The Niche Fragrance Sector Market - Case Study Example

New Fragrance Secondary Research By: Institution: Course: Instructor: Date of submission: a) The Fragrances Market The market is expected to display gradual and consistent growth in the next five years, following slight declines in value during 2015 and 2016. Unisex products experienced growth while gender- specialised products declined, The niche fragrance sector remains strong and growth is expected on the basis of increasing interest in fine fragrance products and the population of young women. Innovative extraction processes resulting in longer lasting fragrances, as well as high quality fragrance ingredients, have been the strongest success factors. Regarding marketing channels, surroundings inside stores remains a strong influencer, followed by online channels offering reputable products at bargain prices, which has seen growth especially in male consumers (Mintel, 2016). Figure 1.1- UK Fragrance Market Value & Expectations (Mintel, 2016) b) Competition Increasing strength in the niche and fine fragrance sector appears to have fuelled mergers and acquisitions activity, with both L’Oreal and Louis Vuitton acquiring smaller companies. Similarly, Coty acquired P & G Fragrances, making it a leader in the UK fragrance market by market share; however, the company experienced decline in value of sales during 2014 and 2015, driven mostly by a lack of new product launch activity and under- performance by historical new products (Mintel, 2016). Figure 1.2- Fragrance Makers Market Shares (Mintel, 2017) The Fragrance Shop, the largest independent fragrance retailer in the UK, reported consistent growth throughout the last five years; the main drivers of sales growth have been new products by international brands, like Hugo Boss and Gucci, as well as an atomiser tool allowing customers to carry fragrance for on the move use (Mintel, 2017) c) Consumers Out of all beauty products in the retail sector, fragrance products were the only category were consumers were willing to spend more on prestige products (Mintel, 2017). Research shows that there have been important changes in buyer behaviour, namely increasing interest in longer lasting fragrances and stronger concentrations. This suggests that incorporating boosters and/ or primers in the ingredients of new products would increase their chances of success. Niche and exclusive fragrances have also been preferred, with exclusivity coming from availability being limited in specific time periods and/ or sales locations and/ or ingredient scents (Mintel, 2016) Consumers prefer prestige fragrances at discounted prices, with the high street being the most popular purchase venue, supporting the finding that impulse is the highest purchase influencer. Celebrity fragrances have declined in popularity because their trust and long- lasting ability scores have declined. The consumers are traditionally segmented by age group in the fragrance market, with younger 16- 24 year olds being targeted most, although the proportion of younger people is declining whilst older age groups are not. Men over 55 years have been found to be the lowest buyers of fragrances and they do not identify with advertisements usually portraying younger actors, suggesting possible opportunity for new product development (Mintel, 2016) Females are the highest buyers, while young men increased their online fragrance purchase activity, with most buying activity occurring in both quarter 1 and quarter 4, around valentine and Christmas. Social media platforms, like Snapchat and Instagram, have proven popular with fragrance buyers and have increased consumer interaction and engagement. Figure 1.3- Purchasing activity by gender, June 2016 (Mintel, 2016) Figure 1.4- Purchasing activity by age group, June 2016 (Mintel, 2016) d) External Environment In 2013 the EU Commission proposed new regulations for the fragrance industry, which sought to ban certain ingredients and redefine labelling and packaging rules. The proposals also included bans on allergy- inducing natural ingredients. Although up to the time or writing, these proposals have been on hold, yet they pose a potential risk in respect of new products, especially if the intention is to sell in the continent (Mintel, 2016) Further, uncertain economic conditions, especially after the Brexit vote in June 2016, have resulted in consumers being more cautious and savvy with their spending; despite fragrances being the only beauty category were consumers demonstrated a willingness to pay a premium for exclusivity, yet buyers are also seeking prestige products at discounted prices, driving down the value of the fragrances market in 2014, 2015 and 2016. The decrease in the value of the pound following the Brexit vote has increased the value of imports and consequently inflation. Any new products requiring ingredients not available in the UK will face a significant risk in cost increases, especially if the pound experiences further declines in its value. Marketing Strategy The concept of marketing refers to the philosophy of consumer orientation which comprises of coordinated actions meant to achieve a certain goal. Marketing is based on the needs of the people, their demands, the market, products and services as well as satisfaction and value. It is, therefore, the art and science of selling (Palade 2011, 234). An analysis of the fragrance market using the Porters Five Forces reveals that there is intense competition and the consumers can easily switch brands due to the low cost of switching brands. The threat of new market entrants is also high with supermarkets and other retail chain stores dealing with fragrances seeking to enter the market with their own labels which further increases the competition in the market (Morgan 2017, 1). Research, as discussed above, has shown that there is significant growth in the fragrance industry in the UK and also globally. This means that there is a demand for fragrances and applying the right marketing strategy can help in introducing a new fragrance into the market and increasing its competitiveness. There are different marketing strategies employed to ensure that a product is competitive. International marketing strategies are used where a product is being sold in different countries. The new fragrance will be introduced in different markets to increase