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Case Analysis
Clean Edge Razor
Splitting Hairs in Product Positioning
Section C - Group 6 ABHIMANYU MALHOTRA (PGP2011504) B VARUN (PGP2011585) GOVIND RAJ KAUSHIK M (PGP2011640) KASHYAP SURUCHI BRHAMP (PGP2011686) MANISH MANOHAR (PGP2011710) PULKIT MAHESH (PGP2011799) SUCHIT SINGH (PGP2011899)
Group 6 | Section C
Case Analysis
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.
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
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.
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
Razor
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
Cartridge
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
Group 6 | Section C
Case Analysis
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
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.
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