| Niche | Mainstream | |||
| Yr 1 | Yr 2 | Yr1 | Yr 2 | |
| Planned Volume for Clean Brush (in millions) | 1 | 1.5 | 3.3 | 4 |
| Planned Volume for Clean Brush brush replacements (in millions) | 4 | 10 | 9.9 | 21.9 |
| Clean Brush Manufacturing Price | $9.09 | $9.09 | $7.83 | $7.83 |
| Clean Brush Unit Cost | $5.00 | $5.00 | $4.74 | $4.74 |
| Clean Brush Brush replacements Manufacturing Price | $7.35 | $7.35 | $6.22 | $6.22 |
| Clean Brush Brush replacements unit cost | $2.43 | $2.42 | $2.24 | $2.24 |
| Estimated Total Profits for Clean Brush (without cannibilization) (in millions) | 8.16 | 38.456 | 5.889 | 58.072 |
Calculate the cost of cannibalization for each market. If Clean Brush decides to go mainstream, 60% of their sales will come form the Whiter and Fresh Brush lines. If Clean Brush decides to go niche market, 35% of their sales will come from Whiter and Fresh Brush lines. Contribution Margins for Whiter and Fresh Brushes is $1.76. Contribution margin for Whiter and Fresh Brush Brush replacements is $2.80.
Computation of cost of Cannibalization if clean brush decides to go mainstream
Cannibalization rate = 60%
Cannibalization units of Whiter and Fresh brushes
Year 1 = 3.3 Millions * 60% = 1.98 Million Units
Year 2 = 4 Millions * 60% = 2.4 Million Units
Cannibalization units of Whiter and Fresh brush brush replacement
Year 1 = 9.9 Millions * 60% = 5.94 Million Units
Year 2 = 21.9 Millions * 60% = 13.14 Million Units
Cannibalization cost for Mainstream = Cannibalization Units * Contribution Margin
Year 1 = (1.98 Million Units * $ 1.76) + (5.94 Million Units * $ 2.80)
= $ 3.48 Millions + $ 16.63 Millions
= $ 20.11 Millions
Year 2 = (2.4 Million Units * $ 1.76) + (13.14 Million Units * $ 2.80)
= $ 4.22 Millions + $ 36.79 Millions
= $ 41.01 Millions
Computation of cost of Cannibalization if clean brush decides to go Niche
Cannibalization rate = 35%
Cannibalization units of Whiter and Fresh brushes
Year 1 = 1 Millions * 35% = 0.35 Million Units
Year 2 = 1.5 Millions * 35% = 0.53 Million Units
Cannibalization units of Whiter and Fresh brush brush replacement
Year 1 = 4 Millions * 35% = 1.4 Million Units
Year 2 = 10 Millions * 35% = 3.5 Million Units
Cannibalization cost for Niche market = Cannibalization Units * Contribution Margin
Year 1 = (0.35 Million Units * $ 1.76) + (1.4 Million Units * $ 2.80)
= $ 0.62 Millions + $ 3.92 Millions
= $ 4.54 Millions
Year 2 = (0.53 Million Units * $ 1.76) + (3.5 Million Units * $ 2.80)
= $ 0.93 Millions + $ 9.8 Millions
= $ 10.73 Millions
Niche Mainstream Yr 1 Yr 2 Yr1 Yr 2 Planned Volume for Clean Brush (in millions)...