Case Study Clean Edge Razor

Section C Group 11

Clean Edge Razor Case Analysis Section - C Group 11

Name Aman Srivastava Deepak Sudhakar Krishna Bajaj Prasanna Patange Richa Singh Saikiran Pollamarasetty Vivek Gupta Roll Number PGP2011532 PGP2011617 PGP2011696 PGP2011770 PGP2011823 PGP2011843 PGP2011944

PGP 2011-13

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Case Study Clean Edge Razor

Section C Group 11

Product Characteristics In 2007 Paramount developed Clean Edge, a technologically advanced nondisposable razor in a bid to establish the company as an innovation leader. This new razor had an ultra-thin fiveblade design but its most important characteristic was its vibration technology. The vibrations stimulate hair follicles and lift the hair from the skin. This facilitates a thorough clean shave. The vibrations were generated with an AAA battery housed in the handle of the razor. The handle, therefore had to be large and heavy, and in this in turn provided better grip, balance and control while shaving. The advanced ultra-thin blades reduced irritation and was 25% more efficient in hair removal vis--vis other leading non disposable brands. Trials also showed that use of Clean Edge was beneficial to overall skin condition, tone and texture. Market Characteristics Products available in U.S. Razor market are nondisposable razors, refill cartridge, disposable razors, shaving cream, and depilatories. Nondisposable razors recorded average growth of about 5% in retail sales during the period 2007 to 2010 whereas refill cartridge and disposable razors recorded growth of approximately 2% and 3% respectively for the same period. Innovations and new product introductions are the prime factors for the growth. Nondisposable razors and refill cartridge market is broadly classified into three segments namely value, moderate and super premium based on price and quality. Paramounts consumer research identified distinct segmentation in terms of product benefits and consumer behaviour. 39% of nondisposable razor users are segmented as Involved Razor users, social/emotional shavers; 28% as Involved Razor users, aesthetic shavers and 33% as Uninvolved Razor users, maintenance shavers. Studies from 2009 showed that the retail sales of nondisposable razors and refill cartridge came from 25% volume of super-premium, 43% of moderate and 32% of value segments. Competition In the last decade, the industry has experienced significant growth in the super premium segment. Product innovation and new technology is leading this sector for a number of new entrants. In 2008-09 the rate of new product innovation lead to 22 new SKUs to be introduced. Impact Of Competition On Consumers - The consumers have started buying more razors and cartridges replacement than they had in previous years. The replacement cycle is shortened due to consumers trying out new products and being more involved through advertising and sponsored articles and looking for more innovative products in the category.
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Case Study Clean Edge Razor

Section C Group 11

On Trade - The retail margins associated with the razors is considerably higher and therefore with a large number of new entrants the distributors are responding to the growth by increasing their shelf space for the product category. Distribution is also reaching out from food and drug stores (42%) to mass merchandisers (21%) and club stores (5%). On Media Expenditure - As per 2009 data the total media expenditure (excluding trade and consumer promotion) is $103.6 m while this number is expected to reach $137.7 m in 2010, a rise of 33% in a year. Looking at some of the prime competitors figures we get- Revenues for PRINCE are $224 m, operating profit $ 45 m, media expense $27.8 m in 2009 and expected $ 29.2 in 2010. For Benet and Klein the media expense is $35.2 m in 2009 and expected $36.8 m in 2010. For Paramount the revenue for 2009 is $170 m, operating profit is $26 m and total media advertisement expense is $ 44.3 m. Thus the immense competition has lead to over promotion and media expenditure by the companies which is difficult to maintain given the operating profit margins. POSITIONING: Clean Edges improved design provided superior performance. Within the super-premium segment, Clean Edge could be positioned either as Niche product focusing on high involvement, fastidious groomers looking for a superior shaving experience, or a mainstream product focusing on the broad advantage of offering the closest possible shave. Each positioning has its own pros and cons. Niche positioning: Pros: Positioning Clean Edge as niche will complement companys existing product portfolio perfectly. From the exhibits, its visible that it will result in high and consistent profit margins for the company and the risk involved will be less. Apart from that Niche positioning will require $15 million in total marketing expenditures in the first year as opposed to $42 million in mainstream Cons: First of all it has a limited consumer base and secondly the companys current products Pro and Avail had not introduced any innovations in the last five years. Pro is in the mature phase and theres a high probability of its sales declining soon. Therefore by launching in this segment Paramount will lose their loyal customer base which is there with Pro and Avail.

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Case Study Clean Edge Razor

Section C Group 11

Mainstream positioning: Pros: Consumers are becoming more and more sophisticated day by day and expect more advanced technology. Paramounts bread and butter product, Pro was in the mature phase of the product lifecycle so there is a possibility of decline. Positioning Clean Edge as mainstream product will help prevent loyal Paramount customers from being wooed away to more innovative brands. Main stream razor unit volumes are expected to capture over three times the volumes of the niche market in the first year. Clean Edge has the potential for true market domination and would quickly gain mass appeal. Cons: Paramount already had product in mainstream positioning -Paramount Pro so launching it as mainstream positioning will dilute the brand power and will lead to cannibalization. More marketing support will be needed to reach the target masses. The company would require an extensive advertising campaign, considerable consumer promotions would be needed and thus the expenses associated with them will be huge. To reach full sales potential with this positioning, $42 million marketing budget would be needed for year one. Cost of Cannibalization:
Parameters Razor: Planned Capacity (million unit) Razor: Manufacturer Price Razor: Sales Cartridge: Planned Capacity (million unit) Cartridge: Average Manufacturer Price Cartridge: Sales Total Razor: Production per unit cost Razor: Production Cost Cartridge: Average Production Cost per unit Cartridge: Production Cost Capacity Cost (million) Advertising Cost (million) Consumer Promotion (million) Trade Promotion (million) Total Cost PGP 2011-13 Niche Year 1 1 9.09 9.09 4 7.35 29.4 38.49 5 5 2.43 9.72 0.61 7 6 2 30.33 Year 2 1.5 9.09 13.635 10 7.35 73.5 87.135 5 7.5 2.43 24.3 0.87 7 6 3 48.67 Mainstream Year 1 Year 2 3.3 4 7.83 7.83 25.839 31.32 9.9 21.9 6.22 6.22 61.578 136.218 87.417 167.538 4.74 15.642 2.24 22.176 1.71 19 17 6 81.528 4.74 18.96 2.24 49.056 2.45 17 14 8 109.466 Page 4

Case Study Clean Edge Razor Operating Profit Profit as a % of sales Market Share% Market Size Cannibalisation as a % of sales Cost of Cannibalization Profit after cannibalization 8.16 21% 23.40% 208 35% 17.04 -8.88 38.465 44% 21.40% 218 35% 16.33 22.14

Section C Group 11 5.889 7% 23.40% 208 60% 29.20 -23.31 58.072 35% 21.40% 218 60% 27.99 30.08

Total sales of Paramount for Avail and Pro for first year (2009) and second year (2010) are calculated using the market size (retail sales) and corresponding market share, both real (2009) and estimated (2010), of Paramount. The cost of Cannibalization is calculated using total sales and percentage of cannibalisation given. Analysing the result, it is evident that launching the product is a profitable venture; however, the cost of cannibalization may change equations. The cost of cannibalization is lower for the niche market as compared to mainstream market. Although, cannibalization adjustments give us losses for the first year in the case of both mainstream and niche, the profit obtained in the second year for mainstream is larger than niche market. If we consider profit obtained in both the years, we observe that Profit after cannibalization (in $ million) for the first year (-8.88 + 22.14 = 13.26) is larger than second year (-23.31 + 30.08 = 6.77). In addition, if we consider advertisement and promotion costs, mainstream involves a larger spend in this segment. In case this cost has to be increased, the profit may reduce further if the investments do not translate into revenue. Hence, we can derive that positioning the product for niche market is profitable in long run. Branding Strategy There are two options before Paramount as far as the brand name is concerned, viz. Clean Edge by Paramount and Paramount Clean Edge. The former is suitable if the company wants to emphasize the product as a unique breakthrough/stand-out product. However given the tight advertising budget it will be wise to consider Paramount Clean Edge because there is greater emphasis on the name Paramount and rather than the product name. This strategy facilitates new product acceptance because potential buyers are already familiar with the Paramount brand. The amount of advertising required to specifically convince consumers about trying Clean Edge, as a completely new product will be considerably reduced. Besides, this is consistent with the overall corporate strategy of building the Paramount brand name equity. Thus, by naming the product Paramount Clean Edge, Randall can leverage the companys positive image in the consumers mind to generate maximum sales.
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