Product Design and Sales Predictions (45 points)

CleanAir Controls is evaluating the opportunity to enter the US air pollution control system market with one or more offerings. Tighter environmental regulations have created this opportunity. There are currently three major competitors in the US that differentiate themselves along four major attributes: efficiency, delivery time, price, and delivery terms (see Table 3). The challenge for CleanAir is to determine what new product(s) to offer, to which market segment(s), and with what selling proposition(s), in order to achieve success in the US market. You will need to justify the recommended entry strategy by demonstrating forecasted marginal contributions in excess of $4 million per year to support the new offering(s).

Through other divisions, the firm has good access to US distribution channels. Most importantly, through some closely related divisions, it has an extensive network of US-based service representatives who can be called upon to provide a higher level of service to their customers and prospects in this marketplace. CleanAir also has reason to believe that its product is less likely to need costly service than those of competitors. In fact, some of its product development engineers and managers have been urging CleanAir to consider a warranty of up to 2 years. However, the company has little understanding of how much customers would be willing to pay for such a warranty (60 days was industry standard).

The most popular size and capacity for a system is 50,000 SCFM (Standard Cubic Feet per Minute); it is a basic design decision across all offerings. Market research indicated that there would be annual demand for about 300 units of that size in the US over the next decade or so. Thanks to new technical developments in Germany, CleanAir is able to credibly offer a system that exceeds regulation specification by up to 9%.

Initially, it was thought that a “Base Model” was the best way to begin understanding how the US market operated. Some team members, however, argued that an even more rudimentary product but with a 2-Year warranty (Servair DX) could be more profitable. It would also open the possibility for a product to compete with Thermatrix, using CleanAir’s service network (Premier LX). This option would be considerably more expensive and launching more than one product would result in an additional fixed cost of $3 million. In the end, CleanAir settled on three options for consideration to be launched in the US market (see Table 4).

To help guide its market entry decisions, the company decided to conduct a conjoint analysis study to understand the important tradeoffs that potential customers make in purchasing such air cleaning systems. The objective of the conjoint study was to identify attractive target segments and the kinds of features that customers in those segments would prefer to have in the new system. It was to be a main source of information support for the business case that the team was asked to make (see Table 5 for the different attribute levels used in the study). The estimated cost implications of different attribute options relative to the base option of the “Base model”, which was estimated to cost $500,000, are shown in Table 6.

The conjoint study collected data from 31 companies, a representative sample of the target industries for the offering, focusing heavily on the food and energy sectors. Their responses could be used to make volume and profit estimates. Table 7 shows the part-worth estimates for the entire sample. Tables 8 to 10 show the predicted market shares for different options based on the conjoint analysis results.

Using the individual part-worths, the market research company segmented the respondents and identified two clear segments. Most firms in Segment 1 are in the Energy industry (35% of customers); many of those in Segment 2 are in the Food industry (65% of customers). Segment 1 firms are much larger (in terms of sales and number of employees), and more profitable, with the purchasing decision process dominated by Finance and Purchasing. In contrast, Segment 2 firms are faster growing, and the purchasing decision process is dominated by Top Management and by Engineering. The part-worths for the two segments in Table 11 show shows that Segment 2 firms seek a system that clearly exceeds EPA requirements and values having it installed quickly. Segment 1 firms are far more concerned about financial issues. The predicted market share for a targeted approach with different products for the two segments are shown in Table 12.

Questions

1. What are the contribution margins for the three different options shown in Tables 4 and 6? (3 points)
2. What are the importance weights of the different attributes for the average customer based on the results in Table 7? (5 points)
3. The market research company used a ‘first-choice rule’ to predict market shares from the conjoint results. Given the type of product market, is this rule appropriate or not? Explain. (5 points)
4. How would you use the market share results shown in Table 8? (3 points)
5. If CleanAir launched only one option of the three under consideration, which one should it launch, given the results in Table 9? Why? (7 points)
6. Would it make sense for CleanAir to launch both Servair DX and Premier LX, given the results in Table 10? Why? (5 points)
7. Is a targeted approach preferred to launch either just one option (part e) or two options without segmentation (part f) given the results in Table 12? Why? (5 points)
8. Given the results in Table 11, what is the $-value of 2-year warranty over a 1-year warranty for segment 1 and segment 2 customers, respectively? Should CleanAir offer a 2-year warranty, a 1-year warranty or no warranty (service contract only) in any of the options? Why (7 points)
9. As Thermatrix, how would you react to your proposed entry strategy for CleanAir? Why? (5 points)

