Arguments for launching Clean Edge as a niche product

A primary of launching the Clean Edge as a niche product is that the company would incur a lot less cannibalization of its Pro and Avail product lines, which allowed Paramount to capture the unit-volume market-leader position in 2009. Though a cannibalization rate of 35% is expected with the launch of Clean Edge as a niche product, the rate is significantly lower than the 60% expected if Clean Edge was positioned as a mainstream brand. As Rosenberg indicated, a niche positioning strategy would be a better fit to the company’s existing product portfolio.

Furthermore, the niche positioning strategy would incur considerably lower marketing expenses than the mainstream positioning strategy. Marketing expenses for the niche positioning strategy is $15 million for the first year and $16 million in the second year. The niche option is much lower compared to the expected marketing expenses for the mainstream option, which would cost $42 million in the first year and $39 million in the second year. A strong quantitative argument could be made for launching Clean Edge as a niche product because it would cost $50 million less in marketing expenses over the course of two years. Moreover, greater advertising expenditures for the mainstream launch may not be justifiable given the fact that the cost of advertising is increasing greater than the rate of retail sales dollars in the super-premium segment.

The scenario analysis conducted (Appendix A) using financial forecast figures from Exhibit 7 initially show that the mainstream positioning may yield greater profits over the first two years. The total operating profit forecasted under the mainstream strategy over the first two years is $63,961,000 compared to $46,625,000 under the niche strategy. However, after adjusting the profits for the effects of cannibalization,