Positioning Clean Edge razor as niche would go nicely with the company’s current portfolio. Looking at the exhibits, it is clear that using this marketing strategy would lead to consistently high profit margins. Furthermore, Niche positioning will only require $15 million in marketing costs as opposed to $42 million in mainstream. There are some disadvantages to using this market position, such as the fact that this would limit the consumer base and there have not been any innovations in their current products in the last five years.
The company may risk losing their loyal customer base by positioning itself in the niche segment. Positioning the Clean Edge razor as a niche segment would result in 35% of new sales coming from existing product lines. In regards to mainstream positioning, this may be an effective way for Paramount to retain its more loyal customers. The company’s last high-end product (the Pro) had attracted consumers since it was one of the more innovative products in the razor market.
By introducing another cutting-edge shaving technology into the broad marketing position, it may help to keep those customers who want to stay up to date with the most innovative products. Mainstream unit volumes are expected to gain over three times that of the niche market in the first year. However, the new Clean Edge razor has great long-term potential. The down-side of entering this new product into mainstream would be the fact that the pro is already been marketed mainstream, and the clean edge would risk decreasing the brand power, and this would in turn lead to cannibalization.
Positioning the product as a mainstream product, 60% of new sales would come from existing product lines. Also, with mainstream marketing comes a need to increase marketing in order to reach the mass amount of consumers. Pertaining to overall pricing, it appears that Clean Edge is competitive in this aspect, as seen in Exhibit 7 of the case. As illustrated in Exhibit 6, unit sales and cartridge sales are larger in the mainstream position. Due to the fact that sales for both the razor and cartridges are higher in the mainstream market, so are the costs of production.
Therefore, the operating profit margin as a percentage of sales turns out to be less in this position than in the niche. Even with this greater cost, however, the mainstream market seems to hold strong until we take into consideration the effects of cannibalization. I have attached a spreadsheet showing the cost of cannibalization on both market positions. Analyzing the data on the attached spreadsheet data, the cost of cannibalization is less for the niche marketing strategy.
Even though cannibalization gives us first year losses for both scenarios, we do end up with a greater profit using the mainstream method in the second year. Looking at advertising and promotional costs, it is evident that these are much lower in the niche marketing. Looking at the data in the long-run perspective, it appears that the niche market would be more profitable, especially in the event that the company was forced to increase advertising or promotional costs.