Case Analysis Clean Edge Razor

1 Group 6 | Section C

Indian Institute of Management Indore

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)

Case Analysis Clean Edge Razor

2 Group 6 | Section C

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 men’s 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 product’s 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. Paramount’s 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.

Case Analysis Clean Edge Razor

3 Group 6 | Section C

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 men’s 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.

Case Analysis Clean Edge Razor

4 Group 6 | Section C

8. Pro forma Profit & Loss

Niche Mainstream Niche Mainstream

Capactiy Year 1 1000000 3300000 1 3.3

Year 2 1500000 4000000 1.5 4

Production cost/unit 5 4.74

Manufacturer Price 9.09 7.83

Suggested Price 12.99 11.19

Revenue Year 1 9090000 25839000 9.09 25.839

Year 2 13635000 31320000 13.635 31.32

Production Costs Year 1 5000000 15642000 5 15.642

Year 2 7500000 18960000 7.5 18.96

Capactiy Year 1 4000000 9900000 4 9.9

Year 2 10000000 21900000 10 21.9

Production cost/unit 2.43 2.24

Manufacturer Price 7.35 6.22

Suggested Price 10.5 8.89

Revenue Year 1 29400000 61578000 29.4 61.578

Year 2 73500000 136218000 73.5 136.218

Production Costs Year 1 9720000 22176000 9.72 22.176

Year 2 24300000 49056000 24.3 49.056

Capacity Costs Year 1 610000 1710000 0.61 1.71

Year 2 870000 2450000 0.87 2.45

Adv Year 1 7000000 19000000 7 19

Year 2 7000000 17000000 7 17

Consumer Promotions Year 1 6000000 17000000 6 17

Year 2 6000000 14000000 6 14

Trade Promotions Year 1 2000000 6000000 2 6

Year 2 3000000 8000000 3 8

Subtotal of Other Costs Year 1 15610000 43710000 15.61 43.71

Year 2 16870000 41450000 16.87 41.45

Total Costs (excluding cannibalization) Year 1 30330000 81528000 30.33 81.528

Year 2 48670000 109466000 48.67 109.466

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

in Dollars ($) in Millions of $ollars

Cartridge

Razor

Case Analysis Clean Edge Razor

5 Group 6 | Section C

Niche Mainstream Niche Mainstream

Cannibalization (Razors) Year 1 616000 3484800 0.616 3.4848

Year 2 924000 4224000 0.924 4.224

Cannibalization (Cartridges) Year 1 3920000 16632000 3.92 16.632

Year 2 9800000 36792000 9.8 36.792

Cost of Cannibalization 4536000 20116800 4.536 20.1168

10724000 41016000 10.724 41.016

Total Revenue Year 1 38490000 87417000 38.49 87.417

Year 2 87135000 167538000 87.135 167.538

Total costs including cannibalization Year 1 34866000 101644800 34.866 101.6448

Year 2 59394000 150482000 59.394 150.482

Margins Year 1 3624000 -14227800 3.624 -14.2278

Year 2 27741000 17056000 27.741 17.056

Cannibalization Costs

Total Revenue

Total Costs including Cannibalization

Final Margins for Niche and Mainstream positioning

in Dollars ($) in Millions of $ollars

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.