Question

You have an opportunity to carry a new brand of football. You estimate that you will sell 300 per week with a margin of $40 per unit. However, you estimate that it will cannibalize (reduce) your sales of a lower margin football ($20 per unit) by 100 units per week. How much more margin will you generate if you carry the new football?

Answer 1

If a shopkeeper starts to sell the new football, their weekly margins would be:

300 x 40 = $12,000

However, the sales of the lower cost footballs will decrease by:

100 x 20 = $2,000 every week

Hence, the total margin we can generate by selling every week by selling the new footballs is:

12,000-2,000 = $10,000

This means the shopkeeper should actually start selling new footballs since their shop will become more profitable