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Management By The Numbers (MBTN)

Course: International Marketing Managem ent w ith Marco Protano - Winter 2013 Hult Nanjing | Module: Cannibalization | Problem Set ID: 41

COMPANY BACKGROUND: EasyFind, Inc. sells StraightShot golf balls for $24 per dozen, with a variable manufacturing cost of $12 per dozen. EasyFind is planning to introduce a lower priced ball, Duffer's Delite, that will sell for $16 per dozen with a variable manufacturing cost of $5 per dozen. The firm currently sells 53,100 StraightShot units per year and expects to sell 22,000 units of the new
Duffer's Delight golf ball if it is introduced (1 unit = 12 golf balls packaged together). Management projects the fixed costs for launching Duffer's Delight golf balls to be $8,910.

QUESTION 5: Using the appropriate cannibalization rate, what is Duffer's Delite contribution margin per
dozen balls, net of contribution cannibalized? 0.00 is INCORRECT.
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THE ANSWER AND EXPLANATION ($16 - $5) - ((53,100 - 44000) / 22,000) * ($24 - $12) = $6.04 [+/- $0.18] For each sale of Duffer's Delite deduct from the contribution margin the expected loss in contribution margin from lost sales of Straight Shot.

QUESTION 4: Ignoring fixed costs, what will be the total annual contribution from Straight Shot and
Duffer's Delite if StraightShot sales decline to 44,000 due to cannibalization, assuming Duffer's Delite meets it sales expectations.

THE ANSWER AND EXPLANATION ($24 - $12) * 44000 + ($16 - $5) * 22,000 = $770,000 [+/- $23,100] Annual Contribution = ((Straight Shot Selling Price - Variable Cost) * new annual sales projection after cannibalization) + ((Duffer's Delite Selling Price - Variable Cost) * annual sales projection) QUESTION 3: If StraightShot sales drop to 44,000 dozen sold after the launch of Duffer's Delite, what is
the cannibalization rate [the percentage of new product sales coming from an existing product] of Duffer's Delite golf balls on StraightShot golf balls?

THE ANSWER AND EXPLANATION (53,100 - 44000) / 22,000 = 0.414 [+/- 0.012] (41.4%) [+/- 1.2%] The cannibalization rate represents the proportion of sales taken from the existing product, StraightShot, divided by sales of the new product, Duffer's Delite. Cannibalization Rate = Volume of StraightShot Lost to New Product / Duffer's Delite sales. QUESTION 2: What is the total yearly dollar contribution of Straight Shot balls prior to the launch of
Duffer's Delight?

THE ANSWER AND EXPLANATION ($24 - $12) * 53,100 = $637,200 [+/- $19,116] Annual Unit Contribution ($) = (Selling Price per unit - Variable Costs per unit) * Annual Units Sold (in dozens) QUESTION 1: What is the unit contribution ($) per one dozen StraightShot golf balls? THE ANSWER AND EXPLANATION $24 - $12 = $12.00 [+/- $0.36] Unit Contribution ($) = Selling Price per unit - Variable Costs per unit

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