1. Show the two-period tree diagram for a customer who last purchased Red Pop. What is the probability that this customer purchases Red Pop on the second purchase? 2. What is the long-run market share for each of these two products? 3. A Red Pop advertising campaign is being planned to increase the probability of attracting Super Cola customers. Management believes that the new campaign will increase to 0.15 the probability of a customer switching from Super Cola to Red Pop. What is the projected effect of the advertising campaign on the market shares?
Management of the New-Fangled Soft drink Company believes that the probability of a customer purchasing Red Pop or the company’s major competition, Super Cola, is based on the customer’s most recent purchase. Suppose that the following transition probabilities are appropriate:
To
From Red Pop Super Cola
Red Pop 0.9 0.1
Super Cola 0.1 0.9
1. Show the two-period tree diagram for a customer who last purchased Red Pop. What
is the probability that this customer purchases Red Pop on the second purchase?
2. What is the long-run market share for each of these two products?
3. A Red Pop advertising campaign is being planned to increase the probability of attracting Super Cola customers. Management believes that the new campaign will increase to 0.15 the probability of a customer switching from Super Cola to Red Pop. What is the projected effect of the advertising campaign on the market shares?
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