P&G wants to determine if it should introduce a new, cheaper version of Head and Shoulders shampoo. It asked a focus group which of three products it would prefer at different prices (see Figure). For example, if all three products cost $3.60, 70 people prefer Head and Shoulders, 13 prefer Head and Shoulders Lite, 4 prefer CVS, and 13 would buy no dandruff shampoo.
a. Use this data to calibrate a discrete choice model. Use the same price weight for each product.
b. Suppose the CVS shampoo sells for $3.00. If the unit cost to produce Head and Shoulders is $2.20 and the unit cost to produce Head and Shoulders Lite is $1.40, what pricing maximizes P&G's profit?
c. By what percentage does the introduction of Head and Shoulders Lite increase P&G's profit?
