Case Study: Payton Furniture

Introduction I believe Payton Furniture needs to have a mix of old and new furniture to better represent their inventory. I can see how the new products could steal some of the sales. However there are many people who would still look for a deal. If you put the older products on sale and present it at the front of the store, it will attract a variety of customers. I believe marketing would play a big part of whether the introductions of the new inventory would have an effect on the older inventory. By placing hot deal ads on older inventory it will help to stabilize the sale of both old and new inventory. When you lose money to the newer inventory it would be called cannibalization. However, due to the company owning all of the products …show more content…
Return on assets (ROA) is the ratio of annual net income to average total assets of a business during a financial year. It measures effectiveness of the business in using its assets to generate net income. (Kimmel, Weygandt, & Kieso, 2007, 5th Edition) It is a profitability ratio. The formula to calculate return on assets is in Appendix A. Return on assets indicates the number of cents earned on each dollar of assets. Thus higher values of return on assets show that a business is more profitable. An example calculation of a return on asset is located in Appendix …show more content…
This can negatively affect both the sales volume and market share of the existing product. (Kimmel, Weygandt, & Kieso, 2007, 5th Edition) Market cannibalization occurs when a new product intrudes on the existing market for the older product, rather than expanding the company 's market base. Rather than appealing to a new segment of the market and increasing market share, the new product appeals to the company 's current market, resulting in reduced sales and market share for the existing product. (Kimmel, Weygandt, & Kieso, 2007, 5th Edition) Market cannibalization can have a negative effect on a business’s bottom line, forcing an existing product 's life to end prematurely because sales shifted to the new product, rather than tapping into a new market as intended. A product should cannibalize another product when it can increase profits even more for the entire product line or business. One of the ways to successfully ensure good cannibalization is to ensure a strong brand loyalty to the original product. (Kimmel, Weygandt, & Kieso, 2007, 5th Edition) Customers that are loyal to your product are more likely to try out a new one that is produced by the same business and may a unique selling proposition compared to the old product. Cannibalization rate and example is located in Appendix