Fragrances - Cornell University presentations... · Problems with measurement of ... common...

FragrancesMegan Chee | Caitlin Harder

Sia Kwimbere| Cristiana Mihai

OverviewIndustry Analysis

Advertising Strategies

Content Analysis & Coding

Raw Data Analysis

Analysis & Recommendations

Industry Analysis

History of Fragrances ● Perfume from Latin word “per fumus”, through smoke - incense based● Ancient Egyptians responsible for origins of perfume● Persians also used it as a sign of political status● Greeks and Romans viewed it as a sign of art and began en masse production of it● Scents were reserved mainly for the elite and for use in religious ceremonies● In 1190 perfume was produced commercially in Paris

Industry Analysis Advertising Strategies Content Analysis & Coding Raw Data Analysis Analysis &

Recommendations

Three Main Players in US Market

Advertising Strategies Content Analysis & Coding Raw Data Analysis Analysis &

RecommendationsIndustry Analysis

Coty: >29.1%● Based in New York City● Industry-specific revenue of

$647.9 million for 2016● Owns over 77 brands across

fragrance, cosmetics, hair & skin care

● Acquired Procter & Gamble fragrance brands in 2016 merger

● Third largest global fragrance manufacturer

● Marc Jacobs, Calvin Klein, Chloe, Gucci, Hugo Boss, Burberry, Philosophy

L’Oreal: 17.2%● Based in France● Industry-specific revenue of

$498.2 million for 2016● Lancome, YSL, Giorgio

Armani, Diesel, Ralph Lauren, The Body Shop, Drakkar Noir, Viktor & Ralph

Estee Lauder: 22.3%● Based in New York City● Industry-specific revenue of

$646.9 million for 2016● Estee Lauder, Aramis, Tommy

Hilfiger, Michael Kors, Coach, DKNY, Tom Ford, Tory Burch, Editions de Parfums Frederic Malle

Rivalry Amongst Market Incumbents ● Moderate to high concentration

○ >68.6% of industry revenue from three largest players

○ Increasing due to licensing and mergers● High competition in a mature market

○ Stagnated growth○ Saturation of products


Recommendations

Main Competitive Factors

Rivalry Amongst Market IncumbentsBrand● Basis of fragrance differentiation● Strong relationship with consumers due to the association between brand scent

and identity● Study found 34% of mixed-sex purchases are to restock their used fragrance● 60% of male fragrance purchases are to restock


Recommendations

Rivalry Amongst Market Incumbents● Quality

○ Important to consumers in this industry, but difficult to measure■ Longevity of scent

○ Status as a part experiential and credence good leads to use of signaling effects■ Price■ Investment in packaging

● Product Innovation○ High R&D costs○ Continuous product development with changing consumer preferences

● Price○ Market fragmented by signaling effect of price○ Large competitive factor for lower-tier brands

● Distribution○ Visibility is key to drive sales○ Successful brands have strong relationships with retailers


Recommendations

Rivalry Amongst Market Incumbents


Recommendations

Bargaining Power of Buyersvaries by Distribution Channel and Brand

● Online Channels○ Direct to consumer on brand website○ Retailer buyer’s website

● Retail Locations○ Direct to consumer at brand’s retail location○ Department Stores○ Specialized Beauty, Cosmetics & Fragrance Stores○ Pharmacy & Drug Stores



Bargaining Power of Buyers● Bargaining Power of Specialized Beauty, Cosmetics & Fragrance Stores will likely

increase○ Growth and increased concentration in specialty stores market

■ Largely driven by Sephora & Ulta■ Increased demand for specialized product knowledge and trusted retailers

○ Decline of department store industry● Bargaining Power of Pharmacy & Drug Stores will likely increase

○ Rising Walgreens/CVS duopoly will further concentrate market○ Little differentiation amongst drugstore brands



Bargaining Power of Suppliers● Inorganic Chemical Manufacturing: Low Supplier Bargaining Power

○ Significantly lower market concentration than the perfume industry○ No product differentiation

● Organic Chemical Manufacturing: Low Supplier Bargaining Power○ Low market concentration○ No product differentiation○ Competition is expected to remain low



