This marketing cannibalization problem is basic to marketing analysis. It should be clear to you by now that marketing managers have to make decisions based on being able to quantify profitability. This is a simple scenario (in that there are very few extraneous facts or numbers), and, given the information, you should be able to calculate the brand line’s profitability before any new line introduction and after introducing a new product to the line. By comparing the two results, you should be able to answer whether or not the new product model should be introduced into the line.
Show your calculations that indicate the comparative profit contributions with and without the introduction of the new product. BE SURE TO SUBMIT IT IN A WORD PROCESSED (OR SPREADSHEET) DOCUMENT. It must be easy for me to follow your logic, and it must have a professional appearance. No hand-written submissions will be accepted.
It should not take you very long to do this problem. It is simply a matter of extracting the pertinent facts and numbers in order to do the calculation. A key to doing this problem is to organize your analysis in a logical order. First, organize the pertinent facts from the scenario presented. Then, determine what the total profit contribution is for the two original models in the line prior to the addition of the new model in the line. You will need to know each model’s unit contribution to profit and their forecast sales volume. Next, determine the new unit volumes of the older models due to cannibalization from the new model entering the line. Once you have all three models’ unit volume sales, it is a simple matter of multiplying each by their unit contribution to profit in order to get the dollar profit contribution for each product within the brand line. Then, it is a simple matter of totaling the profit contributions after cannibalization and comparing it to the total profit contribution before cannibalization.