Paramount Clean Edge Ultra: Marketing Analysis

Paramount Clean Edge Ultra: Marketing Analysis

Strategic Situation:

Paramount Health and Beauty Company currently leads the US razor market in terms of volume, at a 23.3% retail unit share, with its two lines of non-disposable razors and refill cartridges—Pro and Avail. These two brands operate in the moderate and value segments, respectively. While the overall market is growing, Paramount is facing eroding revenues, as the bulk of this growth comes from competitors—either from product innovations or the introduction of new SKUs. Increased competition has come both from established competitors and new entrants to the market. Substitute products are also a concern.

In recent years, successfully-introduced new SKUs have often been line extensions in the super-premium market that touted improved shaving technology, catering to shifts in customer taste. Paramount does not currently offer a product to compete in this segment, but R&D has developed a new razor, set to launch in the super-premium segment of the men’s market, with either niche or mainstream positioning. While Paramount is confident that its new technology can appeal to consumers, managers within the firm are debating over potential fallout from cannibalization.

The multiplication of new product offerings has led to an overall increase in the media and promotional expenditures needed to stay competitive. Distribution has expanded beyond the traditional channels of food and drug stores to also include mass merchandisers. As well, Radiance, a company that competes with Paramount in other personal care product markets, is looking to leverage the Naiv deodorant brand and will soon enter the razor market with an innovative product that is superficially similar to Paramount’s new technology.

Objectives and Recommendations:

Paramount has three clear marketing objectives. We intend to 1) become a market leader in innovative razor technology, 2) to gain competitive advantage in the super-premium segment, and 3) to strengthen the company’s overall profit margins. To achieve these ends, we recommend introducing the Paramount Clean Edge Ultra as a niche product in the men’s super-premium segment, targeting involved shavers, and transitioning the product to mainstream positioning within a 2-year window. The niche strategy will allow us to compete without competing, avoiding the price war likely to arise from a mainstream approach. The clinically proven performance of our product will provide a competitive advantage with consumers at the high-end niche of the segment, because their preferences are shifting, moving towards innovative and better quality razor technology. Rather than price our product for mainstream appeal, and hence dilute our brand differentiation in the mind of the consumer, we will focus on the most involved shavers at the high-end niche within the super-premium segment, who care about performance over price. The product will be anchored at the front of the efficiency curve before being moved to mainstream positioning in two years’ time, coinciding with our next product launch. Annual margin improvements of 20% will have allowed us to fund further investment into R&D. Paramount will then launch another new, innovative niche product to continue moving the efficiency frontier, while repositioning the Clean Edge Ultra to a mainstream orientation—allowing Paramount to lead how the market evolves. The more modest funding needed now for a niche launch vs. a mainstream launch means that Paramount preserves an adequate marketing budget to retain Pro users through promotional targeting until the Clean Edge Ultra transitions away from its niche position.

Detailed Analysis:

 The US razor market is currently growing steadily at an approximate annual amount of 2%, with an estimated increase in 2010 of $40MM (Exhibit 1). The non-disposable razor and cartridge market is growing faster than the total razor market, with annual increases of 2.7% and 3.0% in the past two years, respectively, and an expected sales increase of $31MM in 2010. Amidst this broad growth, sales of the Avail continue to decline as consumers shift away from the value segment, dragging down the company’s overall portfolio. Paramount expects the sales of the Avail to decline by 39% in the year to come (Exhibit 2). In contrast, sales of the Pro are expected to grow by 3%. Together, this still puts combined sales for Paramount at a forecasted decline of 6%, with volume and revenue shares expected to decline by 1.1% and 2%, respectively.

Paramount currently holds the top unit-volume share amongst the non-disposable segment at 23.3%, and the second highest revenue share, at 23.4%, behind competitor Prince. Unit sales volume for Paramount is currently forecast to decline, and its revenue share is expected also to drop. Last year, Paramount Pro’s unit-volume share grew by 3.2% (Exhibit 3), giving Pro the third highest volume share position out of the well-recognized non-disposable razor brands in the market. Likewise, Pro’s revenue share also grew 3.3% in 2009, giving Pro the third highest revenue share position among its peers. This translated into sales growth of 25% in 2009, generating total sales revenue of $192MM. In 2010, Pro’s unit-volume share is expected to grow by 0.4%, which will make Pro the leading brand in the non-disposable razor/cartridge category. While Pro’s unit-volume share is expected to grow, the brand’s revenue market share is expected to remain unchanged at 18.5% share of market.  This will still give Pro the second highest revenue share of the main brands, and will translate into 3% sales growth in 2010.

Despite these positive signs, there are clearly two serious issues to consider: growth in volume and revenue will slow dramatically in 2010, and revenue growth is declining more rapidly than volume growth—which is indicative of a declining price premium. In addition, Pro is Paramount’s best performing razor, while value razor Avail is in far worse shape. Avail’s unit-volume and revenue shares in the market have been declining since 2007 (Exhibit 3). In 2009, Avail’s unit-volume share declined by 1.7% and is expected to decrease by another 1.5% in 2010.  This will drop Avail’s volume share to an expected 4.9% in 2010, with no serious prospects for a reversal of this trend. The significant decline in Avail’s revenue will be the primary factor driving Paramount’s overall decline in absolute revenue in 2010. Avail’s revenue share is declining more rapidly than its unit-volume share, revealing eroding profit margins (Exhibit 4). Pro’s relative price is still a premium in relation to the market, but has been declining slowly since 2008. Pro and Avail are increasingly becoming discounted, commoditized products.