Reference no: EM13753657

Marketing by the Numbers: Beauty Balm Cannibalization

The newest product in the cosmetic beauty market is BB cream, which combines multiple skin-care benefits into one product. BB stands for "beauty balm," and it is heralded as a "world-wide phenomenon" and a "multitasking miracle" by companies in the industry. But rather than creating new demand, this all-in-one product could cannibalize sales of existing products such as moisturizers, sun-screens, anti-aging creams, primers, and foundations offered by cosmetic manufacturers. With BB cream sales reaching $9 million in the United State in less than a year and promising to go much higher, skin-care and cosmetic products maker Clinique does not want to miss out on this opportunity. It is introducing a new BB cream product under the Clinique brand name. Although the new BB cream will garner a higher price for the manufacturer ($10.00 per ounce for the BB cream versus $8.00 per ounce for the moisturizer product), it also comes with higher variable costs ($6.00 per ounce for the BB cream versus $3.00 per ounce for the moisturizer product).

1. What brand development strategy is Clinique undertaking? (AACSB: Written and oral communication; Reflective thinking)

2. Assume Clinique expects to sell 3 million ounces of BB cream within the first year after introduction but expects that half of those sales will come from buyers who would otherwise purchase Clinique's moisturizer (that is, cannibalized sales). Assuming that Clinique normally sells 10 million ounces of moisturizer per year and that the company will incur an increase in fixed costs of $2 million during the first year of production for the BB cream, will the new product be profitable for the company?