 

 

 

Table 3: Current Products in the US Market

Competitor	Efficiency	Delivery Time	Price	Delivery Terms
Wastewatch	Exceeds Specs by 5%	9 Months	$600K	FOB with Service Contract
Thermatrix	Exceeds Specs by 9%	12 Months	$900K	FOB with Service Contract
Advanced Air	Meets Specifications	9 Months	$600K	Installed with Service Contract

FOB = “Free on Board” and means the buyer pays for delivery. “Installed” means the supplier pays for delivery.

Table 4: Considered New Product Options for US Market

Model	Efficiency	Delivery Time	Price	Delivery Terms
Servair DX	Meets Specifications	15 Months	$900K	Installed with 2-Year Warranty
Premier LX	Exceeds Specs by 9%	12 Months	$900K	Installed with Service Contract
Base Product	Exceeds Specs by 5%	12 Months	$700K	Installed with Service Contract

Table 5: Attribute Levels for Conjoint Study

Efficiency	Delivery Time	Price	Delivery Terms
Exceeds Regulation Target (Specification) by 9%	6 Months	$600K	Installed with 2-Year Warranty
Exceeds Regulation Target (Specification) by 5%	9 Months	$700K	Installed with 1-Year Warranty
Meets Regulation Target (Specification)	12 Months	$800K	Installed with Service Contract
Short of Regulation Target (Specification) by 5%	15 Months	$900K	FOB, with Service Contract

Table 6: Incremental Cost Estimates of Different Attribute Levels

Efficiency	Incremental Cost	Delivery Time	Incremental Cost	Delivery Terms	Incremental Cost
Exceeds by 9%	+$170K	6 months	+$40K	Installed, 2-Year War.	+$300K
Exceeds by 5%	Base Product	9 months	+$20K	Installed, 1-Year War.	+$100K
Meets Specs	–$70K	12 months	Base Product	Installed, w/Contract	Base Product
Short by 5%	–$90K	15 months	–$10K	FOB	–$100K

Table 7: Part-Worth Results of Conjoint Study

Attribute	Attribute Level	Average	Std dev.	Minimum	Maximum
Efficiency	Exceeds by 9%	27.3	13.2	6.0	52.0
	Exceeds by 5%	16.9	10.9	2.0	40.0
	Meets specifications	8.4	7.6	0.0	40.0
	Short by 5%	0.0	0.0	0.0	0.0
Delivery	6 months	31.2	13.3	10.0	55.0
Time	9 months	19.1	10.5	5.0	45.0
	12 months	9.2	5.6	2.0	20.0
	15 months	0.0	0.0	0.0	0.0
Price	$600K	18.6	12.6	2.0	50.0
	$700K	12.6	10.3	0.0	38.0
	$800K	6.4	5.8	0.0	25.0
	$900K	0.2	0.6	0.0	3.0
Delivery	Installed, with 2-year warranty	20.4	11.1	3.0	45.0
Terms	Installed, with 1-year warranty	13.9	9.0	3.0	40.0
	Installed, with service contract	5.6	3.7	0.0	16.0
	FOB, with service contract	0.0	0.0	0.0	0.0

Average:                Average part-worth for all respondents

Std.Dev.:               Standard deviation of part-worth over all respondents

Table 8: Market Share Results for Current Options

	Wastewatch	Thermatrix	Advanced Air
Predicted	48.9%	5.4%	45.7%
Actual	50.0%	5.0%	45.0%

Table 9: Predicted Market Share Results with New Products Added

	Wastewatch	Thermatrix	Advanced Air	New product
Base predictions	48.9%	5.4%	45.7%	N/A
…with Servair DX	44.6%	4.3%	38.2%	12.9%
…with Premier LX	43.8%	0.8%	34.1%	21.2%
…with Base model	45.7%	5.4%	39.2%	9.7%

 

 

Table 10: Predicted Market Share Results with Two Products Added

	Wastewatch	Thermatrix	Advanced Air	Servair DX	Premier LX
Prediction	39.8%	0.0%	30.1%	12.9%	17.2%

