There is excitement in the air! The new UltraGuard flea collar is about to be in

Question

There is excitement in the air! The new UltraGuard flea collar is about to be introduced to the market. The collar will feature enhanced protection, increased longevity and is environmentally friendly. It will be priced at $9.99 and has unit variable costs of $4.25. The company expects to sell 48,750 UltraGuard collars during the next six months. Some of the sales will come at the expense of the current product, the PetArmor collar, priced at $6.99 with variable costs of $3.45. Projected sales for the PetArmor collar are 95,000 units (without the introduction of the UltraGuard). The market analyst estimates that the UltraGuard collar will cannibalize 19,550 PetArmor collars during the introductory 6 month period. Calculate the cannibalization rate. Report your answer as a WHOLE NUMBER, ROUNDED TO 1 DECIMAL PLACE.

Explanation / Answer

Cannibalization Rate = Sales loss of existing product / Sales of new product

Existing product sales volume will decrease by 19,550

New product sales = 48,750

So, Cannibalization rate = 19,550 / 48,750 = 40.1% (or, 40% when rounded off to whole number)

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