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 $17 million per year. While many of these sales will be to new customers, Pisa Pizza estimates that 38% 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 51% 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? a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? The incremental sales associated with introducing the new pizza will be $ million. (Round to two decimal places.)
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 $17 million per year. While many of these sales will be to new customers, Pisa Pizza estimates that 38% 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 51% 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? a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? The incremental sales associated with introducing the new pizza will be $ million. (Round to two decimal places.)
Chapter3: Cost-volume-profit Analysis
Section: Chapter Questions
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Transcribed Image Text:**Title: Introducing a Healthier Pizza Option: Analyzing Incremental Sales**
**Introduction:**
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 $17 million per year. While many of these sales will be to new customers, Pisa Pizza estimates that 38% will come from customers who switch to the new, healthier pizza instead of buying the original version.
**Analysis Questions:**
**a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza?**
The incremental sales associated with introducing the new pizza will be $ ____ million. *(Round to two decimal places.)*
**b. Suppose that 51% 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?**
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**Explanation:**
In this scenario, Pisa Pizza is analyzing the potential financial impact of launching a healthier pizza option. The key focus is on estimating the incremental sales generated by the introduction of the new product. Two different assumptions are considered for this analysis:
1. **Assumption 1: Equal Spending on Either Version:**
- In this assumption, it is presumed that customers who switch to the healthier pizza will spend the same amount on it as they would have spent on the original version. Therefore, the incremental sales will be purely based on the sale of new pizzas that are not cannibalized from existing sales.
2. **Assumption 2: Switching to Another Brand:**
- This second scenario takes into account the possibility that if Pisa Pizza does not introduce a healthier option, a certain percentage (51%) of customers who prefer healthier options will switch to another brand that offers such pizzas. Here, the incremental sales need to reflect the retention of these customers in addition to the sales to new customers.
By analyzing both scenarios, the company can better understand the potential risks and benefits of introducing the new healthier pizza and derive strategic insights for its product launch strategy.
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