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Case Analysis

Clean Edge Razor

Indian Institute of Management Indore

Case Analysis
Clean Edge Razor
Splitting Hairs in Product Positioning


Group 6 | Section C

Case Analysis

Clean Edge Razor

1. Introduction
Paramount Health and Beauty Company, a leading name in consumer products including Health, Cleaning, Beauty and Grooming is all set to launch a new non disposable razor with cutting edge technology to improve0 mens shaving experience. The design provides superior performance by the use of a vibrating technology. The new product is to be launched in the Super premium segment, which is the first product in this segment by Paramount. The issue at hand is the decision regarding this products positioning which could be done either in the highly involved Niche market or in the main stream aesthetic shaver market.

2. Overview
1. The US Razor market has several categories namely non-disposable razors, refill cartridges, disposable razors, shaving cream and depilatories. 2. In the period 2007 to 2010, the growth of non-disposable razors is approximately 5% and that for refill cartridges 2% per annum. 3. Paramount was a global consumer products giant with $13 billion in sales. Its portfolio includes health, cleaning, beauty and grooming products. 4. Paramounts non-disposable razor and refill cartridges division contributed $170m revenue with a gross profit of $92m and an operating profit of $26m in 2009. 5. Paramount currently offers two products, Paramount Avail and Pro in this category and the new product clean edge which is to be introduced.

3. Market Segments and Consumer Behaviour

1. The non-disposable razor and refill cartridges market can be divided into three segments based on the price of the product and the quality: value, moderate and super-premium. 2. In the super-premium segment, there have been numerous innovations and this segment is growing at a fast pace. 3. The frequency of purchasing non-disposable razors and refill cartridges is also increasing as the replacement cycle has been shortened. 4. 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).

4. Market Trends
1. There have been numerous product introductions in non-disposable razors and refill cartridges category (22 new SKUs were introduced from 2008-2009). 2. Purchase volumes are not high, but the margins tend to be considerably higher compared to other personal care products.

Group 6 | Section C

Case Analysis

Clean Edge Razor

3. Distribution also started to shift outside the traditional food and drug stores with the former being the main distributors followed by mass merchandisers. 4. There was also a shift toward mens grooming with more media attention and less stigma associated with it.

5. Clean Edge Razor (Product Features)

1. The razor has a vibrating, revolutionary ultra-thin five blade design. 2. One AAA battery, housed in the handle of the razor provided vibrations that stimulated hair follicles. 3. A larger, heavier handle allowed better grip, balance and control while shaving and the advanced ultra-thin blade design reduced irritation. 4. Clinical trials indicated a 25% increase in hair removal and proved that it improves overall skin tone and skin texture.

6. Competition
1. Competition came from direct competitors as well as substitute products. Substitute products include disposables razors, electronic shavers, depilatory creams, wax and laser hair removal. 2. In 2009 the market was dominated by three multinational single players, namely, Paramount, Prince and Benet & Klein. 3. New entrants like Radiance Health Inc. and Simpsons were creating buzz in the market with their new products Tempest (Radiance) and Naiv (Simpsons) and poised to eat away the existing share of Paramount in their current segments which showed greater need for the new product in the pipeline.

7. Branding
Paramount has two options for naming the product: Paramount Clean Edge & Clean Edge by Paramount. The advantage of Paramount Clean Edge is that it is consistent with the overall corporate strategy of building the Paramount brand name equity. While the Clean Edge by Paramount allows the product to stand apart from the current lines with the emphasis on the Clean Edge name. Launching this new product 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.

Group 6 | Section C

Case Analysis

Clean Edge Razor

8. Pro forma Profit & Loss

in Dollars ($) Niche Mainstream in Millions of $ollars Niche Mainstream 1 1.5 3.3 4

Capactiy Production cost/unit Manufacturer Price Suggested Price Revenue Production Costs Year 1 Year 2 1000000 1500000 5 9.09 12.99 9090000 13635000 5000000 7500000 3300000 4000000 4.74 7.83 11.19 25839000 31320000 15642000 18960000 9900000 21900000 2.24 6.22 8.89 61578000 136218000 22176000 49056000 1710000 2450000 19000000 17000000 17000000 14000000 6000000 8000000 43710000 41450000 81528000 109466000

Year 1 Year 2 Year 1 Year 2 Year 1 Year 2

9.09 13.635 5 7.5 4 10

25.839 31.32 15.642 18.96 9.9 21.9

Capactiy Production cost/unit Manufacturer Price Suggested Price Revenue Production Costs 4000000 10000000 2.43 7.35 10.5 29400000 73500000 9720000 24300000 610000 870000 7000000 7000000 6000000 6000000 2000000 3000000 15610000 16870000 30330000 48670000

Year 1 Year 2 Year 1 Year 2 Year 1 Year 2 Year 1 Year 2 Year 1 Year 2 Year 1 Year 2 Year 1 Year 2 Year 1 Year 2

29.4 73.5 9.72 24.3 0.61 0.87 7 7 6 6 2 3 15.61 16.87 30.33 48.67

61.578 136.218 22.176 49.056 1.71 2.45 19 17 17 14 6 8 43.71 41.45 81.528 109.466

Other Costs (Capacity + Adv + Consumer & Trade Promotions)

Capacity Costs Adv Consumer Promotions Trade Promotions Subtotal of Other Costs

Total Costs (excluding cannibalization)

Group 6 | Section C

Case Analysis

Clean Edge Razor

in Dollars ($) Niche Mainstream

in Millions of $ollars Niche Mainstream 0.616 0.924 3.92 9.8 4.536 10.724 38.49 87.135 34.866 59.394 3.624 27.741 3.4848 4.224 16.632 36.792 20.1168 41.016 87.417 167.538 101.6448 150.482 -14.2278 17.056

Cannibalization Costs
Cannibalization (Razors) Cannibalization (Cartridges) Cost of Cannibalization Year 1 Year 2 Year 1 Year 2 616000 924000 3920000 9800000 4536000 10724000 3484800 4224000 16632000 36792000 20116800 41016000 87417000 167538000 101644800 150482000 -14227800 17056000

Total Revenue
Total Revenue Year 1 Year 2 Year 1 Year 2 Year 1 Year 2 38490000 87135000 34866000 59394000 3624000 27741000

Total Costs including Cannibalization

Total costs including cannibalization

Final Margins for Niche and Mainstream positioning


9. Positioning Strategy
Based on the above mentioned final margins which are achieved by taking the revenues and costs into consideration separately, we arrive at a conclusion that the cumulative profits for Niche are more and are increasing year on year when compared with the mainstream market which yields a loss of $14.22m in the first year. So a niche positioning would be a better choice.

10. Marketing Budget

1. Considering Niche positioning, the Advertising and Promotion budget for Clean Edge for year 1 and 2 is $15m and $16m respectively. 2. This expenditure for the existing products was $44.3m in 2009 but due to cannibalization the sales of these are getting reduced by 35%. 3. Assuming that the advertising budget varies in proportion to sales, we can reduce the budget for existing products to $28.8 because the market research predicts these to be in the mature phase of the product life cycle and consumers becoming more sophisticated and technology oriented. 4. Thus the total budget required in year 1 and year 2 assuming similar trend for both is $43.8m and $44.8m respectively which is less than the total projected budget of $48.3 if we go for Niche positioning which allows us to save on advertising and promotion cost is totality.

11. Conclusion
On the basis of pro forma profit and loss, we conclude that it would be highly beneficial for Paramount to launch the product in the Niche market. The advertisement and promotion costs are justified at $15m and $16m for year 1 and year 2 respectively. This way the overall budget of $48.3m is also not exceeded. Also, we propose to name the product as Clean Edge by Paramount.
5 Group 6 | Section C