1. Use “niche market” positioning concept
Randall should use the “niche market” positioning concept. As the case points out, both “niche” and “mainstream” strategy will help Paramount to raise its market share in super-premium non disposable razor segment. But the “niche” strategy will enables Clean Edge Razor to contribute profit and at the same time, limit the effect of cannibalizing Paramount’s existing products. Two reasons Randall should use the strategy are presented below:
• After quantitative analysis, from Exhibit 7 we see the total estimated profit generated by mainstream strategy in Year 1 & 2 is $64 million, bigger than $46.6 million generated by niche market strategy. However, because Paramount only have the budget totaled $48.3 million on advertising and promotions in 2010, it means if Randall requires $42 million to use mainstream strategy to promote Clean Edge Razor, the expense will account for 87% of the company’s annually marketing budget, which will definitely squeeze the budget of Paramount’s other cash cow products, and thus cause the tremendously potential risks on other product’s competitiveness in Moderate and value market.
• Secondly, after deducting the cannibalization effect, the profit come from “Paramount’s new customers” who buy Clean Edge Razor under niche strategy scenario in Year 1& 2 is $30.3 million, bigger than $25.6 million under mainstream strategy scenario. In other words, although the sales volume is evidently large by using mainstream strategy which William Kim suggests, Paramount can earn more money from new customers if it chooses to use niche strategy.
Though the profit generated by “new customers” under niche strategy scenario is $4.7 million more than mainstream strategy, it is still necessary to look into the additional profit generated from exist customers who switch from Paramount’s other products to Clean Edge Razor. Unfortunately, the case does not provide the sales...