Threat of New Entrantsvaries by Channel and Product Tier

Online Channels: Low barriers to Entry○ Low costs of entry○ Low market concentration○ Undifferentiated products will create

pricing pressure



Retail Channels: Moderate Barriers to Entry○ Capital investment required for

cost-effective manufacturing○ Mature market poses challenge○ New entrants are often

celebrity-backed

Threat of New EntrantsLow Threat of New Entrants in the Prestige Market● Difficult to gain market share due to emphasis on quality and brand● New brands rely on celebrity endorsement● Existing brands use celebrity endorsements to refresh image and create barriers to entry● Successful brands are often acquired by larger conglomerates



Threat of New EntrantsBiggest threat is growth of imports● 47.1% of US Fragrance Revenue is from

exports, 2.7% decrease since 2011● Imports capture 56% of demand, growing at

.1% annually over the last 5 years● Predicted falling of Trade-weighted index could

lead to trend reversal● US perception that foreign fragrances are of

higher quality○ Increased market share growth when

introduced to US market○ 57.4% of imported Perfumes are from

France



Threat of Substitutes● Low threat of substitutes● No real replacement product for

fragrances● Counterfeit products pose minor and

decreasing threat



Industry Ad-to-Sales Ratio

● The below ad-to sales ratios are considered low, none are above 2%

● Low ad-to-sales ratios indicate that advertising expenditures may indeed be effective in generating a large amount of revenue from increased sales


Recommendations

2011 2012 2013 2014 2015 2016q2

Number of Firms 30 32 36 37 33 29

Advertising Expenditure $254,251.00 $188,769.00 $258,679.00 $208,456.00 $237,013.00 $217,418.00

Total Revenue $16,112,397.00 $15,210,508.00 $14,255,021.00 $12,798,311.00 $14,243,284.00 $12,868,939.00

Ad-to-Sales Ratio 0.0158 0.0124 0.0181 0.0163 0.0166 0.0169

Brand Equity - Estee Lauder

Industry AnalysisAdvertising Strategies


Raw Data AnalysisAnalysis &

Recommendations

● Value of brand $1.2 billion

● Problems with measurement of Brand Equity: ○ Estee Lauder does not

solely manufacture and sell perfumes, but a number of other products such as cosmetics, fashion items and accessories for women.

○ This is the same for many other holding companies

Understanding the Market

Complementary Advertising● The fragrance industry relies heavily on complementary advertising, as

high-end fragrances have high prestige value that is enhanced ● Consumer places value on the social prestige created by advertising● Many players in the fragrance industry are luxury brands:

○ Chanel○ Dior○ Yves Saint Laurent○ Estee Lauder




Recommendations

Complementary Advertising● Persuasive/complementary advertising provides indirect information to

customers about experience goods through the○ Signaling-efficiency effect ○ Match-products-to-buyers effect

● Since consumers have heterogeneous tastes and preferences when it comes to scents and fragrances




Recommendations

Celebrity Advertising● A significant amount of the social prestige

value comes from celebrity endorsement● Recent celebrity campaigns:

○ Lily James in My Burberry Black ○ Bianca Balti and David Gandy in Light

Blue by Dolce & Gabbana ● Historically famous celebrity campaigns:

○ Charlize Theron in J’Adore by Dior○ Elizabeth Taylor in White Diamonds○ Nicole Kidman in Chanel No 5




Recommendations

Why Celebrity Advertising?● Fragrances are an experience good● They are also judged extremely subjectively● Thus it is possible to influence the consumer’s

perception of a fragrance by associating a scent with a particular celebrity

● Consumers are more likely to buy a fragrance endorsed by someone they wish to emulate




Recommendations

Targeting Demographics with Celebrities● Lily Rose Depp in the most recent Chanel No

5 campaign● Tagline: “You know me and you don’t” ● Appealing to younger demographics● No romance or sex included ● Theme of “finding yourself” and personal

identity● Lily Rose Depp’s fanbase mostly millennials




Recommendations

Targeting Demographics with Celebrities● Contrast with a commercial for the same perfume from 2004, starring Nicole Kidman● Theme of old-school Hollywood, evocative of classic romance movies● Appealing to an older demographic with a different message● Most expensive ad of all time - budget of $42 million USD


Recommendations

Sexualisation of Advertising● “Sex sells”● Traditionally, sexual appeal has been a

common marketing technique in fragrance ads● Sex captures audience attention

○ Also conveys a message about the product - using this fragrance will make you gain sex appeal

