Morten Food Products, Inc. is a regional manufacturer of salty food snacks. The firm competes directly with the national brands including Frito-Lay, but only in the U.S. Southeast. Last year Morten sold $300 million of its various chip products and hopes to increase its sales in the coming year by offering a new line of baked chips. The new product line is expected to generate $40 million in sales next year. However, the firm’s analysts estimate that about 60 percent of these revenues will come from existing customers who switch their purchases from one of the firm’s existing products to the new healthier baked chips.
a. What level of incremental sales should the company analyst attribute to the new line of baked chips?
b. Assume that 20 percent of Morten’s existing customers are actively looking for a healthier snack alternative and will move to another company’s baked chip offering if Morten does not introduce the new product. What level of incremental sales would you attribute to the new line of baked chips in this circumstance?