• Print Page
• eMail Page

Search website for :

Home→The Westburn Dictionary of Marketing→E→expected value

expected value

Definition:
Sometimes referred to as the expected monetary value or EMV, this is a monetary value placed upon the outcome of a decision. The expected value can also be defined in terms of the value of perfect information - hence EVPI - in which case it is a measure of the maximum amount one would be willing to pay in order to achieve complete certainty about the outcome of a decision. For example, if one is considering modifying a PRODUCT to reduce its cost, it may be that some customers will notice the difference and switch to a competing BRAND. Suppose current profits are £15 million, the saving is £5 million and the expected level of switching is 15 per cent, then we can construct a decision pay-off table as follows: (See Tables and Text Part 2)  Here the EMV is the sum of the probabilities of losing 15 per cent of current profits of £15 (-£2.25m) against the gain of 85 per cent of £5m of savings (£4.25m). The EVPI is the value of information which confirms that customers will not notice any difference which is £5m x our current expectations that only 85 per cent would not notice the change, i.e. £5m x 0.85 = £4.25m.

Cross-References:
[brand] [product]

Links:

Figures:

© Westburn Publishers Ltd 2002, The Westburn Dictionary of Marketing edited by Michael J Baker, ISBN 978-0-946433-01-8. www.themarketingdictionary.com. Entry: [Michael J. Baker], [1998].