Question Completion:
Existing Store Revenue 2nd Store Cannibalization Revenue Net Revenue
Revenue Estimate Drop Increase for
Market
Los Angeles 1,450,000 1,570,000 10% 145,000 1,425,000
Houston 1,400,000 1,475,000 25% 350,000 1,125,000
Orlando 2,100,000 2,155,000 30% 630,000 1,525,000
Atlanta 1,600,000 1,780,000 55% 880,000 900,000
Chicago 1,950,000 1,730,000 40% 780,000 950,000
San Diego 3,400,000 3,090,000 10% 340,000 2,750,000
Portant 1,000,000 1,075,000 25% 250,000 825,000
Dallas 2,000,000 1,850,000 60% 1,200,000 650,000
Boston 2,300,000 2,200,000 50% 1,150,000 1,050,000
1. Ignoring cannibalization rates for now, what two markets have the highest net revenue increases when adding a second store?
San Diego and Orlando
Atlanta and Dallas
Orlando and Dallas
San Diego and Portland
Dallas and Portland
2. What two markets should be chosen for a second store based on management's criteria that the cannibalization rate for the existing store should be less than 30%
Note: Cannibalization rates and net revenue increase amounts need to be considered when making this determination.
San Diego and Orlando
San Diego and Los Angeles
Chicago and Los Angeles
Chicago and Portland
San Diego and Portland
Answer:
Better Beans Coffee Company
1. San Diego's $2,750,000 and Orlando's $1,525,000 presented the highest net revenue increases when adding a second store.
2. Based on management's criteria that the cannibalization rate for the existing store should be less than 30%, San Diego with 10% and Los with 10% Cannibalization rates should be chosen.
Explanation:
Cannibalization Rate is a measure of the impact of new products or the presence of new stores on sales revenue for existing products or stores. Cannibalization happens when a business, like the Better Beans Coffee Company, opens a new store in a town where there is an existing store. It can also happen when Better Beans releases new coffee products. Consumers' attention and demand for existing products can decrease, as a switch to new products or new stores takes place.