Table 11: Part-Worth Results by Segment

Attribute	Attribute Level	Population	Segment 1	Segment 2
Efficiency	Exceeds by 9%	27.3	15.6	32.1
	Exceeds by 5%	16.9	6.1	21.3
	Meets specifications	8.4	4.2	10.0
	Short by 5%	0.0	0.0*	0.0*
Delivery	6 months	31.2	17.3	36.8
Time	9 months	19.1	10.1	22.8
	12 months	9.2	6.4	10.3
	15 months	0.0	0.0*	0.0*
Price	$600K	18.6	28.6	13.6
	$700K	12.6	20.3	8.8
	$800K	6.4	5.8*	6.7*
	$900K	0.2	0.0*	0.4*
Delivery Terms	Installed, with 2-year warranty	20.4	29.3	16.8
	Installed, with 1-year warranty	13.9	19.6*	11.6*
	Installed, with service contract	5.6	4.33*	6.09*
	FOB, with service contract	0.0	0.0	0.0

* not significantly different between segments

Table 12a: Predicted Market Share Results for Segment 1

	Wastewatch	Thermatrix	Advanced Air	Servair DX
Prediction	5.6%	0.0%	61.1%	33.3%

Table 12b: Predicted Market Share Results for Segment 2

	Wastewatch	Thermatrix	Advanced Air	Premier LX
Prediction	53.8%	0.0%	17.4%	28.8%

Lab Assignment #3
Kirby-Bauer Antimicrobic Sensitivity Testing

Background Information – (Please open and use the LAB NOTES for Kirby-Bauer Sensitivity Test from the weekly notes), also refer the appropriate chapter in the book.

The Kirby-Bauer Test is routinely used in clinical labs to test the efficacy of various antibiotics against microbes. In this procedure, using a sterile swab, a large size agar plate is inoculated with a predetermined known culture. The agar is called Mueller-Hinton Agar, and it is specifically used for this kind of testing. Small paper discs impregnated with an antibiotic are then placed around the plate and the plate is incubated overnight. There may be up to 12 different discs, each is abbreviated with the name and dosage of an antibiotic. The next day one will see a blanket of bacteria over the plate and possibly clear circles around some or many of the discs where the bacteria has been inhibited by the given antibiotic. These circles are referred to as a “Zone of Inhibition”.
Each of the zones are measured in millimeters and recorded. Then one must look up each antibiotic alphabetically on the Sensitivity charts (3 pages) within the chapter and compare the measured result to the reference numbers to determine which column (Resistant, Intermediate or Sensitive) that each particular antibiotic falls under. You will see that every antibiotic has different reference zone size numbers so that’s why you need to do them individually. When you are done you can easily compare the efficacy of the different antibiotics to see which are the most or least effective. Doctors will routinely order this kind of test for their patients, especially if there is a recurring infection and if they need to switch antibiotics for other reasons.
Please pay attention to “the factors which affect zone size” in the Notes because it is very important that the inoculations are done properly for this procedure.

Questions:

1) Here are some hypothetical results for the following antibiotics. Use the charts in the book to determine the zone ratings (Resistant, Intermediate, Sensitive) for the following disc measurements first for Staphlococci and second for Enterobacteriaceae.

Antibioitic Measured Zone Size Rating- Staph/ Enterobac
Am- 10 14mm
CF-30 24mm
E-15 18mm
Va-30 23mm
S-10 17mm
P-10 13mm
G-10 11mm
B-10 0 mm

2) If you have a plate with no zones what does that tell you about the importance of this organism? Consider your response from both the patient and an epidemiological perspective. Have you heard of such a thing? Yes…..so give an example.

3) If you left the plates about 8 or more hours in the incubator, what would it do to the zone sizes and results?

4) What zone effects would you get by putting too heavy or light amount of bacterial inoculum on the plates?

5) Why is this method universally used for epidemiological studies across the country?

6) Your patient has a bad infection but is allergic to Penicillin so therefore the doctor would categorically reject which other antibiotics for the patient? Why?

Below is an actual Mueller-Hinton Agar plate already incubated so you can see the growth and the zones of inhibition. For simplicity the discs are actually alphabetized not abbreviated.

