study report
determines the corresponding probabilities of either success or failure for the new brand of
toothpaste from Clean & Brite Limited Company. Moreover, the study report also looks at the
profitability of the new toothpaste brand.
Background Information on the Problem
Clean & Brite estimates earnings of $1800000 in profits from the new product sales if the
launch is successful. In contrast, if the product launch is a failure, Clean & Brite Limited
Company incur losses amounting to $750,000. Regardless of the status of outcome of
introducing a new toothpaste in the market, Clean & Brite Limited Company, the profits from
the sales of the already existing toothpaste products remains unchanged.

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Clean & Brite Limited Company will evaluate the chances of success and failure to
determine if the expected (mean) profits are high enough to allow new product launch in the
market. The product manager of Clean & Brite Limited Company estimates the product launch
will succeed with a probability of 35%. Additionally, Clean & Brite Limited Company can
access market information by buying additional information at a one-off price of $130,000. The
information generated from the market research predicts that the success of the product launch
given that the product is new is 0.8 while the failure of the product launch given that the product
is new is 0.7.
Profit Maximization Strategy
The objective of every profit-making institution is to maximize profits in a financial year
(Brigham & Ehrhardt 2020; Mathur & Rangarajan 2015; Association of Chartered Certified
Accountants 2014). For the product manager to make an informed decision, it is very important
to evaluate the chances of success associated with the introduction of a product or the failure
associated with the introduction of a new product in the market. Firstly, the expected profits are
determined without additional information from the market research. The product manager for
Clean & Brite limited company estimates that the introduction of a new toothpaste product is
successful with a probability or chance of 0.35.
Additionally, the production manager for Clean & Brite limited intends to determine the
expected returns based on additional market information. Since the chances of success after the
introduction of the toothpaste product is 0.35 and using the purchased information, the chance of
success for introducing a new toothpaste product is predicted as 47.50%. Consequently, the
chance of toothpaste launch failure is exactly 52.50%. The table below shows the calculated
probabilities:

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Table 1: A table of the probability of predictions
Event Formula Prediction probability
success probability (0.35*0.8)+(0.65*0.3) 0.475
Failure probability (0.35*0.2)+(0.65*0.7) 0.525
Table: Posterior probabilities
Actual/ Predicted Success Failure
Success 0.5895 0.4105
Failure 0.1333 0.8667
The following decision tree diagram shows the failure and success for all outcomes with and
without additional information. The diagram shows all the possible options for the management
of Clean & Brite Company Limited.

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From the above diagram, the probability or the chance of success for introducing a new
toothpaste is exactly 0.35. If the extra information from the market research is incorporated in
determining the chance of the expected profit, the probability increases from 0.35 to 0.45.
Similarly, the expected profit without information is approximated at $142,000 while the
expected profit taking into consideration information is approximated at $227750. As a result,
Clean & Brite limited company should buy information from the market research. As in the
above diagram, the resultant expected profit from launching a new toothpaste is highest when

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additional information is used in probability prediction of a successful outcome. In contrast, the
resultant expected profit from launching a new toothpaste is lowest when additional information
excluded in predicting the probability of the “failure” outcome.
The possible and recommended Strategies to Clean & Brite limited Company for profit
maximization
Decision Buy Information
Successful product Project launch
Failed product Fail to launch the product
The EVI for purchasing additional information with a probability of 0.35
Availability of information to Clean & Brite Limited Company is of great use but with a
limited range of the probability of success. In this case, purchasing additional information is
useful to Clean & Brite if the chance of success is greater or equal to 0.25. At probabilities below
0.25, the cost of purchasing additional information is uneconomical, thus low benefits. In
contrast, at probabilities above 0.25, the cost of purchasing additional information is economical,
thus higher benefits (McLaney 2006; Hendry 2013).
At a probability of 0.35, the EVI is equal to $227,750. The EVI,) of $227,750,
incorporates the cost of purchasing information, which is estimated at $130,000. The table below
illustrates the EVI from the probability of 0.05 to 0.7.
Table: A table showing EVI from the probability of 0.05 to 0.7
Probability (In decimals)
EVI (In
dollars)
0.05 -130000
0.1 -130000
0.15 -105250
0.2 -22000
0.25 61250
0.3 144500
0.35 227750

