If a New Entrant Hopes to Attract Customers from an Established

question 36

Multiple Choice

If a new entrant hopes to attract customers from an established incumbent, the new entrant must ensure that the value they offer exceeds the incumbents' value in addition to any perceived _____.

• A) switching costs
• B) market depreciation
• C) brand benefits
• D) advertising expenses
• E) scale advantages

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Definitions:

Degree of Operating Leverage

A measure of how much a company's operating income changes in response to a change in sales volume, indicating the level of fixed versus variable costs.

Contribution Margin

The amount remaining from sales revenue after all variable expenses have been deducted, indicating the ability to cover fixed costs and generate profit.

Total Contribution Margin

The difference between total sales revenue and total variable costs, measuring how much revenue covers fixed costs and profits.

CVP Graph

A visual representation of the Cost-Volume-Profit analysis that illustrates the relationships between costs, volume, and profit.