Clean Edge Razor Case
Problem Statement: Paramount has become a market leader in global consumer products; but knows that innovation is vital to continue success. Paramount has used technology to create an innovative razor, but wants to make sure that it is positioned effectively. Situation Analysis: * Customers: Male consumer products have been trending upward in the last decade. The customer segments are broken up into three areas; social/emotional, involved razor users, and uninvolved or maintenance users.
Social/emotional are responsible for 39% of Nondisposable razors, Involved is for 28%, and maintenance users account for 33%.
In 2009 consumers razors and replacement cartridges at a higher rate than ever before. * Competitors: Competition includes direct competition as well as substitutes for Nondisposable razors. In 2010 the three major players were Paramount, Prince, and Benet & Klein (B&K). Prince mainly focuses on super-premium products. B&K entered the Nondisposable market in 1985.
There are also new entrants which account for the rest of the market. In 2010 Paramount is expected to have a 21. 4% dollar market share. * Company: Paramount is a large consumer products company with $7 billion in gross profit in 2009.
The current Nondisposable razor line has products in both the market and value customer segments. The Clean Edge Razor is the first Nondisposable razor produced by Paramount that has a technological innovation.
Paramount is relying on the Clean Edge Razor to increase sales and earn more market share in the Nondisposable razor category. * Context: In 2011 the effects of a recession are becoming less drastic than in years before. Customers have more disposable income and companies have more money to spend on investments such as media/advertising and R&D. Collaborators (retailers): In 2009 food stores represented 42% of all razors and cartridges. Other distributors include drug stores, mass merchandisers, club stores, and other distributors.
As SKU’s increase, shelf space is increased to accommodate for all of the different products. Distributors are willing to increase shelf space because the margin on razors is high compared to other consumer products. Alternatives: Position the Clean Edge Razor as a niche product for highly involved groomers looking for a superior shaving experience. Pros * Less cannibalization. Social shavers right now aren’t interested in the Pro or Avail razor.
Paramount is concerned with the overall profitability of all the razor lines. By positioning the Clean Edge Razor as a niche product, the brand equity of Pro and Avail won’t be as affected as if the Clean Edge Razor was positioned as mainstream. The current customer segment for emotional shavers is 39%. With over 1/3 of the customer segment involved with emotional razor purchases there is a decent sized market that could use the benefits of the Clean Edge Razor. * The net operating profit based on financial analysis is higher than the mainstream positioning strategy.
There are advantages of positioning the as a niche product. Advantages * One advantage is that customers will be more involved, so they will take the time to research the product. After the consumer investigates the Clean Edge Razor, he will be able to tell that there is a clear advantage and the Clean Edge Razor is the best option. * Another possible advantage could be that Paramount could increase the size of the social/emotional market. Cons * Clean Edge Razor is losing out on potential sales because the market is much smaller.
* Another con is the negative brand awareness.
Even if Paramount created the greatest razor of all time, the brand wouldn’t become stronger because only people who know about razors would know that Paramount is making technological innovations. Through a niche market Paramount would need to rely on their other razors to remain relevant to the mass market. This could prove to be difficult as other companies continue to come out with new razors. Disadvantages * The investment spent on R&D to create the Clean Edge Razor was substantial; it will take longer to earn back the money spent on developing the Clean Edge Razor.
Position the Clean Edge Razor to the Mass Market Pros * More people will be exposed to the product.
This will lead to greater sales. This will also improve brand equity. Through this positioning strategy Paramount will have a razor in each segment. * Although not as profitable, this positioning strategy will still make a profit and build brand equity. Advantage * Paramount will be viewed as innovative and keeping up with competition. A company that is stagnant falls behind.
Through marketing this razor to everyone, Paramount will be viewed as taking the next step to create the best razor.
Currently Paramount isn’t working on any other innovative razors so this technology will have to be available to all different types of customers. Cons * One con is that not everyone will know how the vibration will help prevent a better shave. There are also a lot of people who don’t need a superior razor; they are content with the razor the way it is. * Another con is that the razor will have to be priced lower than if it were a niche position due to competition. * Money spent on advertising.
Based on the pro forma; it would cost roughly $12million more to advertise to the mass market.
This is risky if the Clean Edge Razor doesn’t do as well as forecasted. Disadvantage * Cannibalization. Currently Pro and Avail have 22. 2% of the volume of razors sold, the largest of any pair or razors.
Introducing a razor in the same market with more features will damage the sales of both the Pro and Avail. * This will also negatively impact the brand power of Paramount when the numbers are revealed and it shows that Pro and Avail are not doing as well as expected. * Based on financials this is the worst strategy to pursue. Recommendation: It is important for Paramount to grow the Clean Edge Razor as well as the Pro and Avail.
I recommend that the company position the Clean Edge Razor for one year as a niche position and then position the Clean Edge Razor as a mass-market razor for everyone to use. Pros: * Through using a bit of both positioning strategies Paramount will receive the best of both worlds.
One pro is less cannibalization of Pro and Avail in the first two years while consumers are adapting to the Clean Edge Razor. By the time the Clean Edge is positioned as a razor for everyone; the 39% of people who have already been exposed to the Clean Edge will be able to differentiate this razor from the Pro and Avail.
The cannibalization after the first two years won’t be as severe because people will have already been exposed to the Clean Edge Razor. * A lower price when the product is positioned differently will lead to a larger share of social shavers. The social shavers that have been paying a premium price will be happy to pay less money. The other social shavers that don’t use the Clean Edge will be more likely to use the shaver because the price will be lower; meaning the consequence of the razor not meeting expectations will decrease.
The sales will increase dramatically after the second year due to more potential customers. Based on my financial statements the net profit is slightly larger than the niche positioning strategy by itself. * Growing brand equity and positive word of mouth advertising through social shavers telling friends and family Cons: * Regardless of the positioning strategy there will still be some cannibalization. * Social shavers may see the change in positioning as a shift in quality and think that a lower price will equate to a bad razor. * The incremental net profit may be too similar to the niche positioning strategy to risk damaging brand power. Implementation Plan:
On January 1, 2011 I will tell production to manufacture the Clean Edge Razor just as if we were pursuing a niche positioning strategy.
We will spend the $14 Million dollars in advertising on specialty male health and fitness magazines, television shows, and radio stations. We will also be relevant on social media sites such as Twitter and Facebook. There will be contests with our razors and customers will get the opportunity to spread word-of-mouth about the Clean Edge Razor. Paramount expects to make over $52 million, with most of that coming in the second year because the first year is mainly niche positioning.
It is safe to say that $20-$23 million will be made in the first year. During September we will launch a new campaign positioning the razor as the everyday man’s razor with advanced technology. During this time we will also run a smaller ad campaign for the Pro and Avail marketing the razors as reliable and a staple of the razor market. This is why advertising increases overall in the combination strategy. Paramount is expecting cannibalization regardless, but using a mix of both strategies will help offset the large cannibalization from just using the mass marketing strategy.
This will benefit Paramount as a company because Clean Edge Razor will be exposed to every customer segment while still trying to maintain the brand power of Pro and Avail. This strategy will benefit the brands as much as possible. Also, the financials in the Appendix support this strategy over the niche and mass marketing positioning strategies. Cannibalization is inevitable; but it is vital that customers from all segments see that Paramount is an innovative company determined to find new ways to benefit their customers. Appendix