Case Analysis of Clean Edge Razor Problem Statement Paramount Health and Beauty Company developed the Clean Edge Razor, a technologically advanced non disposable razor. The company now has to study and segment the market environment and find a suitable target to successfully position and launch their product. Situational Analysis General Market Profile Products available in U. S. Razor market are non-disposable razors, refill cartridge, disposable razors, shaving cream, and depilatories.
Non-disposable 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. Non-disposable razors and refill cartridge market is broadly classified into three segments namely value, moderate and super premium based on price and quality. Paramount’s consumer research identified distinct segmentation in terms of product benefits and consumer behavior.
39% of non-disposable 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 non-disposable razors and refill cartridge came from 25% volume of super-premium, 43% of moderate and 32% of value segments. 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.
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In 2008-09 the rate of new product innovation leads to 22 new SKUs to be introduced. SWOT Analysis Strengths Paramount Health and Beauty Company’s biggest strength is that it is a well-established brand with deep pockets and a very good association with consumers. The product- Clean Edge Razor, that they have released, is also the best technologically in the current market. Weaknesses The company does not have a slice in the 37. 2% of the pie that corresponds to the super premium segment which has immense potential. Also there is a risk of launching the product in the wrong segment or positioning it wrongly.
A wrong move could result in cannibalization of Paramount Pro, another product in their portfolio. Opportunities There is very good growth in the super premium segment especially in men’s grooming. The market is also highly profitable so vendors are ready to stock the products. Also, the maintenance users are a market not ventured by any company till date. Hence the opportunities are immense. Threats A good number of competitors are trying to become the leader in this segment which is expected to grow in the future. The competitors could also catch up with the latest technology and release a technologically more advanced product.
Also, a wrong execution would result in damage of the firm’s repute. The substitutes are also a major competition. PORTER’S FIVE FORCE FRAMEWORK SUPPLIER’S POWER (LOW) Large number of suppliers BUYER’S POWER INDUSTRY RIVALRY (HIGH) (HIGH) Differentiated products Large no. of players already present ENTRY BARRIERS (LOW) Easy to enter the market no major costs involved THREAT OF SUBSITUTES (HIGH) Availlability of alternatives like disposable and electric razors There is large number of players already present in the premium segment hence there is high level of rivalry in the industry.
Availability of alternatives like disposable and electric razors make a high threat of substitutes. Because of large number of products available and constant innovation in the sector it is very easy for the consumers to switch the companies. Hence, consumers have a high bargaining power. Entry barriers are low in the industry since no major R&D costs are involved and there are no major regulations. The bargaining power of the suppliers is low. Hence, overall the premium segment of nondisposable razors is an attractive industry to enter into. Positioning Strategy:
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The first strategy that we suggest is Niche Positioning, targeting the premium segment: As of now, the products released by Paramount in the non-disposable razer segment, Paramount Pro and Paramount Avail are positioned in the moderate segment and as a value -offering respectively. After three years of development, Paramount Health and Beauty Company has come up with a new technologically advanced vibrating razor called Clean Edge. Keeping in mind the superior technology used and the fact that Paramount has not launched a product targeting the premium segment, Paramount could adopt Niche Positioning while launching Clean Edge.
However, there are certain disadvantages and advantages: Advantages: Positioning Paramount’s Clean Edge as a niche will accentuate the company’s product portfolio significantly. From the exhibits it is visible that it will result in high and consistent profit margins for the company and the risk involved will be less. Apart from that, the financial requirement of launching the product in the premium segment is only 15 million dollars as against 42 million dollars for the mainstream targeting. Disadvantages:
As the trends suggests, understanding the fact that the premium segment has not been targeted significantly, almost all of Paramount’s competitors have launched products for this segment. Also, for the past 5 years, the company’s current products Pro and Avail have not introduced any new innovations as a result of which its customers are moving on to other competitors. The product pro is in the mature face and might need phasing out eventually. The second strategy that can be followed is Mainstream Positioning. The advantages and disadvantages of the same are as follows: Advantages:
– Consumers are becoming more and more sophisticated day by day and expect more advanced technology. Paramount’s 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.
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Disadvantages: – 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.
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 cannibalization given. Analyzing 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. Branding Strategy The branding should be done in such a way that it emphasizes Clean Edge Razor as a unique and breakthrough product with the usage of latest technology. However, given the tight advertising budget, it should use the well-established name of Paramount rather than build a brand based on the Clean Edge. This should help potential buyers connect with the product quickly and test it.
This should ensure maximum sales. Recommendations & Conclusion The recommendation is to introduce the Clean Edge into the marketplace as a niche product since data shows that consumers in the premium segment are willing to switch between the companies. Using advertising and promotion of the new product we can gain market share from competitors. Exhibit 8directly supports this recommendation and shows that even though unit sales are less than main stream sales, the operating profit and the operating profits as % of sales is higher. In both year one and year two, this niche market is profitable and growing.
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It is here that Paramount should focus its efforts on product introduction and positioning for the Clean Edge Razor. Once it has launched itself in the niche segment, Randall should then launch it, maybe after 2 to 3 years, in the mainstream category. As the data shows, both niche and mainstream strategy will help Paramount to raise its market share in super- premium non disposable razor segment. But the niche strategy will enables Clean Edge Razor to contribute profit and at the same time, limit the effect of cannibalizing Paramount’s existing products.