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0.4 311000
0.45 394250
0.5 477500
0.55 560750
0.6 650000
0.65 777500
0.7 905000
A graph showing the EVI from a probability of 0.05 to 0.7:
0.05 0.1 0.15 0.2 0.25 0.3 0.35 0.4 0.45 0.5 0.55 0.6 0.65 0.7
-200000
0
200000
400000
600000
800000
1000000
EVI at various values of p
Probability
EVI ($)
As per the above chart, the EVIs for probabilities below 0.25 are negative while the EVIs
for the probabilities above 0.25 are positive. According to the graph showing the EVI from the
probability of 0.05 to 0.7, the usefulness of purchasing information is limited to actual
probabilities of success above 0.25.
EVSI when probability value is 0.15(QC)
At the probability of 0.15, the EVSI is -$105,250. Similarly, the EVSI values for probabilities
0.1, 0.15, and 0.2 are negative. Therefore, the EVSI for all the probabilities below 0.25 is
negative. Thus it is uneconomical to purchase information for probabilities of success below 0.25

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(Tidd 2014; Herschung, Mahlendorf & Weber 2018; Platt 2012; Stiglic et al. 2012). The EVSI I
table below shows EVSI value (inclusive of the cost of information) for the probabilities between
0.05 and 0.70.
Table: A table showing the Expected Value of Sample Information (EVSI)
Probability
(In decimals) EVI (In dollars)
EV Without
information EVSI
0.05
$
(130,000) -
$
(130,000)
0.1
$
(130,000) -
$
(130,000)
0.15
$
(105,250) -
$
(105,250)
0.2
$
(22,000) -
$
(22,000)
0.25
$
61,250 -
$
61,250
0.3
$
144,500
$
15,000
$
129,500
0.35
$
227,750
$
142,500
$
85,250
0.4
$
311,000
$
270,000
$
41,000
0.45
$
394,250
$
397,500
$
(3,250)
0.5
$
477,500
$
525,000
$
(47,500)
0.55
$
560,750
$
652,500
$
(91,750)
0.6
$
650,000
$
780,000
$
(130,000)
0.65
$
777,500
$
907,500
$
(130,000)
0.7
$
905,000
$
1,035,000
$
(130,000)
The EVSI values are positive for the probabilities between 0.25 and 0.4
Calculation of EPVI when the probability is 0.35

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In most cases, not every information from research companies is perfect or accurate. As a
result, the purchased information should be used conservatively. For instance, the chances of
either success or failure are pegged on a certain range; otherwise, the information does not
maximize the profits. Clean & Brite would have used all the information from the market to
maximize returns if the information was perfect. For instance, if the information available to
Clean & Brite is perfect, the chances of either success or failure are correctly predicted at 1. The
corresponding EVPI for either success is $487,500 at a probability of 0.35. It is worth noting that
the EVPI is exclusive of the cost of purchasing information which is approximated at $130,000
Expected Profit for Perfect information 500000
Expected Profit for Perfect information 142500
Difference between the Expected value 357500
EVPI 487500
Conclusion
Market research information is quite important in business strategizing. Access to insider
information gives a company a cutting edge compared to its competitors (Gould 2019; D’Auria,
Martí & Salmerón 2017; Martin & Hafer 2017). Moreover, purchasing additional information
from market research increase a company’s competitiveness and an upper hand in determining
the chance of either success or failure. Additionally, access to information from the market
allows companies management to determine the expected profits which could result from taking
one strategy at the expense of other strategies.
From the results of the research study, Clean & Brite should decide to purchase of
information since the access to information significantly increases the expected profits.
However, the strategy of purchasing additional information is restricted to the value of the
probability of success for launching a product in an existing market. The expected (mean) profits

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are maximized if the probability of launching a new product in the market lies between 0.25 and
0.45. According to the study, the probability of success outside the range of 0.25 and 0.45 do not
maximize the profits.

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Reference List
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