Paramount Health And Beauty Company

Paramount Health and Beauty Company is in the process of launching a new technologically advanced nondisposable razor “Clean Edge”. With its improved design, Clean Edge provides superior performance by utilizing a vibrating technology to stimulate hair follicles and lift the hair from the skin, allowing for a more thorough shave. The company has decided to introduce it in the men’s market where it has a strong presence. The company is now focussing on positioning and naming of this new product.

It also needs to decide on the promotional activities to be performed adhering to the budget constraints and also must decide on the distribution channels through which it can reach to the masses. Industry experts have divided the nondisposable razor and refill cartridge market into three segments based on price and quality: value, moderate and super premium. Paramount currently offers two products: Paramount Pro operating in the moderate segment and Paramount Avail operating in the value segment.

With these two products, it captured the unit-volume market leader position with a 23% retail unit share and is now a respected brand in the industry.

But neither Pro nor Avail had introduced significant technology innovations in the last five years. In the last decade, the industry has experienced significant growth in the super premium segment and has catered various product innovations and new technologies. The executives of the company have come to a consensus that the Clean Edge razor should be priced in the super premium segment.

Clean Edge Razor Cannibalization Calculation

But they are still sceptical on how to position the product.

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One strategy is to release the product into the mainstream razor market within the super premium segment and position it as the most effective razor available. Another is to introduce it as a niche product targeting the most intensely involved super premium consumers who look for superior skin care products. Both the positioning strategies have their own pros and cons. Also, clean edge razor faces a threat from a new entrant “Naiv” manufactured by one of its strong competitors Radiance.

It also works on a similar technology and is due to release in September 2010. Naiv acquired a 13% share in test markets and based on Radiance’s past launches in the new product category Paramount believes that it would be a great success. It will also get an advantage of early entry into the market and is likely to be positioned as a niche product in the super premium segment. Also it is estimated that radiance would spend over $16 million for media advertising while Paramount aces a limitation in its budget for media advertising. The projected price of naiv is $11. 80 while that of clean edge razor, if introduced in the niche market, is 12. 99. Therefore some of the executives in Paramount feel that it is not a good idea to position it as a niche product. Positioning it as a mainstream entry has an advantage of preventing the existing customer base of Paramount moving to more innovative brands. It also can distinguish itself from the other competitors with its technical efficiency.

The projected price of clean edge is $11. 9 in this segment, which is lower than the price of Naiv. This gives clean edge an advantage over Naiv. But the problem here is that it already has a product in mainstream – Paramount Pro and introducing clean edge to this segment will lead to dilution of the brand power resulting in cannibalization. Here arises the need for executives to analyze the situation and come up with a strategy that best suits company’s interests. Recommendations:

Positioning Clean Edge as the most effective available razor in the mainstream market would be the better option because Paramount has a prior experience in this sector and it would be easy for them to sustain in the market. Present sales of the Paramount in razor industry come to $170 million and Paramount Pro contributes to this significantly. By introducing Clean Edge in the mainstream sector a 60% fall in the sales of Pro is predicted and the revenue generated by it will come down to $68 million. But it is expected that clean edge will generate a revenue of $147. million* and in turn Paramount can achieve a net sales of $215. 8 million. Marketing cost is approximated to $42 million and Paramount will be able to generate a profit of $173. 8 million. If they had positioned it in the niche segment they would lose only 35% sales of Pro. But at the same time, due to the constraints in the market clean edge can raise sales of only $52. 8 million and the net sales will total to $163. 3 million. Here the marketing cost is approximated to $15 million and the revenue generated will amount to $148. million. Thus the figures clearly indicate that concentrating the mainstream would be more beneficial. Also Paramount will be able to achieve a profit margin of $3. 09 per unit even after providing distributors a margin of $3. 36 per unit. Since the product is being positioned in the mainstream segment it would be better if it is named “Paramount Clean Razor” because this helps customers relate with the brand and would be easier for it to compete with Naiv since it is a recognized brand in this sector.

Also, by this Paramount can actually retain their old customers. Retail stores and drug stores must be focused for distribution since they perform volume sales of about 42% and 29% respectively. Special discounts must be given to them for bulk orders so as to gain more shelf space and their support too. *Calculated using weighted average factor that came out to 0. 284 and by comparing market expense and sales which are in fixed proportion as mentioned in the case.