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Clean Edge Razor

Case Questions
Group 3
Members : Aditya Sood 2013PGP020 Nupur Sahni 2013PGP263 Salil Aggarwal 2013PGP338 Sruthi Thomas 2013PGP402 Sudhir Kumar Singh 2013PGP407 Vivek Devaraj 2013PGP450

Clean Edge Razor Group 3

1. MAJOR CHANGES IN PRODUCT CATEGORY


The product category that Clean Edge is planning to compete in, i.e., non disposable razors and refill cartridges has experienced significant changes in previous years, in terms of growth of retail sales, advertising, frequency of consumption, distribution methods and numerous product innovations in the super premium segment. i. Retail sales : In terms of sales, non disposable razors have experienced a growth of approximately 5% per year from 2007 to 2010 and refill cartridges a growth of 2% during the same period. The growth in these two product categories per year from 2005 to 2010 is shown below. Product category Non disposable razors % growth (year on year) Refill cartridges % growth (year on year) 2005 178 2006 212 19.10 % 801 4.98% 2007 188 11.32 % 802 0.12% 2008 198 2009 208 2010 218

763 -

5.31% 815 1.62%

5.05% 832 2.08%

4.80% 853 2.52%

ii.

Product innovations in the super-premium segment : In the last decade, the industry had experienced significant growth in the super-premium segment due to numerous product innovations in the superpremium segment as below: 5-Blade technology Glide strips Lather bar Low resistance blade coating

iii.

Frequency of purchase :

Clean Edge Razor Group 3 The consumers were showing a change in the frequency with which they purchased razors and replacement cartridges. The new tendency was to purchase razors and replacement cartridges more frequently than in previous years, mainly due to consumers trying out new products as well as advertising and sponsored articles that touted the benefits of frequent blade replacement.

iv.

Advertising :

As a result of new product innovations and in order to stimulate demand, total media advertising expenditures has shown a significant increase over the years. In fact, the media advertising expenditure has increased by 39.05% in the period 2009-2010 while the retail sales has only shown a growth of 4.8% in the same period. Major Brands Media Advertising Expenditure in 2009($ in million) 35.2 27.8 19.1 2.4 84.5 Media Advertising Expenditure in 2010($ in million) 36.8 29.2 20.2 15.2 16.1 117.5 % Increase in Advertising expenditure 4.54% 5.03 5.75 533.33 New Entrant in Advertising 39.05

Benet & Klein Prince Paramount Simpsons Radiance Total v.

Distribution outlets :

The accelerated growth of new product innovations in the product category had led to the introduction of 22 new SKUs in the period between 2008 and 2009, with the majority of them being targeted at the super premium segment. Distribution outlets had responded positively to this growth by increasing shelf space for the product category.

Distribution was also showing a shift from food and drug stores to other distribution outlets. While in 2007, food and drug stores jointly accounted for 87% of the total sales volume of non disposable razors, it had reduced to 71% of the total sales volume in 2010. In the same period, the sales

Clean Edge Razor Group 3 from other distribution mediums like mass merchandisers, club stores and others had increased from 23% of the total sales volume to 29%. Thus, there was a clear shift in the distribution outlets of the product category.

2. MARKET SEGMENTATION AND CONSUMER BEHAVIOUR

The market is segmented into three categories based on the price and quality as below

Super premium Moderate Value

Clean Edge Razor Group 3

Segmentation on the basis of behaviour of non disposable razor consumers is as below

Maintenance shavers Social/Emotional shavers Aesthetic shavers

The elements of consumer behaviour that have been considered for this segmentation are as follows.

Based on intensity of involvement with the product, the consumers can be segmented into

Uninvolved o There was a group of consumers who were completely disinterested in the product category and labelled as Maintenance shavers

Involved o Involved users could be broken up into Social/Emotional shavers motivated by overall shaving experience Aesthetic shavers motivated by cosmetic results

Involved Razor Users Social/Emotional Shavers (39% of Non-disposable Razor users) Aesthetic Shavers (28% of Non-disposable Razor users)

Uninvolved Razor Users Maintenance shavers (33% of Non-disposable Razor users)

Clean Edge Razor Group 3

3. NICHE v/s MAINSTREAM: Decision and Implications


Presently Paramount has two options either to go for the niche area or the mainstream area under the super premium segment. We will realize which segment is better by profit and loss analysis and marketing cost incurred by the company. Profit and Loss Analysis We have analyzed the profit and loss statement for two years for both these segments. As we see from Table 1 given below, from niche segment we get a larger profit as compared to main stream area. This profit is calculated taking into account the cannibalization cost. For Cannibalization cost we have taken 35% for niche and 60% for main stream as given in the case. To calculate the cost associated with this we have multiplied the percentage of cannibalization with contribution margin per unit. The contribution margin per unit is 1.76 for razors and 2.8 for cartridges. Marketing Cost Apart from the profit implication we can also see the same situation from marketing expenditure point of view. As it is given in the case marketing budget in 2010 is $48.3 million. If we decide to go with marketing in main stream we will be spending $40 million on Clean edge. This only leaves us with $8.3 million for my other products. Now if we consider cannibalization and assume well be spending 40% on marketing cost this gives us a cost on other products as $19.32 million. Thus the total cost becomes $59.32 million. Therefore the marketing budget is being exceeded. If I go forward with niche segment well be spending $15 million. Since there is 35% cannibalization and with the present cost on marketing we remove 35% of the cost, we get a cost on other products as $31.395 million. Thus the total cost is coming out to be $46.395 million which is below the estimated budget. Conclusion Positioning strategy should be towards niche positioning in super-premium market in view of the favourable operating margins and savings in marketing efforts.

Clean Edge Razor Group 3

4. FINANCIAL IMPACT
Table 1 given below mentions the financial impact of each strategy. The high cannibalization due to main stream and high marketing cost is a major reason for the high cost per unit, hence a low profit. As we have described above the best option for the company is to target the niche segment. Apart from this we have also mentioned above the marketing cost associated with both the methods.

Clean Edge Razor Group 3 TABLE 1

PROFIT AND LOSS STATEMENT


Items Capacity (million units) Manufacturer Price (per unit) Total Revenue Razors Production cost (per unit) Total Production Cost Cannibalization cost Capacity Manufacturer Price Total Revenue Cartridges Production cost per unit Total Production Cost Cannibalization cost Capacity cost Advertising Consumer promotions Trade promotions

(Million Dollars)

NICHE

MAINSTRE AM
(Million Dollars)

Year1 1 9.09 9.09 5 5 0.616 4 7.35 29.4 2.43 9.72 3.92 0.61 7 6 2 34.86 6 38.49 3.624

Year2 1.5 9.09 13.63 5 5 7.5 0.924 10 7.35 73.5 2.43 24.3 9.8 0.87 7 6 3 59.39 4 87.13 5 27.74 1

Year1 3.3 7.83 25.839 4.74 15.642 3.4848 9.9 6.22 61.578 2.24 22.176 16.632 1.71 19 17 6 101.64 48 87.417 14.227 8

Year2 4 7.83 31.32 4.74 18.96 4.224 21.9 6.22 136.2 18 2.24 49.05 6 36.79 2 2.45 17 14 8 150.4 82 167.5 38 17.05 6

Other Costs

Total Cost of Razors & Cartridges Total Revenue of Razors & Cartridges

Net Profit

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