Page 40 - DMGT209_QUANTITATIVE_TECHNIQUES_II

Unit 2: Introduction to Research

iii. Why did the customer turn to the competitor's product? Notes

iv. Is the researcher contacting the right target audience?
4. Stating the alternatives: The researcher would be better served by generating as many
alternatives as possible during the problem formulation hypothesis.

Example: Whether to introduce a sachet form of packaging with a view to increase sales.
The hypothesis may state that acceptance of the sachet by the customer will increase the sales by
20%. Thereafter, the test marketing will be conducted before deciding whether to introduce the
sachet variant. Therefore, for every alternative, a hypothesis has to be developed.

2.9.1 Evaluate the Cost of Research

There are several methods to establish the value of research. Some of them are (1) Bayesian
approach (2) Simple saving method (3) Return on investment (4) Cost benefit approach.

Example: Company 'X' wants to launch a product. The company's intuitive feeling is
that the possibilities of the product's failure are 35%. However, if research is conducted and
appropriate data is gathered, the chances of failure could be reduced to 30%. The company has
calculated that losses would be to the tune of 3,00,000 if the product fails. The company has
received a quotation from an MR agency. The cost of the intended research is 75,000. The
question is: "Should the company spend this money to conduct the research?"
Calculation:

Loss without research = 3,00,000 × 0.35
= 1,05,000
Loss with research = 3,00,000 × 0.30

= 90,000
Value of research information

= 1,05,000 – 90,000
= 15,000
Since the value of information, namely 15,000 is lower than the cost of research, i.e., 75,000,
conducting this particular research is not recommended.

Example: Company 'A' would like to introduce a new product in the market. The research
agencies have given an estimation of 5 lakhs and a time period of five months. According to
the past experience of the company, the probability of earning 10 lakh is 0.4 and 5 lakh is 0.3
and losing 7 lakh is 0.3. Should the company undertake the research?

Calculation:
0.4 × 10 + 0.3 × 5 – 0.3 × 7 = 4 + 1.5 – 2.1 = 3.4 lakh
Since we find that the expected value of information i.e. 3.4 lakh, less than the cost of M.R at
5 lakh, there is no need to carry out this research.

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