Question

Pricing Mini Case: Assessing the Cannibalization Risk Cannibalization occurs when a company releases a new product in a product line or family and some % of the sales of the new entrant are because consumers stop buying the old products in favor of the new entrant. In this exercise, you will be asked to assess the exact size of the cannibalization risk. Then, you will be asked to make a series of strategic decisions based on the analyses. Imagine you are the CMO of "Saber Blades". Saber Blades manufactures high quality, extremely durable sci-fi laser sword products that are extremely popular among young adult consumers who enjoy dressing up like their favorite sci-fi characters in movies, books, and comics (the act of dressing up in this way is known as cosplay). Click the icon to learn more details about each product. Click the icon to view the data from Saber Blades current financials Click the icon to view the data from a rigorous market forecast study. Based on the values presented below, should Saber Blades introduce The Warrior to the market? No , because the change in Total Monthly Contribution value due to introducing The Warrior is $ (Round to the nearest dollar.)

Answer 1

Before introducing the new product

Total profit from both existing products = $\inline \sum$Unit sales per month * Contribution per unit

= 263*17+74*82

= $ 10,539

After introducing the new product

Total profit from both existing and new products = $\inline \sum$Unit sales per month net of cannibalization * Contribution per unit

= 263*(1-.18)*17+74*(1-.25)*82+121*18

= $ 10,395.22

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Change in Total Monthly Contribution due to introducing The Warrior = 10395.22 - 10539 = $ -143.78 ~ $ -144 (negative)

Total profit after introducing the new product is lower than the total profit before introducing the new product.

Therefore, the new product should not be introduced. The answer is:

No, because the change in Total Monthly Contribution value (profit) due to introducing The Warrior is $ -144