Clean Edge Razor Case Analysis

Prepared by: Chirag Barhate Jaydeep Joshi Deep Dey Dibyayan Das Kalluri Dashmanth Reddy Gaurav Gupta

Case Overview
Paramount Health and Beauty Company, a leading producer of consumer products in Health, Cleaning, Beauty and Grooming, will soon be launching a non-disposable razor that promises to improve the overall shaving experience to a new level. The new product developed with superior design and technology promises a new value dimension to the consumer and recognizing this opportunity, Paramount has decided to launch the product in the Super Premium segment a segment where Paramount doesnt have any presence so far. The next big decision is the positioning of the product which can either be in the highly conscious Niche market or the aesthetic drive mainstream market.

Background information
The US Razor market is mainly divided into the following categories - non-disposable razors, refill cartridges, disposable razors, shaving cream and depilatories.

From 2007 to 2010, growth of non-disposable razors is approximately 5% and that of refill cartridges is 2% per annum. Currently, Paramount is a global consumer products giant with $13 dollars in sales. Paramount currently offers two products Paramount Avail and Pro in the Razor market.

Market Segments and Consumer Behavior

Non-disposable razor and refill cartridges had three segments value, moderate and superpremium. Sales in the Super premium segment have been mainly driven by product innovation. There are three types of consumers as per their involvement with the product: a. Aesthetic shavers - 28% (involved and motivated by the cosmetics results). b. Social/emotional shavers - 39% (involved and motivated by the overall shaving experience). c. Maintenance shavers 33% (completely disinterested).

Market Trends
The number of new products in non-disposable razors and refill cartridges category has grown. The margins are higher when compared to the personal care products. There was a shift in the market, where male grooming was given more attention and the frequency of purchase increased due to sponsored articles regarding advantages.

Competition
Apart from direct competitors, substitute products such as disposable razors and electronic razors also posed a competiton.

In 2009 the market was dominated by three multinational single players, namely, Paramount, Prince and Benet & Klein. New entrants like Radiance Health and Simpson were aggressively marketing their new products Tempest and Naiv that threatened to cut into the existing share of Paramount products. This situation emphasizes the need for a differentiating product for Paramount.

Branding
Paramount has two options for naming the product: Paramount Clean Edge & Clean Edge by Paramount. Between the two Paramount Clean Edge is consistent with the overall corporate strategy of building the Paramount brand name equity. On the other hand Clean Edge by Paramount makes the product distinct with the emphasis on the Clean Edge name. The new product launch in either mainstream or niche will lead to cannibalization of the existing Pro and Avail products. Since the cost of cannibalization is really high i.e. 60% for mainstream and 35% for niche positioning, so Clean Edge by Paramount is a better naming strategy for better differentiation of the product manufactured by Paramount. This will also help in lowering down the cannibalization rate.

Profit & Loss Analysis

Contribution Cannibalization margin per Year1 Year2 Percentage unit 1 1.5 35 1.76 9.09 9.09 9.09 13.635 5 5 0.616 4 7.35 29.4 2.43 9.72 3.92 0.61 7 6 2 34.866 38.49 3.624 5 7.5 0.924 35 Capacity Manufacturer Price Total Revenue Production cost per unit Total Production Cost Cannibalization cost Capacity cost Advertising Consumer promotions Trade promotions 10 7.35 73.5 2.43 24.3 9.8 0.87 7 6 3 59.394 87.135 27.741 2.8

Niche Strategy

Razors

Driver items Capacity Manufacturer Price Total Revenue Production cost per unit Total Production Cost Cannibalization cost

Cartridges

Other Costs

Total Cost(Razors+Cartridges) Total Revenue(Razors+Catridges) Final Margin

Cannibalization cost is calculated as % of cannibalization * capacity unit*contribution margin per unit

Mainstream Strategy

Razors

Driver items Capacity Manufacturer Price Total Revenue Production cost per unit Total Production Cost Cannibalization cost Capacity Manufacturer Price Total Revenue Production cost per unit Total Production Cost Cannibalization cost Capacity cost Advertising Consumer promotions Trade promotions

