CLEP Principles of Management Exam Prep

Answer: b - cannibalization. Cannibalization is what results when a company offers a product which takes away sales from another of its existing products. The question for Coffin’s is whether it gets new people in the door who drink iced coffee. Adding new products must increase overall revenue to be worthwhile. Otherwise, it just increases the difficulty of managing the operation.

The four incorrect answers are also terms you should know:

Economies of scale is the economic benefit a company receives when its business expands.
Diversification is when you spread your money across different asset classes.
A niche market is a particular specialized segment of a market for which there is little, if any, competition.
Maturity phase is when a business has matured to the point that its growth is in line with the growth of the economy.

Key Takeaway: Whenever there is a new product introduction, you should immediately ask if cannibalization will be an issue.