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Question 133 - CBDA discussion

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A company wants to run a monthly promotion on batteries that cost 15 cents each and sells for 50 cents. At this price, they typically sell 1000 batteries and generate a profit of 35 cents per battery for a total profit of $350. The analytics team was asked to test two price points - 20% off (i.e. a sale price of 40 cents) and 40% off (i.e., a sale price of 30 cents). The survey data completed by 10000 participants was analyzed and showed that a 20% savings would result in sales of 1200 batteries and the 40% savings would result in 1800 batteries being sold. The team's initial recommendation was to recommend the 40% discount. Now that they are validating their recommendations, they decide to:

A.
Question why management would only want them to test two price points
Answers
A.
Question why management would only want them to test two price points
B.
Change their recommendation realizing they have been victims of linear bias
Answers
B.
Change their recommendation realizing they have been victims of linear bias
C.
Redo the survey looking for a larger sample size
Answers
C.
Redo the survey looking for a larger sample size
D.
Use their original recommendation given that the volume of sales is much higher
Answers
D.
Use their original recommendation given that the volume of sales is much higher
Suggested answer: B

Explanation:

Explanation: Linear bias is a type of cognitive bias that assumes a linear relationship between two variables, when in fact the relationship may be more complex or nonlinear. In this case, the analytics team assumed that the higher the discount, the higher the sales and profit, without considering other factors that may affect customer behavior, such as price elasticity, perceived quality, or competition. By changing their recommendation, the team can avoid making a suboptimal decision that may result in lower profit or customer satisfaction.

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asked 18/09/2024
Zahidul Haque
47 questions
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