Clean Edge Razor Case Study
Prince has gained the top spot in terms of retail dollar sales up until 2009. B&K entered the non-disposable razor market in 1985, and yet they already managed to reach number three in market share and unit-volumes by superior technology and releasing super-premium products. Paramount does not yet have a product that competes in this segment. Again, Paramount has to launch a new technology in the super-premium segment to regain market share and continue to exist as a global leader in this category.
Given the recommendations just presented, below is the corresponding rationale behind each of them. 1) The risk of cannibalization that Paramount faces in the mainstream launch of the Clean Edge Razor stems from the competition the new product would face against the company’s preexisting cash cow items, Pro and Avail. Paramount Pro and Avail are both steadfast products within the mainstream market, collectively accounting for some of the largest unit volume in the category as a whole.
This allows for Paramount to encompass a majority of the disposable razor market sales, thus already establishing a healthy presence within the mainstream segment. As demonstrated in Exhibit B, these two products had progressive results throughout the years, including increasing sales dollars and volume. This demonstrated that these items were continually viable assets to fulfilling the needs of the applicable consumer base. Thereby, the sales data as provided in Exhibit B did not support the assertion that the company needed innovation within this particular segment.
In introducing a new product in the same category, Paramount runs the risk of simply capturing the preexisting consumer base and disrupting sales results for both the Pro and Avail. Internal studies projected that should Paramount position the new Clean Edge Razor as mainstream, a potential 60% of sales would come from preexisting Paramount consumers. This would obviously cannibalize Paramount’s already established presence in this particular segment, as well as mitigate the brand power of the company’s current razor products.
Also in weakening Paramount’s core product brand presence, such cannibalization has the potential to subject Paramount’s category leading stance to threat of external competitors. With this, it would be ideal for Paramount to develop an alternative strategy to the mainstream scenario; to best encourage the efficacy of all Paramount products. After deducting the cannibalization effect, the profit come from “Paramount’s new consumers” who buy Clean Edge Razor under niche strategy scenario in the first two years is $30. 3 million, bigger than $25. million under mainstream strategy scenario. In other words, even though the sales volume is large under the mainstream strategy which newly hired marketing director William Kim suggests, Paramount can earn more money from new consumers if it chooses to use niche strategy see Exhibit C. While the niche positioning may not offer the same potential for sales volume as the mainstream option, it allows Paramount to pursue the optimal prospect for capturing sales dollars. This is due to attracting purchasing power from new consumers, which has the strong potential to prove advantageous.
The niche scenario is preferable in that it provides opportunity to explore a new market segment and consumer base, leaving ample opportunity to establish additional consumer loyalty for the company. 2) Following the recommendation to launch Clean Edge as a niche product will only consume about $15 million of the fixed marketing budget, which will still leave a fair amount for Pro and Avail to market successfully. This will also hedge their risk in case Clean Edge is a flop. As previously stated, Paramount only has a budget totaling $48. 3 million on advertising and promotions.
This means if Randall requires $42 million to promote Clean Edge in a mainstream strategy, this will reduce the budget of Paramount’s other “cash cow” products, and thus cause the potential risk of negatively affecting the company’s competitiveness in Moderate and Value markets. See Exhibit C for details. 3) It’s clear that Clean Edge Razor should be positioned in the market at a level that will give groomers who are particularly focused on attention to detail, and who are looking for a superior shaving experienced, a product that is also focused on quality.
They will be focused on the packaging, the shelf presentation, the performance of the product, as well as the fit in their shaving routine. The consumer needs to know that the additional cost results in at least the same amount of added value. The product needs to perform in all areas to their satisfaction. Clean Edge’s performance, according to the case study, is one of the leading factors that can make it succeed in a niche market with these types of selective buyers. The non-disposable razor market has shown, and will continue to show growth. Trends indicate that this growth will be fueled by innovations and new products.
Consumer trends, increasing retail shelf-space, media attention and mainstream acceptance of male-grooming support this forecast, and indicates that “Social/Emotional” and “Aesthetic” shavers are likely to be a growing segment of the overall market. These users currently account for 67% of the total market. This bodes well for Clean Edge. As long as Clean Edge is positioned appropriately, it will address the unique needs of the niche market that it aims to enter. Also, niche positioning will allow Clean Edge to establish a market base without incurring a great cost.
There are of course unforeseen issues that could affect how Clean Edge is received when it goes to market. An example is the recent recession, where luxury goods took a deep dive, while value items were increasingly sought after. 4) To compete globally in the super-premium segment using niche positioning, it can be seen in Exhibit D that the Advertising and Promotion budget for Clean Edge is $15 million in the first year. This expenditure for the existing products was $44. 3 million in 2009 but due to cannibalization the sales of these are getting reduced by 35%.
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”. Thus the total budget required in the first two years, assuming similar trends for both, is $43. 8 million and $44. 8 million, 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 see Exhibit D.