Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier ver
ID: 2791209 • Letter: P
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 $ 24 million per year. While many of these sales will be to new customers, Pisa Pizza estimates that 47 % 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 57 % 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?
Explanation / Answer
a)
incremental sales = New sales - lost sales
= 24 - 47%*24
= 12.72 million
b)
Incremental sales = original - (1-% shift of brand) * % internal shift * original sales
= 24 - (1-57%)*47%*24
= 19.15 million