You are the marketing analyst for Better Beans Coffee Company, which has nine stores nationwide. The company wants to build two additional stores. Your executive team has decided that rather than expand to new markets, they want Better Beans to begin opening additional stores in existing markets. While this will create cannibalization in the short term, it will create marketing and operating efficiencies as more stores are opened in each city.
As a scrappy and growing startup, Better Beans does not yet have access to complex marketing analytics software. Fortunately, you are an expert at gathering market data from inside and outside the company and crunching accurate numbers with nothing more than an Excel spreadsheet.
You have been tasked with calculating the two best markets for opening an additional store. You have already calculated two things that allow you to estimate the net additional revenue in each market after adding a second store:
Revenue for a second store in each market
The revenue lost from estimated cannibalization at the first store.
Existing Store Revenue | Second Store Revenue | Estimate Cannibalization | Estimate Revenue Drop Due to Cannibalization | Net Revenue Increase for Market (Second Store Revenue - Cannibalization)
Los Angeles: $1,500,000 | $1,150,000 | 20% | $300,000 | $850,000
Houston: $2,800,000 | $2,200,000 | 25% | $700,000 | $1,500,000
Orlando: $2,050,000 | $1,605,000 | 10% | $205,000 | $1,400,000
Atlanta: $2,550,000 | $1,797,500 | 45% | $1,147,500 | $650,000
Chicago: $2,500,000 | $1,700,000 | 30% | $750,000 | $950,000
San Diego: $2,300,000 | $1,820,000 | 40% | $920,000 | $900,000
Portland: $3,100,000 | $2,110,000 | 35% | $1,085,000 | $1,025,000
Dallas: $2,000,000 | $1,500,000 | 20% | $400,000 | $1,100,000
Boston: $4,000,000 | $3,025,000 | 10% | $400,000 | $2,625,000
Which two markets should Better Beans choose to open additional stores?
a. Los Angeles and Houston
b. Orlando and Portland
c. Atlanta and Dallas
d. San Diego and Boston