Tony Knowles

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

Weekender      1799

Goat                                                                            85000
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