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Clean Edge Razor

Paramount has two options for its super premium segment: niche or mainstream. An analysis of profit/loss statements and marketing costs over two years found: 1) The niche segment provided higher profits than mainstream after accounting for cannibalization costs. 2) Marketing the mainstream option would exceed Paramount's $48.3 million budget due to the high $40 million cost of marketing one mainstream product. 3) Marketing the niche option would be under budget at $46.4 million due to lower cannibalization costs reducing other product marketing costs. Therefore, the analysis concludes Paramount should pursue a niche positioning strategy in the super premium market due to favorable margins and lower marketing costs.

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Salil Aggarwal
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656 views

Clean Edge Razor

Paramount has two options for its super premium segment: niche or mainstream. An analysis of profit/loss statements and marketing costs over two years found: 1) The niche segment provided higher profits than mainstream after accounting for cannibalization costs. 2) Marketing the mainstream option would exceed Paramount's $48.3 million budget due to the high $40 million cost of marketing one mainstream product. 3) Marketing the niche option would be under budget at $46.4 million due to lower cannibalization costs reducing other product marketing costs. Therefore, the analysis concludes Paramount should pursue a niche positioning strategy in the super premium market due to favorable margins and lower marketing costs.

Uploaded by

Salil Aggarwal
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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NICHE v/s MAINSTREAM: Decision and Implications

Presently Paramount has two options either to go for the niche area or the mainstream area under the super premium segment. We will realize which segment is better by profit and loss analysis and marketing cost incurred by the company. Profit and Loss Analysis We have analyzed the profit and loss statement for two years for both these segments. As we see from Table 1 given below, from niche segment we get a larger profit as compared to main stream area. This profit is calculated taking into account the cannibalization cost. For Cannibalization cost we have taken 35% for niche and 60% for main stream as given in the case. To calculate the cost associated with this we have multiplied the percentage of cannibalization with contribution margin per unit. The contribution margin per unit is 1.76 for razors and 2.8 for cartridges. Marketing Cost Apart from the profit implication we can also see the same situation from marketing expenditure point of view. As it is given in the case marketing budget in 2010 is $48.3 million. If we decide to go with marketing in main stream we will be spending $40 million on Clean edge. This only leaves us with $8.3 million for my other products. Now if we consider cannibalization and assume well be spending 40% on marketing cost this gives us a cost on other products as $19.32 million. Thus the total cost becomes $59.32 million. Therefore the marketing budget is being exceeded. If I go forward with niche segment well be spending $15 million. Since there is 35% cannibalization and with the present cost on marketing we remove 35% of the cost, we get a cost on other products as $31.395 million. Thus the total cost is coming out to be $46.395 million which is below the estimated budget. Conclusion Positioning strategy should be towards niche positioning in super-premium market in view of the favorable operating margins and savings in marketing efforts.

FINANCIAL IMPACT
Table 1 given below mentions the financial impact of each strategy. The high cannibalization due to main stream and high marketing cost is a major reason for the high cost per unit, hence a low profit.

TABLE 1

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