Clean Edge Razor Case Analysis

Clean Edge Razor Case Analysis 1-Synopsis: 1.1-Paramount’s Core Business Paramount is a Health, cleaning, grooming and beauty company. It is a leading global consumer product company. Paramount is leading in producing nondisposable razors since 1962. It generates two lines: Paramount Pro which is positioned in the moderate segment and Paramount Avail in the value segment. 1.2-Problem raised in the case On August 9, 2010, a group of executives from Paramount Health and Beauty Company were testing out and discussing Paramount’s newest technologically advanced nondisposable razor Clear Edge that provide superior performance. Jackson Randall, Product Manager, Should present a clear marketing analysis to recommend: How should Clear Edge razor enter the Market: Super Premium, Moderate or Value Positioning strategy : Mainstream or Niche Brand Name: “Clean Edge by Paramount “or “Paramount Clean Edge” Market Budget for promoting Clean Edge: increase in overall budget 1.3-Field of Decision To be able to have the best result, we need to assess competitors, positioning, cannibalization and customer behavior. 2-Facts Findings: 2.1-Company Overview: Paramount is a Health, cleaning, grooming and beauty company. It is a leading global consumer product company. It produces 13 billion dollars as worldwide sales and 7 billion dollars as gross profits in 2009. Paramount is leading in producing nondisposable razors since 1962. It generates two lines: Paramount Pro which is positioned in the moderate segment and Paramount Avail in the value segment. By 2009, these nondisposable razors generated 170 million dollars as revenue, 92 million dollars in gross profit and 26 million dollars in operating profit. 2.2- US Razor Market: Between 2008 and 2009, 22 new SKUs in the nondisposable sector and refill cartridge were launched and targeting the super-premium segment that is rapidly increasing for the past ten years due to product innovations. These sectors were dominated by three leading brands: Paramount, Prince and Bent&Klein. The three segment attributed by those companies to their nondisposable razors are: value, moderate and super premium based on the quality and price. Many razors categories are included in the US razor market. Clean Edge has its place in the nondisposable razor that shows a fast growth stage about 5% per year from 2007 to 2010 and in the refill cartridge group that showed growing of 2% per year from 2007 to 2010. (See exhibit1) 2.3- Consumer Purchase Behavior: Distinct segmentation in terms of products benefits and consumer behavior. “Maintenance Shavers” 33% were almost completely disinterested in the product category. Users involved in experiment new technology are divided into two categories: “Social/Emotional shavers”39% are involved by the overall shaving experience, while “Aesthetic shavers” 28% were more interested in cosmetic results. 2.4- Competitors Overview and analysis: Disposable razors (low price and low innovations) and electric shavers (occupy 27% of the razor market by having easy handle and low skin irritation characteristics) are the direct competitors for the nondisposable razor and refill cartridge market. In the nondisposable razor and refill cartridge market, Paramount’s main competitors are prince, Benet&Klein and two new entrants Radiance and Simpsons. Since the 1950s, Prince has dominated the nondisposable razor market with the super-premium brand category named Cogent and Cogent Plus. Prince held the number one position in terms of retail dollar sales in the nondisposable razor market. Since 1985, Benet& Klein joined the nondisposable razor and refill cartridge market with the brand name Vitric (moderate), Vitric Advanced (super premium) and Vitric Master (Super Premium). Simpsons used Tempest (Super premium) as the brand name to join the nondisposable razor and refill cartridge market. Radiance right now is Paramount’s strongest competitor because of the launching of the new brand name Navi razor in September 2010, which adopts similar technology as Clean Edge and will also be positioned in the super premium segment (see exhibit2). Most of the current nondisposable razors brands are in the super premium segment (see exhibit 3) , however Paramount does not have any brand name in this segment. Paramount’s product with the brand name Paramount pro is classified in the moderate segment and Paramount Avail is classified in the Value segment. Most of the current nondisposable razor brands are positioned into super-premium Segment. However, Paramount’s current products – Paramount Pro and Paramount Avail are only targeted to the moderate and value markets. Cogent (super-premium) from Prince had the highest unit and dollar market share in 2009, followed by Vitric (moderate) from B&K. However, according to market share forecasting of 2010, both Cogent and Vitric will lose their market share due to the new brand launches of Navi and Tempest. 3-Swot Analysis: Strength Paramount is a historical global Weakness Cannibalization may Occur consumer product company Paramount Pro had strong market share in the business Paramount was the unit volume market leader in 2009 Clear Edge Razor carried new breakthrough technology. Marketing budget of Clean Edge has Limitations Opportunities Threats • Nondisposable razors sales had • The accelerate rate of new-product experienced approximately 5% growth introductions for nondisposable razors annually from 2007 to 2010. and refill cartridges in these years. • In the last decade, the industry had • The new launched Navi made from experienced significant growth in the Radiance had similar new technology Super-premium segment. with Clean Edge. • The growth of super-premium segment • There are many substitute products was caused by the product innovations. available. • The purchase and replacement cycle of • The nondisposable razor market is razors and replacement were shortening high competition. • In the last five years, there was no significant technology innovations Introduced by Paramount. • Male-specific grooming products became the mainstream in the market. 4-Positioning Analysis (Pros and Cons): 4.1-Niche Market According to P&L forecasting, more profits will be gained for Paramount after cannibalization (28.55 million dollars more than mainstream positioning scenario after two years). More consistency with the marketing message of promoting product’s high technology and innovation. It requires less marketing expenditures (15 million dollars) compare with mainstream positioning (42 million dollars) as well as advertising and promotions expenditures (31 million dollars in niche vs. 81 million dollars in mainstream for 2 years). Cannibalization will be low with Pro/Avail (35%) comparing with mainstream strategy (60%). Clean Edge will be the first product in Paramount to target the niche market which is not saturated and has potential to grow in the future; by this way the company will have products in each market segments. As per Paramount’s senior executive’s preferences, Clean Edge will be placed in the super premium segment and the niche market is suitable to better fit its pricing strategy. The disadvantage is that the volume sales in the niche market are relatively less than the mainstream market. 4.2-Mainstream Market Pro Paramount’s main product is in the maturity phase and has the possibility to decline in the future. For this reason, clean edge with its innovation technology can be a good replacement to maintain Paramount’s current and loyal customers. The volume sales are higher in the mainstream market than in the niche market and Paramount’s competitors are fewer in the mainstream market (only Paramount Pro and Vitric exist). The disadvantage of mainstream strategy are: cannibalization rate is higher (60%) than in the niche market (35%). Marketing allocations are very high but the total profits after two years will be only 2.82 million dollars but in the niche market the profit will be 31.37 million dollars. 5- Suggested Recommendations: 5.1-Suggested Decision Based on the P&L forecasting analysis, Clean Edge could be more profitable if positioned into niche market (targeting social/emotional shavers and aesthetic shavers) than mainstream market. The total profit after two years is 31.37 million dollars in niche markets. 2.82 million dollars in mainstream market. (See exhibit 4) 5.2-Brand Name Suggestion Positioned in the niche market the brand name should start with “Clean Edge” and followed “by paramount” for the reason to differentiate the product and focus on its technology innovation to stand out from Paramount’s others product lines which have less technology and target lower price market. By Highlighting “Clear Edge”, less brand recall will occur and it might reduce cannibalization with Paramount’s others products lines and create customer’s new brand preference. On the other hand, by keeping the company name as part of the brand name, Paramount’s royal customers might still buy its new products to try it. 5.3-Communication, Advertising strategies and Media Selection Communication will highlight Clean Edge breakthrough technology (25% increase on overall hair removal and improve skin condition), aesthetic design and its high quality. It will be framed as an exclusive, stylish, high-tech and high end razor for social/emotional and aesthetic customers. For new product launch, free media coverage will be the best chance to introduce the new technology to the public. Based on both target audiences characteristics and product segmentation the media selection of Clean Edge by Paramount advertisements will include TV(55%), print magazine(30%), and online social media(15%). All media channels chosen by Paramount have more male viewers than women, the main targeted gender to use Clear Edge. 5.4-Promotion Plan Coupons are essential for product launch. Cents off coupons, free razor coupons, bonus packs, as well as free cartridge coupons will be used to stimulate consumers purchase intentions. In store displays and feature ads will be applied to have a better position of shelf space.Hosting a trade show will be a good chance to promote Clean Edge within retailers. P-O-P displays and co-op advertising will be also effective to increase the product visibility and to reinforce customer’s impressions toward Clean Edge. 5.5-Marketing Budget Allocation According to the marketing budget forecast for 2011 and 2012 from Paramount, positioning Clean Edge in the niche market will require $15 million overall in the first year, and $16 million in the second year. For the second year, advertising and consumer promotions will be the same; however, the trade promotions will add on $1 million to maintain a high exposure rate in the retail stores and keep the brand awareness in front of customers (See exhibit 5). Exhibit 1. Current Nondisposable Market: Brand Brand Names Paramount Segments Dollar MKT share (09)Dollar MKT Share E (10 Paramount Pro Paramount Avail Prince Cogent Cogent Plus B&K (1985) Vitric Vitric Advanced Vitric Master Radiance Naiv Moderate 18.5% Value 4.9% Super-premium29.4% Super-premium1.3% Moderate 17.8% Super-premium0.7% Super-premium0.7% Super-premium2.6%(2010) 18.5% 2.9% 21.3% 4.9% 15.8% 0.1% 5.2% 2.6% Simpsons Tempest Super-premium1.1% 5.7% Other x More in Value 22.8% 23.0% Exhibit 2. Current Nondisposable Market Positioning: Exhibit 3. Current Nondisposable Razors Segmentation: Value 10% Moderate 20% Super- premium ‐ 70% Exhibit 4. Clean Edge Razor Pro Forma Income Statement Clean Edge Razor Pro Forma Income Statement Niche Mainstream Razor Unit Volume Razor Manufacturer Price Cartridge Unit Volume Cartridge Manufacturer Price Total Revenue Year 1 1 $9.09 4 $29.40 $38.49 Year 2 1.5 $13.64 10 $73.50 $87.14 Year 1 3.3 $25.84 9.9 $61.58 $87.42 4 $31.32 21.9 $136.2 $167.54 Razor Production Price Cartridge Production Price Capacity Price Advertising & Promotion Total Expenses $5.00 $9.72 $0.61 $15.00 $30.33 $7.50 $24.30 $0.87 $16.00 $48.67 $15.64 $22.18 $1.71 $42.00 $81.53 $18.96 $49.06 $2.45 $39.00 $109.47 Operating Profit $8.16 $38.47 $5.89 $58.07 Cannibalized Razors Cannibalized Cartridges Total Cannibalization $0.62 $3.92 $4.54 $0.92 $9.80 $10.72 $3.48 $16.63 $20.12 $4.22 $36.79 $41.02 Total Income after Cannibalization Profit After 2 years $3.62 $ 31.37 $27.74 -$14.23 $ 2.83 Exhibit 5. Marketing Budget Recommendations on niche positioning strategy ($ in millions): First Year estimated budget First Year Allocation Second year estimated Second Year Allocation Year 2 budget Advertising $7 Consumer Promotions $6 Trade Promotions $2 TV Magazine Internet Coupons Events Bonus Packs Store Displays Feature Ads Trade Shows $3.85 $2.1 $1.05 $3 $1.2 $0.9 $0.6 $7 Same as the first year $6 Same as the first year $3 $0.6 Trade Allowances P-o-p P-o-p Co-op Ads $0.3 Co-op Ads $0.3 $1.1 $1.8 $0.9 $0.3