● Possibly counterproductive? ○ Some studies have shown that ads containing sex or

violence are less likely to be remembered by consumers


Recommendations

Sexism in Advertising?● Traditional perfume advertising has been criticised as

being sexist, due to frequent portrayal of women in overly sexualised or submissive roles

● However, in recent years the number of ads using sex as a technique have decreased

● Possible new trend of feminism and empowerment?○ Keira Knightley in Coco Mademoiselle by Chanel○ Pop by Stella McCartney




Recommendations

Another Advertising Method: Sampling● Brands often offer samples as a way to assure the customer of the fragrance/perfume

since it an experience good○ Paper perfume samples used with ads in magazines○ Small sample vials of perfume (sometimes offered in sets)○ Sample perfumes offered in retail




Recommendations

TV Advertising Analysis ● In 2015, 28 brands placed 57

different commercials on U.S. national television

● Upped TV Ad Spending by $24 million from $122.6 million to $146.7 million.




Recommendations

Interesting Findings● 36% were for male fragrances

● 37% play Rock music in the background

● 80% had no narration or dialogue

● 98% were endorsed by celebrities

● 99% are sexually suggestive




Recommendations

Why are ads so bafflingly weird? Perfume doesn’t do anything...




Recommendations

...but it taps into our emotional center.

http://www.youtube.com/watch?v=OaJ-TE1xZVA

ThemesSense of smell is strongly tied to sexual desires

● Create fantasies for the consumer with SEX and ROMANCE as central themes




Recommendations

Rising trend for female perfumes’ themes of:

● FREEDOM - 67%● FEMALE EMPOWERMENT - 16%




Recommendations

Raw Data Analysis

Primetime Advertising● 169 different TV programs ● Top 5 TV Programs

○ Shark Tank (ABC) - 18 ads○ NCIS (CBS) - 14 ads○ NCIS Los Angeles (CBS) - 13 ads○ Nashville (ABC) - 13 ads○ The Voice (ABC) - 13 ads




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Most Popular TV Genres for Advertising - Industry as a Whole




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● Most popular genre: Drama/Adventure (37%)

● Followed by:○ Slice of Life (24%)○ Situational Comedy (14%)○ Police/Suspense/Mystery (11%)○ Award Shows (3%)○ Professional Basketball (3%)




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Most Popular TV Genres for Advertising - Women’s Fragrances




Recommendations

● Most popular genre: Drama (41%)● Followed by:

○ Slice of Life (23%)○ Situational Comedy (13%)○ Police/Suspense/Mystery (9%)○ Award Shows (4%)




Recommendations

Most Popular TV Genres for Advertising - Men’s Fragrances




Recommendations

● Most popular genre: Slice of Life (29%)

● Followed by:○ Drama/Adventure (23%)○ Situational Comedy (14%)○ Police/Suspense/Mystery (14%)○ Professional Basketball (12%)




Recommendations

Seasonal Bumps in Fragrance Ads

● Peaks of Advertising Expenditure in September, October and December

● Peak in December Expected because Christmas is a holiday with gifts

● No pre-Valentine’s peak




RecommendationsIndustry AnalysisIndustry Analysis




Recommendations

Seasonal Bumps - Women’s Fragrance Ads




Recommendations

● Peaks of Advertising Expenditure in September, October and December

● Highest Peak in October, unexpected● Peak in December Expected because

Christmas is a holiday with gifts● No pre-Valentine’s peak




Recommendations

Seasonal Bumps - Men’s Fragrance Ads




Recommendations

● Peaks of Advertising Expenditure in September/October and December

● Highest Peak in December, expected because Christmas is a holiday with gifts

● No pre-Valentine’s peak

Analysis & Recommendations

Recommendations




Recommendations

Investment OpportunitiesBRAZIL

● Fastest growing market in the past 5 years

● 90% of Brazilians own and 84% wear perfume regularly

● Opportunity to design innovative fragrances to meet local demand




Recommendations

ASIA

● Middle-class and aspiration to Western lifestyles growing fast

● Push fragrances as part of daily life in India, Vietnam and China

● Tailor approach to each individual culture

Questions?Thank you for your attention.

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