Decision Tree Calculations | Edexcel Business

[Maximum number: 20]

Source for use with Section B

Extract F

Tata Motors' tiny Nano proves large distraction

A decade on from the high-profile launch of Tata Motors' Nano, it sold just 94 units in December 2017, compared with an original prediction that monthly sales would be 20\,000 — and eventually reach 500\,000 annually. Sales of the vehicle once advertised as the group's new cash cow have been consistently poor, with production problems delaying the sale of Nano cars by a year. The Nano was also affected by Tata Motors' failure to establish a strong dealership network in rural areas, home to the majority of the car's target customers.

“Stopping the sales of the Nano would do a lot of good for Tata Motors' share price,” says analyst Arya Sen. Adding, “the Nano's biggest failure was the advertising in India. For many Indians, owning a car is a status symbol, and so cars have to be advertised in a premium way. Instead, Tata Motors advertised the Nano as being affordable and economical, which gave a poor image to the car.”

But Tata Motors' chief executive Guenther Butschek says no decision has been taken on the vehicle's fate, with the Indian group still keen to include a small vehicle in its product range, which is favoured by some drivers for its practicality in India's congested cities.

Decision Tree for the Nano

Extract F: Decision tree for the Nano

Using the data in Extract F and appropriate calculations, evaluate which is the best option for Tata Motors.

Indicative content guidance
Answers must be credited by using the level descriptors (below) in line with the
general marking guidance. The indicative content below exemplifies some of the
points that candidates may make but this does not imply that any of these must
be included. Other relevant points must also be credited.
QS5 Calculate cost, revenue, profit and break-even
QS9 Interpret, apply and analyse information in written, graphical and
numerical forms
Knowledge, Application, Analysis, Evaluation – indicative content
•
Decision trees show the possible outcomes of a decision with the
estimated probability and expected monetary value of each of these
outcomes
•
Extract F states that one of the main issues is that Tata Motors does
not have many dealerships in rural areas of India where most of the
potential customers live
•
Expanding the dealership network in India into rural areas, and
increasing the ‘Place’, may mean more people might be able to get
access a dealership and therefore purchase a Nano, further increasing
sales
•
Dealership: 0.4 x $7m + 0.6 x -$1m = 2.8m – 0.6m = $2.2m
•
The dealership option should generate an expected value of $2.2m
•
However, the disadvantage of this method that it may take a long time
to expand the dealership network, especially in such as large country
as Indian
•
In contrast, Tata Motors could relaunch the Nano as a premium product
through the use of advertising and promotion
•
Extract F states that the poor image of the Nano is why Indian
consumers do not want to purchase the car
•
If the Nano was targeted as a premium car, with the support of the
marketing mix, then this could result in higher sales, especially in the
urban areas
•
Relaunch: 0.2 x $15m + 0.8 x -$2m = 3m – 1.6m = $1.4m
•
The relaunch option would generate an expected value of $1.4m.
•
Based on the decision tree alone, Tata Motors should pursue the
dealership option as this has a higher expected return
•
However, the time it will take to open more dealerships might affect
the decision
•
There are also other external factors which need to be considered such
as the state of the Indian economy which may have an impact on the
final decision
•
Tata Motors, could try and combine both strategies if it is to make a
success of the Nano as the Extract seems to indicate that both issues
need addressing

Level

Descriptor

0
No rewardable material.
Level 1
1–4
Isolated elements of knowledge and understanding.
Weak or no relevant application of business examples.
An argument may be attempted, but will be generic and fail to connect
causes and/or consequences.
Level 2
5–8
Elements of knowledge and understanding, which are applied to the
business example.
Arguments and chains of reasoning are presented but connections
between causes and/or consequences are incomplete. Attempts to
address the question.
A comparison or judgement may be attempted but it will not
successfully show an awareness of the key features of business
behaviour or business situation.
Level 3
9–14
Accurate and thorough knowledge and understanding, supported
throughout by relevant and effective use of the business
behaviour/context.
Uses developed chains of reasoning, so that causes and/or
consequences are complete, showing an understanding of the question.
Arguments are well developed.
Quantitative and/or qualitative information is introduced in an attempt
to support judgements, a partial awareness of the validity and/or
significance of competing arguments and may lead to a conclusion.
Level 4
15–20
Accurate and thorough knowledge and understanding, supported
throughout by relevant and effective use of the business
behaviour/context.
Uses well-developed and logical, coherent chains of reasoning, showing
a range of cause and/or effect(s).
Arguments are fully developed.
Quantitative and/or qualitative information is/are used well to support
judgements. A full awareness of the validity and significance of
competing arguments/factors, leading to balanced comparisons,
judgements and an effective conclusion that proposes a solution and/or
recommendations.

3.3.3.3b - Decision tree calculations question 1