Question

Michael is the owner of a company that manufactures mp3 players for cars. He wants to expand his business, so he decides to launch a new line of portable mp3 players that also can be plugged into home and car stereo systems. The sales are very high for these new mp3 players, but Michael soon finds that the sales of his old car mp3 players have greatly declined. Michael's business is experiencing:
cannibalization;A) His business is not slumping because the new mp3 players have very high sales. It is only the old car mp3 players that are having poor sales.
B) Cannibalization occurs when the sales of a new brand take away from sales of an existing brand. Whenever a firm sells a new product it must look out for cannibalization. Michael's new mp3 players are cannibalizing the sales of his old players.
C) Brand equity is the added value that brand name provides to a product. It can become diluted if the brand name is attached to too many different types of products. There is no evidence in the question that Michael's company has diluted its brand equity from making new mp3 players.
D) This is too general to be the correct answer.
E) Dynamically continuous innovation occurs when new products come out that present the same product in a relatively different form (e.g., the move from VCR's to DVD). This is a new style of the same product which is considered a continuous innovation.

Answer 1

Answer:

B) Cannibalization occurs when the sales of a new brand take away from sales of an existing brand. Whenever a firm sells a new product it must look out for cannibalization. Michael's new mp3 players are cannibalizing the sales of his old players.

Explanation:

Market cannibalization occurs when a company's new product line crowds out the existing market for its current products, rather than expanding the company's market base as originally intended. In other words, rather than appealing to an additional segment of the market, a new product line appeals to the company's current market, reducing the demand for its established products. In this respect, market cannibalization is an instance in which a company's own two product lines compete against one another.