Question

Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no trans fats. The firm expects that sales of the new pizza will be $16 million per year. While many of these sales will be to new customers, Pisa Pizza estimates that 36% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? b. Suppose that 40% of the customers who will switch from Pisa Pizza's original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. What level of incremental sales is associated with introducing the new pizza in this case? a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? The incremental sales associated with introducing the new pizza will be $ Hollion (Round to two decimal places.) Enter your answer in the answer box and then click Check Answer.

Answer 1

solution: incremental sales = 16*(1-36%) 10.24 million b) sales attributed to new customer (as calculated in part a) Add : % of customer who will swith to other company if new product not introduced (16*36%*40%) Incremental sales 10.24 2.30 12.54 million