Marketing by the numbers

A business has introduced a new confectionary brand that comes in flavors such as mint chocolate, mocha, chocolate almond, and raspberry-almond with white chocolate. The confections are wrapped in iridescent colors and sold in re-closable cartons. The business also intends to do this with its other, already established brands. The new products carry a higher wholesale price for the company ($0.48 per ounce versus $0.30 per ounce for the original product). They also come with higher variable costs ($0.35 per ounce versus $0.15 per ounce for the original product).

1. What brand development strategy is this business undertaking?

2. Assume the company expects to sell 300 million ounces of the new product within the first year following its introduction. However, half of those sales are expected to come from buyers who would normally purchase the company's original brand. In other words, the new product will cannibalize some of the old product's sales. Assume the company normally sells 1 billion ounces per year of its original product, and it will incur an increase in fixed costs of $5 million during the first year it produces the new brand. 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.

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