Contribution Cannibalization margin per Year1 Year2 Percentage unit 3.3 4 60 1.76 7.83 7.83 25.839 31.32 4.74 15.642 3.4848 9.9 6.22 61.578 2.24 22.176 16.632 1.71 19 17 6 101.6448 87.417 -14.2278 4.74 18.96 4.224 60 21.9 6.22 136.218 2.24 49.056 36.792 2.45 17 14 8 150.482 167.538 17.056 2.8

Cartridges

Other Costs

Total Cost(Razors+Cartridges) Total Revenue(Razors+Catridges) Final Margin

Cannibalization cost is calculated as % of cannibalization * capacity unit*contribution margin per unit

Positioning Strategy After looking into the revenue and cost considerations and the final margins so obtained, it is clear that overall profits are more for Niche, which also increases year on year while for mainstream in the first year itself, there is a loss of $14.22 million dollars. So, the strategy should be towards niche positioning. Marketing Budget Analysis Allocated Budget for Marketing in 2010: $48.3 million dollars For Niche positioning the marketing budgets are: $15 million for Year 1 and $16 million for Year 2.

If 35% cannibalization has happened and also if the marketing cost for Paramount Pro and Avail products are in the same proportion then marketing budget for these products would be 65% of $44.3 million dollars (total marketing effort in 2009) which is $28.2. So, surplus marketing budget after niche positioning would be YEAR1: $48.3 (28.2+15) = $5.1 million YEAR2: $48.3 (28.2+16) = $4.1 million So, in conclusion, with niche positioning we can also save in marketing effort. Conclusion Positioning strategy should be towards niche positioning in super-premium market in view of the favorable operating margins and savings in marketing efforts. Strategy Formulation using Porters Five Forces Analysis: Threat of New Entrants: High Pressure

Low barriers Entry in the non-disposable razor market: Competitors Simpsons and Radiance are also planning to enter the super premium segment as targeted by Paramounts CleanEdge. They are planning to leverage their established deodorants brand names. Technological Advantage: Paramounts Cleanedge may lose its differentiating technological advantage as the other two entrants also claim to have developed their products with cutting edge technology. Advertising: Both the new entrants are planning to advertise their products aggressively.

Threat of Substitute Products: Low pressure

The substitute products (electric shavers) are positioned to target value oriented segment whereas CleanEdge is positioned to target the Super Premium Segment. So the threat is low.

The Bargaining Power of Buyers: Moderate pressure

Pricing: The products of the new entrants are competitively priced compared to Paramounts CleanEdge razors. Razor Cost(Mainstream) in Razor Cost(Niche) in $ $ 11.19 12.99 11.8 10.99

Product Name Clean Edge Naiv Tempest

There is a possibility that the consumer might buy Naiv and Tempest because of their lower price compared to CleanEdge.

The main competitor Princes non-disposable Razors (Cogent) is priced almost the same as Paramounts CleanEdge.

The Bargaining Power of Suppliers: Low pressure

It can be assumed that the suppliers providing raw materials are not concentrated or differentiated. So their bargaining power is low. Any supplier would not want to lose a well established customer like Paramount.

Rivalry Among Existing Firms: Moderate Pressure

Currently, the main competitors in the super premium segment are Prince and Benet & klein. Vitric Master, a super-premium product by Benet &Klein launched in 2009 had a high growth rate in 2010 i.e. the market share changed from 0.9% to 5.2%. At the same time, Princes super-premium product Cogent lost its market share in 2010 from 29.4% in 2009 to 21.3% in 2010. This indicates that the launch of a new product can result in a loss in market share of an existing product. Similarly, the launch of Clean Edge might result in the loss of market share of the competitors products. Advertising spend capability of Prince and Benet & Klein is much higher than that of Paramount. So, in order to maintain their market share, Prince and Benet & Klein can actively promote their products in response to Paramounts Clean Edge product launch.