Question

Pisa​ Pizza, a seller of frozen​ pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no trans fats. The firm expects that sales of the new pizza will be $ 21 million per year. While many of these sales will be to new​ customers, Pisa Pizza estimates that 40 % will come from customers who switch to the​ new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new​ pizza? b. Suppose that 42 % of the customers who will switch from Pisa​ Pizza's original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. What level of incremental sales is associated with introducing the new pizza in this​ case?

Answer 1

Answer:

Part a

Incremental Sales = New Sale - Lost sales of Actual Pizza

Incremental Sales = 21,000,000 - (40% × 21,000,000)

Incremental Sales = $ 12,600,000

Thus the incremental sales connected in introducing of the new pizza is $12.6 Million.

Part b

Incremental Sales = New Sale - Lost Sales from Customer switching Brand

Incremental Sales = 21,000,000 - [42% × (40%) × (21,000,000)

Incremental Sales = 21,000,000 - 3528000

Incremental Sales = $17,472,000

Therefore, the incremental sales linked to introduce the new brand pizza in case (b) is $17.472 Million.

Answer 2

The incremental sales when a new pizza is introduced is $12.6 Million and in the second case, if it introduces a new pizza when others are introducing healthy Pizza then incremental sales will be $17.472 Million.

What are incremental Sales?

Incremental sales refer to the number of units sold with a sales promotion contribution in addition to the limited number that could have been sold without it.

Now, let's calculate part a, where the level of incremental sales is associated with introducing the new​ pizza:

$\rm\,a) \;Incremental \,Sales = New \; Sales - Lost \; Sales \;of \;Actual \; Pizza\\\\Incremental \;Sales = 21,000,000 - (40\% \times 21,000,000)\\\\Incremental \;Sales = \ 12,600,000$

The incremental sales connected to the introduction of the new pizza is $12.6 Million.

b) Calculation of level of incremental sales, when it is associated with introducing the new pizza:

$\rm\, b)Incremental \;Sales = New \; Sale - Lost \;Sales \;from \; Customer \;Switching \;Brand\\\rm\, Incremental Sales = \ 21,000,000 - [42\% \times (40\%) \times (\ 21,000,000)]\\\\\rm\, Incremental Sales = \ 21,000,000 - \ 3528000\\\\\rm\, Incremental Sales = \ 17,472,000$

Therefore, the incremental sales linked to introducing the new brand pizza in case (b) is $17.472 Million

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