Jeppetos is a local toy store that wants to decide how many units of fidget spinners to order from their overseas wholesaler Fun Toys Inc. You are acting as the retailer Jeppetos.
The retail price of the toy is $10. Your marketing group is working hard to get Kimye, a massive celebrity, to post a snapchat showing them using the fidget spinner. It is still unclear whether you will manage to get Kimye to do it.
Both you and the wholesaler have access to the same forecasting model, which says that if Kimye posts the snap, then the demand is going to be 10,000 with a standard deviation of 3000. If Kimye does not, then the demand is going to be 7000 with a standard deviation of 2000.
You just learned that Kimye will endorse the product! So the demand is now 10,000 with a standard deviation of 3000. Remember that the wholesaler does not know this information.
Since the wholesaler Fun Toys Inc. is based overseas, you do not know their cost structure. But you are fairly sure that they have a cost of $3 or $6 per unit.
Your job is to negotiate a contract with the wholesaler to maximize your expected profit. You can do this by:
Jeppetos is a local toy store that wants to decide how many units of fidget spinners to order from their overseas wholesaler Fun Toys Inc. You are acting as the wholesaler Fun Toys Inc.
The retail price of the toy is $10. Jeppetos marketing group is working hard to get Kimye, a massive celebrity, to post a snapchat showing them using the fidget spinner. It is still unclear whether they will manage to get Kimye to do it.
Both you and the Jeppetos have access to the same forecasting model, which says that if Kimye posts the snap, then the demand is going to be 10,000 with a standard deviation of 3000. If Kimye does not, then the demand is going to be 7000 with a standard deviation of 2000.
While Jepetto's does not know your cost structure, you know that your per unit cost is $3.
Your job is to negotiate a contract with the retailer Jeppetos to maximize your expected profit. You can do this by: