CASE STUDY ANALYSIS: CLEAN EDGE RAZOR: SPLITTING HAIRS IN PRODUCT POSITIONING

SUBMITTED BY: M. RAYHAN SHEIKH WAQAR MAHMOOD FAHAD MASOOD M. SAAD SHAMS

SECTION: A MBA II (2012-13)

SUBMITTED TO: MS. TANIA HASSAN MARKETING STRATEGY

LAHORE SCHOOL OF ECONOMICS

Overview of the case: The case is all about the new product which is going to be launched by Paramount Health and Beauty Company. Now having some overview of the company, actually Paramounts corporate divisions included Health, Cleaning and Grooming. It actually entered in the field of nondisposable razors and refill cartridges in US. In 2009 Paramount captured 23.3% of retail unit share. The main competitors of Paramount are Prince and Benet & Klein. In 2007, Paramount started to form a technologically advance product which could be different. So as the result of such efforts, Clean Edge was developed. Clean Edge is basically a non-disposable razor and has an additional feature of vibration. The whole case is evolving around Clean Edge, and it brand positioning, budgeting and branding. The product manager of Clean Edge is confused regarding whom to target, it can be the main stream, niche and super premium consumer. Main stream is basically the mass customer of the company, where as niche are value seekers and super premium are the consumers which are willing to pay premium amount for the premium product which is much better than the other products in the market. The US razor market is subdivided into several categories, like disposable and non-disposable razors, refill cartridges, depilatories and shaving cream. There is approximately 5% growth per year of non-disposable razor and 2% growth of refill cartridges. Paramount has decided to launch Clean Edge in the start of 2011. One of the competitor launched Naiv Razor which has the similar feature as Clean Edge have, and it captured 13% share, hence Paramount expectations are high. Now Paramount is expecting problems in positioning, and is in search of effects or consequences of each strategy for positioning.

Problems: 1) The first problem is of Clean Edge name. As Paramount is confused regarding assigning the name as Paramount Clean Edge or Clean Edge by Paramount. As Paramount Clean Edge is depicting overall organization as maintaining the Paramount as the brand name, whereas Clean Edge by Paramount is more focusing upon Clean Edge as a whole name.

2) The one of the most important or we believe is the main problem is of cannibalization. As by the launch of Clean Edge, the other brands of Paramount which are pro and Avail will get affected. And the effect is huge as the cost of cannibalization is high that is 60% for mainstream and 35% for niche positioning.

3) There is a problem of positioning as Paramount has yet not decided how to position Clean Edge among all other brands of the company. Paramount is confused regarding whom to target whether mainstream, super premium or niche. As all these three segments have their own pros and cons which could be taken under consideration. Each segment effects the overall organization as Paramount is trying to attain maximum benefit by the Clean Edge without affecting the sales or the minimal decline in sales of other products again we would say at the lowest possible cost of cannibalization.

4) One of the problems is of budgeting, as a huge amount is going to be spent on advertising but hence the organization is not yet finalized regarding the method of setting up budgets as by percentage of sales or etc. The budget for Clean Edge advertisement is expected to be more than the other product categories of the company as Clean Edge is the most advanced product Paramount has launched till now.

Profit and loss statement Showing the difference between 2 options (Razors) Niche Year 1 Planned capacity unit volume 1M Year 2 1.5M Main stream Year 1 3.3M Year 2 4M

Selling price / Manufacturer price

9.09

9.09

7.83

7.83

Less Production cost per unit Profit per unit If we take into account the cannibalization effect than the revenue would be

(5) 4.09

(5) 4.09

(4.74) 3.09

(4.74) 3.09

Profit per unit for both Pro/ Avail

1.76

1.76

1.76

1.76

Cannibalization(60% for Main stream, 35% for Niche) Cannibalization cost

0.35

0.35

0.60

0.60

0.62

0.62

1.06

1.06

Final profit per unit(Profit Cannibalization) Total Effective revenue(Final profit* Planned capacity)

3.47

3.47

2.03

2.03

3.47

5.21

6.71

8.14

Profit and loss statement showing the difference between 2 options (Cartridges) Niche Year 1 Planned capacity unit volume Selling price/ Manufacturer price Less production cost Profit per unit If we take into account the cannibalization effect than the revenue would be 4M 7.35 2.43 4.92 Year 2 10M 7.35 2.43 4.92 Main Stream Year 1 9.9M 6.22 2.24 3.98 Year 2 21.9M 6.22 2.24 3.98

Contribution cost Cannibalization( 60% Main, 35% for niche) Cannibalization cost Final profit per unit(Profit Cannibalization cost)

2.8 0.35

2.8 0.35

2.8 0.60

2.8 0.60

0.98 3.94

0.98 3.94

1.68 2.3

1.68 2.3

Total Effective revenue(Final profit* Planned capacity)

15.76M

39.4

22.77

50.37

Final Profit and Loss statement for Razor and Cartridges Niche Year 1 Profit Razors Profit cartridges Total profit Other costs Advertising Consumer promotion Trade promotion Total profit after other costs 7 6 2 4.23 7 6 3 28.61 19 17 6 (12.52) 17 14 8 19.51 3.47 15.76 19.23 Year 2 5.21 39.4 44.61 Year 1 6.71 22.77 29.48 Main Stream Year 2 8.14 50.37 58.51

Solution and recommendations: There are several alternatives available regarding the targeting and positioning of the clean edge razor. The launch of the new razor in either the main stream or the niche market would result in cannibalization of their existing products in that particular segment. However in order to

maintain the existing share of the market and increase the market share by the introduction of the new product, there are several options for the paramount company. The name recommended would be Clean Edge by Paramount and the reason for this is that this product is technologically advance and innovative product and has a great potential to create its own equity which can later be combined with the companys equity rather than putting companys brand equity at stake in the initial phase.

After looking at the quantitative analysis we can see that the final profit in niche segment is 4.23 M in the first year and it increases to 28.61M and when we calculate the percentage change in revenue from first year to second year it comes out to be {(28.614.23/4.23)*100} 571% which is a very large increase.

However when we compare these values with the Main stream we can see that we get a loss in the first year however this loss is offset in the second year and there is a profit of 19.51M in the second year but still this profit is less than the profit we receive if we target the Niche segment.

There are many other benefits of targeting the Niche it would help Paramount to increase their market share specifically in the Social/ Aesthetic segment. After looking at the trends we see that the segment of male-specific grooming is going to grow in the upcoming years and this would indirectly help us as we would be able to establish a strong position in this segment.

The only problem that they would face is from the competitor which is Radiance brand Naiv razor, if the competitors decide to decrease the retail price in order to gain more shares it would have adverse effect for the market share of paramount.

There are several benefits of entering into the Niche market segment as it would increase the profitability and market share of the company. Also the launch of the new product in the niche market would enable the company to enter into the super-premium segment, simultaneously changing the consumer perceptions and brand image as technology leader and innovative products manufacturer.

However the only drawback that the company would have to face is that on the downside, the company would have to face increased budget issues and would have to incur large costs initially, however in the long run, it would me more beneficial than costly as the above analysis shows.