Snackchips in China

Abstract

This case is intended to work well as an exam or a capstone for a course on decision analysis, simulation, real options, and game theory. It explores a conventional snack-chip marketer's strategy in China for promoting and advertising a recently acquired healthy snack-chip brand in mid-2002. The marketer has some key decisions to make, now and in the future, about a range of marketing expenditures in the context of an exciting emerging market and in the face of a formidable competitive threat from its chief rival. The case allows students to consider how two parties' decisions about marketing expenditures and market entry interact and to extend the notion of a single party's downstream decision (or real option) to multiple parties' interactive real options. The case's competitive situation can be modeled as a dynamic game of imperfect information, or a multiperiod decision situation with continuous uncertainties and a strategic interaction embedded downstream. Monte Carlo simulation of both parties' payoffs under equilibrium play in the downstream subgame yields a subgame perfect Nash equilibrium, which entails interactive threshold policies for both parties.