Taylor Smith owns a small clothing company, Cuteness for You, that offers an online subscription and personal shopping service targeted at busy families with children aged newborn to five years old. Currently, Taylor has one level of subscription service, the standard service. For $$100$ a month, the standard service provides its customers a monthly delivery of $10$ clothing items carefully chosen to match the child's size, gender, and emerging style. The online clothing subscription market is fairly new, but is growing rapidly and thus Taylor is consdidering extending the product line to increase its market share and profits.

Taylor is debating whether to add a premium subscription service featuring profitable high$-$markup items for $$125$ per month, a basic subscription service which contains lower$-$markup popular items priced at $$75$ per month, or possibly both. Taylor knows that the new product lines provide an opportunity to attract more customers and possibly increase revenues and profit, but recognizes that new product lines, especially ones priced below the $$100$ standard service, might steal sales from the standard line through cannibalization.

To evaluate the options, Taylor creates a spreadsheet containing the key marketing metrics including estimated firm sales revenue and units, firm profit, and industry sales revenue. Based on industry research, he estimates that basic subscriptions would cannibalize standard sales at four times the rate at which premium subscriptions would.

The goal of this activity is to understand the potential impact that a product line extension has on a firm's revenue, profit, and market share. Keep in mind that: