John Richard (Group 11) MARK 5311-002 March 1, 2012

Case #2: Clean Edge Razor

Situation Analysis

Paramount has developed a non-disposable razor, Clean Edge, with an improved design providing superior performance by using a vibrant technology to stimulate hair follicles and lift the hair from the skin, allowing for a more thorough shave. The majority of men on whom the product was tested, felt it was the closest, cleanest, and smoothest shave they had encountered. For this reason, all the executives have agreed that Clean Edge must be priced in the Super Premium Segment. The decision has to be made about the positioning of Clean Edge in the market. The options available are Mainstream Entry, with the broad appeal of being the most effective razor available on the market, and Niche Strategy, targeting the most involved Super Premium consumers.

According to a recent survey, non-disposable razors experienced approximately 5% growth per year from 2007 to 2010, while, refill cartridges grew approximately 2% per year over the same period. In the last decade industry has experienced significant growth in the super premium segment. Paramounts consumer research showed that intensity of involvement with the product varied significantly among consumers. About 67% of the consumers were Involved Razor Users who were motivated by the overall shaving experience and who were interested in cosmetic results. Similarly, there has been an increase of around 5% and 9% in the Media Advertising and Promotion Expenditure respectively. Male specific products have outpaced growth on the women market.

With Paramounts current two lines of non-disposable razors and refill cartridgesthe Paramount Pro which was positioned in the moderate segment of the product category, and the Paramount Avail, which was considered a value offering, it is the responsibility of Jackson Randall, product manager for Clean Edge, to provide a recommendation to the steering committee on product position, brand name and marketing budget allocations for the launch. He understands the competition from a similar product developed by Radiance called the Naiv which was due to launch in 2010. Should Jackson Randall recommend a Mainstream Entry or a Niche Strategy for the Clean Edges market entry?

Alternate Analysis

Paramount currently has 2 segments, Moderate and Value, in which Paramount Pro and Paramount Avail are being marketed and they together hold 23% of the retail market share. As far as competition is

concerned, they have both direct and substitute competitors. The new product Naiv, by Radiance, is the only real competition Paramount is concerned about. Considering Radiances past launched in newproduct categories, Paramount believes it might do well this time too. The decision now is to choose the positioning of Clean Edge in the market. The choices are Mainstream Entry and Niche Entry.

From the Appendix 1A attached, we can see operating profit from Mainstream Strategy is projected to be $8.16 million in the first year of launch and from Niche Strategy as $5.89 million. Even though the operating profit is more for Niche strategy for the first year, we see that the projected operating for Mainstream Strategy for second year increased 9 times the first year, whereas, the increase is only 3.71 times for Niche Strategy. If we compare the profit margins for each year, we see that profit margins for Niche strategy is more than Mainstream Strategy.

The other important factor that we have to consider is the effect of Cannibalization (Appendix 1B). Paramounts product manager, Albert Rosenberg, believes that Mainstream Strategy will siphon off the consumers from Pro and Avail segments, dilute the brand power and the company will cannibalize its own products. Whereas, he believes that, Niche Marketing will make more sense and complement the existing product portfolio perfectly. Product manager for Clean Edge, Jackson Randall, along with his team has determined that 60% of Clean Edge sales would likely come from current Pro/Avail customers in a mainstream strategy and 35% of Clean Edge sales would likely come from current Pro/Avail customers in a niche strategy. With this data, we get the True Profit. We can see that the True Profit for Niche Strategy is $3.62 million in first year of launch and $27.74 million in the second year which is 6.65 times the first year. Whereas, there is a negative profit of $14.23 million for Mainstream strategy in the first year and profit of $17.06 million.

Decision and Justification

Paramounts corporate marketing director, William Kim, says that research shows that consumers are becoming more sophisticated and expect more advanced technology which Paramount Pro and avail does not provide. Paramount Pro is in the mature state of Product Life Cycle and will decline. Mainstream Strategy will help prevent loyal Paramount customers from being wooed away to more innovative brands. Clean Edge has the potential for true market customization and needs to be positioned as such.

Paramounts product manager, Albert Rosenberg, believes that Mainstream Strategy will siphon off consumers from Pro and Avail and will dilute the brand power and will cannibalize the existing products. Whereas Niche strategy makes more sense and will complement the existing product portfolio. From Appendix 1A, we can see the effect of cannibalization from Mainstream Strategy. The company will lose $14.23 million on the first year release. Whereas, Niche strategy will has a steady increase in true profit from the first year of release. The expense on marketing for Niche is also less when compared to

Mainstream. i.e. An average of $15.5 millions for Niche versus $40.5 million for Mainstream strategy. Evidently, Niche strategy is profitable and less risky than Mainstream Strategy.

There are two options for brand name for Clean Edge. Paramount Clean Edge and Clean Edge by Paramount. The latter uses house of brands strategy and I believe Paramount should use it. It first emphasizes on the new product and then on the company name. So, the consumers know that there is a new product and it is from the company they already like. Since the product is new, emphasizing on the product name will help it grow, rather than emphasizing on the company name which is already doing in market.