A risk tolerant approach to the dilemma of which toy to sell means that the toy company is willing to absorb more risk in return
A risk tolerant approach to the dilemma of which toy to sell means that the toy company is willing to absorb more risk in return for a chance for a higher payoff (Sharpe et al., 2019). It is a gamble with either choice, but, the maximum profit potential is with the selling of toy number one. If the goal is to be successful, the most success is with the most potential profit. Selling toy number one provides the most potential profit.
Toy number one has no competition and is new to the market. If it flops, it will not be bought by parents or other people and the company loses money. Or, there may be a low amount of sales which also is considered unsuccessful. If it succeeds, it will have great sales and it will make a lot of money. If its performance is mediocre, the sales will be moderate or average and it will make a small or moderate profit for the toy company.
Toy number two has competition and is not new to the market. if it flops, it will not make money for the toy company. This is not likely since there is demand for it and it is known to the market. If it succeeds, it will have above average sales and greater demand. The success of the toy will be tied to two other companies, so the profit potential is less than if it were the only company offering the toy. If its performance is mediocre, the sales will be moderate or low and it will make a small or moderate profit for the toy company.
Even if the toy company were to experience great success with toy number two, the profits will be shared with two other companies. Selling toy number two is most likely to have a small or moderate amount of sales. There is no possibility to be the leader or the only company making money from it. The profit potential is less than selling toy number one. A known toy with prior demand being highly successful is not likely. At most, moderate profits can be expected to be made even if the toy itself is highly successful. It can be argued that this is the better option since it offers steady profits over the unknowingness of having a new product introduced to the market. Or, is it?There is a 50/50 chance of toy number one being successful or unsuccessful. There is also the same chance with toy number two. While it is known that toy number two is in demand and has been in the market, it is unknown if it will be successful or not. Suppose toy number two has great success in the market. There was a 50/50 chance that it would. But, that 50/50 chance is split with two other companies. Instead of there being a 50/50 chance of the toy company having success or failure, it now has a 17% chance of success or failure because 2/3rd of the potential profits will go to other companies. The toy company can use the other two company’s success to help advertise their own product further increasing profits for everyone. Any profits gained will be less than if they provided the only toy available. Providing toy number one to the market offers the maximum profit potential. It is not without risk, but, both toys offer risk. Offering toy number one is the only option that gives the toy company the opportunity to be greatly successful. The lack of market competition would mean all profits made would benefit the toy company. The outcome or payoff is the greatest with providing toy number one to the market. Toy number one’s failure would mean a loss of profit for the toy company, a moderate profit for the toy company, or a small profit for the toy company. Toy number one’s success would maximize profits for the toy company. Since the goal is to be successful, it makes sense to go with the option that provides a way to be the most successful.
Additional data needed to provide actual numbers for this situation would be toy sales and consumer behavior for previous years and market research regarding both toys. Also, information about the competition as well as the market itself would be helpful. Things like total sales of toys, what kind of toys are selling the most, and consumer spending attitudes around the holidays could also be used to determine the optimum profit potential. Using each situation and estimating the amount of profits that could be obtained to predict future sales would provide additional information. This could be used to confirm the decision to sell toy number one instead of toy number two.
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