These are the Kirby Bauer results for Escherichia coli isolated from a urine culture.
A. Novobiocin
B. Amikacin
C. Chlorophenicol
D. Vancomycin
E. Ciprofloxacin
F. Cephalothin

Using the sensitivity charts in the chapter, please determine whether this member of the Enterobacteriacae is Susceptible, Intermediate, or Resistant to the previous drugs?

Ass1
Survival Analysis
Question 1 The following are survival times for two treatment groups, * indicates a right censored observation. All subjects are entered at time 0.
ID Group Time 1 Placebo 1 2 Placebo 2 3 Placebo 7* 4 Placebo 8 5 Placebo 12 6 Drug 4 7 Drug 6* 8 Drug 9 9 Drug 10 10 Drug 13

a. Determine by hand or Excel the Kaplan-Meier survivalfor the Placebo group.Include an intermediate calculation.

b. Determine by hand or Excel the Log rank test statistic.Use a table and show at least one intermediate calculation.

c. Determine the risk set (this means the ids of the subjects) at time=10 and the corresponding term in the partial likelihood assuming that the data is coded Placebo=0 and Drug=1 and the parameter is β .

d. If the subject with id 10 was entered at time=11, that is there is delayed entry, how would this change the results of (c).

Question 2 The following data set (dialysis.csv) concerns the survival of patients after starting peritoneal dialysis. [Dialysis is a blood filtering treatment that replaces the function of the kidneys. Dialysis is started when an individuals kidneys stop working]. The interest is in modelling the time to death, but we will also do one analysis for transplant. This is not real data but is based on a real data set.

Variable Description id Patient Identify stat1 Status at end of followup (0=Dead, 1=Dialysis, 2=Transplant, 3=Lost to Followup) yrstotal Total years of followup gender Gender (1=Male,0=Female) diabetes Diabetes (1=Yes, 0=No) startyr Year started dialysis age Age starting dialysis
Analyses should be performed in Stata. a. Death i. Setup the data for survival analysis for death as the event, that is stat1=0 with all other outcomes considered censored.Show the command.Note:Think about what the value for censoring should be. ii. Using the covariate age,categorize into 3 equal,as possible,groups.Produce a Kaplan-Meier plot for each age group.Comment. iii. Determine the median survival with 95% CI for each age group.Why can’t the median survival be obtained for the lowest age group? iv. Determine the survival at 10 years with 95% CI for each age group. v. Perform a logrank test, and a test for trend for age group. Comment. vi. Fit a Cox model for age group and test for evidence of an effect of age group using a Wald test. vii. Using the covariates continuous age and diabetes, fit a Cox model, produce a table of results suitable for publication (suitable for publication means correctly formatted with irrelevant output removed and appropriate p -values), and comment including interpreting the results. b. Fit a Cox model for transplant as the event,with all other events as censoring with covariates continuous age and diabetes and comment on the results. Question 3 A cumulative density function is given by
F ( t ) =(1 − p ) (1 − e − λtt ) (1 − θee − λtt )
t > 0; λt > 0; 0 < θe < 1; 0 < p < 1
a.hence derive S(t), f(t) and h(t). b.Graph f ( t ) ,
S ( t ) and h ( t ) for λt = 1 You should produce 2 sets of g r a p h s . The first should hold p fixed at 0.5 and show 3 values of θe , 0.1, 0.5, 0.9 and the second should hold θe fixed
at 0.5 with 3 values of p , 0.1, 0.5, 0 . 9 . H i n t : You may use any method, but this is easiest done in R or STATA (Excel may work as well) by defining functions for each and then them eg:
3
t <- seq(0,5,0.01) f <- function(t,p,theta,lambda) { return(????) } plot(t,f(t,0.1,0.5,1),ylim=c(0,2),type=”l”,col=”red”) c. Describe the effect of parameters p and θe , assuming λt fixed.

Questions for the article analysis

(Explain or defend your answers using the appropriate relevant chapter knowledge)

1. Is the general purpose of the study clear? Will the study provide a significant contribution?
2. Is the specific research hypothesis or question clearly and concisely stated?
3. Is the method of sampling clearly pre­sented? Could the way the sample was obtained influence the results?
4. Is there anything in the procedures for collecting the information, or in the instru­ments themselves, that could bias the re­sults or weaken the study?
5. Do the conclusions and interpretations follow logically from the results presented? Are unwarranted causal conclusions made from correlations or comparisons? Are lim­itations indicated?