Question

Principles of Marketing, 15th Edition, Philip T Kotler, Gary Armstrong ISBN-10: 0-13-308404-3 ISBN-13: 978-0-13-308404-7 I need the answer to this book.

1. Assume the company expects to sell 300 million ounces of M&M Premiums within the first year after introduction but expects that half of those sales will come from buyers who would normally purchase M&M regular candies (that is, cannibalized sales). Assuming the sales of regular M&M candies are normally 1 billion ounces per year and that the company will incur an increase in fixed costs of $5 million during the first year of production for M&M Premiums, will the new product be profitable for the company? Refer to the discussion of cannibalization in Appendix 2: Marketing by the Numbers for an explanation regarding how to conduct this analysis.

Answer 1

Answer:-

It is estimated that the new M&M premium product will generate more 150million ounces in sales (300 million ounces -150 million ounces cannibalizedunits) that will have $0.13 per ounce in contribution.

*contribution because of net new volume = $150,000,000 * $0.13 per unit

= $19,500,000

*The net effect is that the company will gain $16500000 in contribution by introducing the M&M premium:-

incremental contribution = $19500000 - $3000000

= $16500000

So the new product will increase the productivity by 11500000