Question

Sample Scenario: You are a small business owner who is seeking to grow your business's revenue. You own a bakery, called The Barkery, specializing in making homemade and nutritious dog treats. You make the treats yourself, you manage the small brick-and-mortar shop when it's open, and with what time is left, you go into the community to increase brand awareness. Currently you are considering hiring a part-time salesperson who will focus on a reseller channel (indirect sales channel): Business-to-consumer (direct sales channels, "direct to consumer"): selling treats in your store; selling the treats online. Business-to-business (indirect/intermediary sales channel): selling your treats to other businesses who will then resell your treats to their own customers. Pet stores, dog groomers, and even pet shelters may be interested to buy your treats and then resell them to their customers for a profit. Unfortunately, the reseller channel requires that you sell your treats to resellers for a discount compared to retail prices. You will pay the part-time sales person $10/hour plus 3% commission on all sales. Should you hire a part-time salesperson for an indirect channel? If you do hire one, you'll do a 90-day probationary period. If s/he isn't performing to your expectations, then you may let her go. You know that good workers are hard to come by, and also that selling to indirect channels is challenging. You also know that she will have a learning curve of about 90 days. Once up the learning curve, s/he should be able to sell more. Base pay = $10 * 12 weeks * 20 hours = $2,400. Consider this expense and subtract it from each end node. In the first 90 days, you want this salesperson to bring in revenue to at least cover base pay. Decision 1: hire a part-time sales person Possible outcomes: 1. Performs below expectations: $1,000 in revenue @ 20% chance 2. Meets expectations: $2,400 in revenue @ 60% chance 3. Exceeds expectations: $3,000 in revenue @ 20% chance Decision 2: Do not hire a part-time sales person • Outcomes: no risk, no uncertainty, no expenses. Draw a decision tree to include outcomes/states of nature and their probabilities, and payoffs. Calculate EMV and place it appropriately in your decision tree. Considering both the EMV and other factors, should you hire the part-time salesperson? Explain your answer and list any factors you considered when answering this question.

Answer 1

May '98 ANSWER Friday b) l' 1000 - $24.00) 20% $400x20). =$-280 $1000 30 Gio $24601 601) $2000 - $ 2400) xbile 300020 EMV - 280+0+120 Hire a part-time GPU = $ -60 Hire of no to live = ($3000 – $ 2400)x20% = $600X207. Do not hire a part- me sales person Saturday Considering both the EMV's ise. at when we hire a sales person EMV is $-160 and at when we do not hire a sales person EMV so, We should not hire the part time sales person case EMV is negative. as in that SUNDAY 3 MTWTFSS 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 JUN'98