A) Tony Knowles, CEO of lawnmower manufacturer Grassy Knowles LLC, has licensed software from the makers of Roomba in order to create the ﬁrst self-directed, programmable lawnmower; he has branded this new mower the Goat. Knowles anticipates that ﬁxed costs, including the plant and robotic assembly, will be $17 million for the ﬁrst year. Projected sales for the ﬁrst year are 85,000 units. Unit variable costs, including all mechanical and technical parts plus the licensing fee (contracted on a perunit basis), add up to $1100 per mower. Using these parameters, project the price Tony need to would charge to breakeven. Show all calculations and circle your ﬁnal answer.
B) Grassy Knowles already sells two other models of mowers: an upscale, best-selling
rider mower called the Ben Hur (list price at $3299), and a mid-level self-propelled
mower called the Weekender (list price at $1799). Knowles wants to conduct a
cannibalization analysis to investigate whether the introduction of the Goat will positively
or negatively inﬂuence the company’s bottom line.
The Ben Hur variable costs are low, since they’ve been producing it for the better part of
two decades: they stand at $1400/unit and are projected to sell 160,000 in the coming
year if there is no Goat. Weekender variable costs are $1300/unit, with projected sales
of 120,000 if there is no Goat.
Half of next year’s sales for the Goat (as expressed in part A) would come from new
customers who have never purchased a Knowles product before, and half would be
cannibalized from current Knowles customers. 60% of cannibalized sales will be at the
expense of the Ben Hur, and 40% taken from the Weekender.
Knowles has decided to introduce the Goat at a 50% markup on the breakeven price, as
calculated in A.
R&D has begun cannibalization analysis below. Finish the work (SHOW ALL WORK)
and discuss whether the introduction of the Goat project is economically viable for the
company as a whole.
C) Explain how each of the marketing mix decision areas, as well as market
segmentation and target marketing, could provide context and inﬂuence the outcome of
the calculation you have made.
Neat year, without the Goat
Product p uvc contrib/unit Unit Sales Contribution
Ben Hur 3299 160,000
Weekender 1799 120,000
Next year, with the goat
Product p ivc contrib/unit Unit Sales Contribution
Ben Hur 3299