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Cannibalization Cost Analysis Report

1) The document compares the capacity, sales, costs, profits, and cannibalization effects of niche and mainstream razors and replacement cartridges over two years. 2) While the niche strategy has lower sales but higher profit margins in year 1, the mainstream approach surpasses it in total sales and profits by year 2 due to greater sales volumes and lower percentage of cannibalization. 3) Cannibalization, in which razors replace cartridge usage, reduces the niche approach's profit after two years but results in an overall profit for the mainstream strategy due to much larger sales and lower cannibalization rates.

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UtkristSrivastava
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143 views1 page

Cannibalization Cost Analysis Report

1) The document compares the capacity, sales, costs, profits, and cannibalization effects of niche and mainstream razors and replacement cartridges over two years. 2) While the niche strategy has lower sales but higher profit margins in year 1, the mainstream approach surpasses it in total sales and profits by year 2 due to greater sales volumes and lower percentage of cannibalization. 3) Cannibalization, in which razors replace cartridge usage, reduces the niche approach's profit after two years but results in an overall profit for the mainstream strategy due to much larger sales and lower cannibalization rates.

Uploaded by

UtkristSrivastava
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd

Cost of Cannibalization

Parameters Niche Mainstream


Year 1 Year 2 Year 1 Year 2
Razor: Planned Capacity (million unit) 1 1.5 3.3 4
Razor: Manufacturer Price 9.09 9.09 7.83 7.83
Razor: Sales (in million) 9.09 13.635 25.839 31.32
Cartridge: Planned Capacity (million unit) 4 10 9.9 21.9
Cartridge: Avg Manufacturer Price 7.35 7.35 6.22 6.22
Cartridge Sales (in million) 29.4 73.5 61.578 136.218
Total Sale 38.49 87.135 87.417 167.538

Razor: Production per unit cost 5 5 4.74 4.74


Razor total production cost 5 7.5 15.642 18.96
Cartridge: Avg Production per unit cost 2.43 2.43 2.24 2.24
Cartridge total production cost 9.72 24.3 22.176 49.056
Capacity cost (in million) 0.61 0.87 1.71 2.45
Advertising Cost (in million) 7 7 19 17
Consumer Promotion Cost (in million) 6 6 17 14
Trade Promotion (in million) 2 3 6 8
Total Cost 30.33 48.67 81.528 109.466

Operating Profit 8.16 38.465 5.889 58.072


Profit as a % of sales 21.20% 44.14% 6.74% 34.66%
Market Share % 23.40% 21.40% 23.40% 21.40%
Market Size (in million) 208 218 208 218
Cannabilization as a % of sales 35.00% 35.00% 60.00% 60.00%
Razor Unit Volume after cannabilization 0.35 0.525 1.98 2.4
Contribution per unit of Razor 1.76 1.76 1.76 1.76
Cartridges Unit Volume after Cannabilization 1.4 3.5 5.94 13.14
Contribution per unit of Cartridge 2.8 2.8 2.8 2.8
Total Cannabilization 4.536 10.724 20.1168 41.016
Profit after Cannabilization 3.624 27.741 -14.2278 17.056
Total Profit after 2 yrs 31.365 2.8282

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