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Notes of Marketing

Mars is using a product line extension strategy to launch new M&M premium products. This involves introducing new items in the same product category under the existing brand name, such as new flavors or package sizes. The company expects to sell 300 million ounces of M&M premiums in the first year, with 150 million ounces coming from cannibalized sales of regular M&Ms, which normally sell 1 billion ounces per year. To produce the new product will incur $250 million in additional fixed costs. Calculations show that even factoring in these costs and cannibalized sales, the new M&M premium product will be profitable for the company.

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42 views3 pages

Notes of Marketing

Mars is using a product line extension strategy to launch new M&M premium products. This involves introducing new items in the same product category under the existing brand name, such as new flavors or package sizes. The company expects to sell 300 million ounces of M&M premiums in the first year, with 150 million ounces coming from cannibalized sales of regular M&Ms, which normally sell 1 billion ounces per year. To produce the new product will incur $250 million in additional fixed costs. Calculations show that even factoring in these costs and cannibalized sales, the new M&M premium product will be profitable for the company.

Uploaded by

Farhana Aijaz
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Principles of Marketing

Submitted by: Khizar Hayyat


Roll No: 9191101
Class: BBA 2-C (Morning)
Submitted to: Miss Rauza
-------------------------------------------------
Q1. WHAT BRAND DEVELOPMENT STRATEGY IS MARS UNDERTAKING?
Ans. Mars is using a product line extension strategy.
A product line extension is the use of an established product brand name
for a new item in the same product group. Line extensions happen when a
company introduces extra items in the same product group under the
same brand name such as new flavors, forms, colors, added ingredients,
package sizes.

Mars does the same thing as it launched a new product and introduced
new flavors. They also sell M&M premiums in new packing of reclosable
cartons.
Q2. Assume the company expects to sell 300 million ounces of M&M
premiums within the first year after introduction but expects that of
those sales will come from buyers who would normally purchase M&M
regular candies (that is, cannibalized sales). Assuming the sales of regular
M&M candies are normally 1 billion ounces per year and that the
company will incur an increase in fixed costs of Rs.250 million during the
first year of production for M&M premiums, will the new product be
profitable for the company? Refer to the discussion of cannibalization in
appendix 2: Marketing by the numbers for an explanation regarding how
to conduct this analysis?
Ans. We have to find that the new product is profitable or not.
For finding out we will do following steps,
Sale price of new product = $24 per ounce
Sale price of old product = $15 per ounce
Variable cost of new product = $17.50 per ounce
Variable cost of old product = $7.50 per ounce
Total selling of old product = 300 million ounce
Total selling of new product = 150 million ounce
Variable cost of new product = 150000000 x 17.50
= $ 2625000000
Fixed cost of new product = $250 million
Total cost of new product = $ 2625000000 + 250000000
= $ 2875000000
Units of new product sold = 150 million ounce
Sale price of new product = $ 24 per ounce
Total Sale = $ 3600000000
Profit = Sale price – Cost
= $3600000000 - $ 2875000000
Profit = $ 725000000
Therefore, the product will be profitable.

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