Fragrances - Cornell University presentations... · Problems with measurement of ... common marketing technique in fragrance ads Sex captures audience attention ... fragrance will

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.

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

Recommendations

Most Popular TV Genres for Advertising - Industry as a Whole

Recommendations

● 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%)

Recommendations

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

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

● 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.

Fragrances - Cornell University presentations... · Problems with measurement of ... common marketing technique in fragrance ads Sex captures audience attention ... fragrance will

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