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1 Marketing 430 Individual Quant Assignment III – Cannibalization It’s a warm November morning in New Delhi, India, and you’re finishing your first week as the Indian cricket bat category manager for the Kookabura, a leading provider of cricket bats to professional and amateur cricket players. You just joined Kookabura after spending several years as the country product manager for Adidas’s cricket equipment line in Sri Lanka. Cricket is a bat-and-ball game that was first played in England in the sixteenth century. It now enjoys popularity around the world, and some claim that cricket is the second-most popular sports game in world (next to soccer). For many years Kookabura has been successfully selling two bat products, and combined sales are nearing a million units a year. One of Kookabura’s products is a top-of-the-line model called the Kookabura Kahuna . The Kahuna is made with wood from English willow trees, which are indigenous to England, and which Kookabura has successfully transplanted to India. The Kahuna bat is a high-performance product, and it is a “Grade 1” bat, which means it is the best looking (no blemishes in the wood). Over the years, Kookabura has been able to gain endorsements from a number of prominent cricket players, who often appear in Kookabura’s advertising. Kookabura’s second bat is a lower quality model called the Kookabura Blade . The Blade is made with wood from Kashmir willow trees, which are indigenous to India and Pakistan, and which cracks or splits more easily than English willow, especially if the bat is not oiled periodically. Kookabura Blade bats are “Grade 3,” which means they are cosmetically less attractive than the Kahuna. They are therefore priced significantly lower than the Kahuna. The Kahuna accounts for 65% of the company’s unit sales and 74% of its revenue, with the remainder coming from the Blade. The table below reports the company’s financials* when you joined the firm. Sales and costs have been relatively steady for the past couple of years. Kookabura’s senior managers are nervous because global brands like Nike and Adidas are starting to compete aggressively in the cricket equipment category. Within this increasingly

2 competitive market, they are hoping to fortify and expand their position, in part via new product development. After cricket-bat wood is harvested for production, a manufacturer must physically press the wood to increase its strength and durability. But if the wood is pressed too much, it loses its natural spring and does not play well. As a result, the bat manufacturing process must strike a balance between strength and flexibility. On your first day of work, Kookabura’s managers revealed that they have developed a new manufacturing process, which allows them to press wood with higher pressure than before, but without sacrificing natural spring. The result is a bat that sends the ball faster, straighter and further than most or all competitor products. An unexpected additional benefit of Kookabura’s new pressing process is that the new bat does not require oiling and “knocking in.” When consumers first purchase a standard cricket bat, they usually must rub it with oil and use a mallet to round out the edges, which ensures better play accuracy and additional durability. The new Kookabura bat is ready for use upon purchase, without having to take these extra steps. Based on initial consumer testing, Kookabura’s managers learned that this benefit is not desired by many or most individual cricket players, who value the ritual of knocking in and caring for their bats. However, Kookabura’s managers also learned that this benefit would be highly valued by amateur and professional cricket clubs, who tend to purchase multiple bats at once and who would save time and money if each new bat purchased did not need to be oiled and knocked in. In fact, enthusiasm among organizational buyers was so high that, during initial tests on the bat, several of those involved with the test wanted to place immediate orders. Kookabura’s managers hope the new product can be launched in a way that will protect them from impending competition, but they are unsure about how best to handle the launch. They are deciding between two strategies: 1. One strategy would emphasize the new bat’s superior performance. The aim would be to steal individual buyers from competitors and to create a strong defense against potential entry by other companies (like Adidas), who might also try to compete on performance. Kookabura’s managers believe that a superior performance claim would be more credible if the new bat were branded similarly to the Kahuna—a product already widely associated with high performance. So, they would call the new bat the Big Kahuna . The company also anticipated that the Big Kahuna would be endorsed by many of the same cricket players that currently endorse the Kahuna. 2. A second strategy would emphasize that the bat is ready to play (without knocking in). The aim would be to steal organizational buyers from competitors. Organizational buyers tend to purchase large quantities in a single order, and they include cricket clubs, professional cricket teams, and municipalities that support youth cricket. These buyers are price sensitive, which is why a significant percent of Kookabura’s Blade sales are to organizational buyers. This strategy proposes that the new bat would be called the Kookabura Readyplay. A lthough it would be significantly more expensive than the Blade, the Kookabura sales team would emphasize how much time and money

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