Space Heaters is a company has sold 1 million Basic Space Heaters. The target market is low income earners who have high energy costs. It allows to heat the immediate space in a room without expensive overhead costs from room heating. The company has become aware of a potentially fatal hazard in the basic space heater. As they are fitted with minimal safety features, to keep costs down, they are thus more dangerous than the deluxe model. The Basic model can overheat, with no specific test to determine which heaters are more likely to experience overheating. When overheating occurs, fires can result.
Installing a temperature shutoff would prevent over heatings- this would cost $22 per heater. It would reduce faults by 99%.
Installing a thermostat would allow a consumer to see if the heater is about to overheat, allowing them to turn it off themselves. This would cost $7.50 per heater. This thermostat would reduce fatality risk by 50%.
The basic model heater costs $44 to manufacture and sells for $88 in retail. The default in the basic model and thus overheating occurs in 5 per 100,000. (50/1 million)
The deluxe model costs $189 as wholesale price and sells for $378 in retail. It has default rates of 4 in 1 million, given the extra safety features included within the product.
There are 1 million Basic Space Heaters in Australian homes. The company is expected to make 300,000 more in the coming financial year. By introducing the two additional safety features on future Basic Models, the price of the Space Heater rises to above that of the key competitor. Financial analysis of the costs verse saved lives demonstrates the cost to the company of each life, thus the implied price of a customer's life, is $9.2 million.
They are faced with a series of questions-
Do they recall the faulty heaters?
Should all future Basic Space Heaters come with the known safety advances? Who should decide this?
Should the Basic Model be offered at all?
Who should bear the cost of these additional safety features?
Externally sourced consultants have advised that the primary concern is the Space Heaters already in existence.
It is proposed that Space Heaters should recall all space heaters sold