its competitiveness and build a brand name. This means that an international marketing strategy is appropriate. In this case, the standardization and adaptation strategy is appropriate (Ivancova 2013, 4). Standardization means homogenization of the markets to offer high-quality products at low prices since there are additional costs in developing a product in all the markets. However, due to differences such as cultural differences in the different markets, adaptation is also necessary to ensure that the fragrance products correspond to the local market requirements. This means the design of the packaging of the fragrance, the writings on the packaging and other areas should correspond to the culture of the local community. Standardization and adaptation, therefore, means applying uniform marketing mix elements across all the markets but also making sure to implement unique measures corresponding to the needs of the customers in the market (Ivancova 2013, 5). The market has several segments such as the older population, working men and women among others which create two different types of consumers of the new fragrance. These consumers are the high-end customers who are willing to pay more for quality products and the low-end customers who are keen on the price of the products and cannot afford to pay high prices for the products (Morgan 2017, 1). The marketing strategy will focus on the high-end consumers in each market to ensure that their needs are met. The competition in the fragrance industry means that the quality of the product is essential Marketing Mix Marketing mix refers to the main channel or instrument of a company or business that is used for obtaining competitiveness and strong positioning in the market. According to Palade (2011, 234), the ingredients for good marketing include product, price, promotion and placement. This means that an effective marketing mix must have all these elements. The product policy in the marketing mix is regarded as the heart of marketing since it links all the other elements of the marketing mix. The product policy relates to developing products that meet the needs of the customers and specifically the targeted segment of the market (Palade 2011, 235). In this case, the new fragrance targets the high-end consumers in the market. These are the consumers who are willing to pay as much as possible to get quality brand products. As a result, the fragrance must be designed in a way that ensures that its of high quality. Further, the fragrance must also meet other needs of the customers in the market. The fragrance must have both the male and female versions such that the customers of either gender can find a quality version of their fragrance, for example having after shave fragrances for men and hair care fragrances for women. The design of the fragrance must also meet the needs of the customers. Gucci, for example, uses innovative designs for its fragrance products and uses technology to make the products more attractive and sophisticated (Bhasin 2016, 1). The pricing policy of the product is important because it determines whether the target customers or segment of customers can afford the product and whether the company can make profit. The pricing policy is determined by whether or not the customers are willing to pay the price or not. This means that wrong pricing directly leads to market failure (Palade 2011, 235). The new fragrance is meant to be of superior quality hence the need to target the high-end customers in the market. This is because the high-end customers are ready to pay high prices for products of superior quality. Customers are always eager to purchase prestigious products, especially where such products distinguish them from other people and also provide a chance to associate with a premium brand. The goal for the new brand is to create a strong brand due to the quality of the product to make it attractive to a customer who can pay the high prices. The place policy relates to where the customers can get the product. It relates to the balance between the demand and supply to ensure that the consumers can access the products at specific places based on their demands. Since the new fragrance targets the high-end customers, it is crucial to establish outlets that create the customers’ attachment to the brand (Bhasin 2016, 1). The outlets have to be positioned in areas where the high-end customers live or frequent either for work or leisure such as high profile street locations. Such places come with the need to ensure that the décor and the reception by the employees is excellent to ensure that the customers feel special. The outlets have to correspond to the expensive tastes of the customers. Another strategy here is to ensure that the customers can also browse the fragrance products online. The development of technology today has led to the rise of e-commerce. Online marketing and sales will ensure that the fragrance reaches as many customers as possible. The promotion policy is the way in which a company or business communicates to the customers about their products using different media and communication tools. According to Smith and Chaffey (2005, 15), a company can engage in promotional activities such as sales promotion, advertising, public relations (PR), word of mouth, sponsorship, exhibitions and merchandising. These promotional tools are crucial to ensure that the new fragrance reaches the targeted customers to increase the number of sales and competitiveness in the market. The promotion policy should also correspond to different needs of the customers such as creating adverts that are targeted to certain customers in a particular age group. The association of the product with famous people and celebrities is also an important step towards popularizing the product (Bhasin 2016, 1). Trends In 2015, there was a 1% increase in fragrances in the present value chain and this is supported by the premium segment growth especially the men’s segment premium. There was a decline of the mass fragrances of women by approximately 4% in the present value terms owing to a move towards premium fragrances as the economic recession period was ending. Apart from few brands such as the Beyoncé’s and Nicky Minaj, there was a sale decline by most brands in 2015 (Mintel, 2016, p. 9). Prospects It is expected that the fragrances trend will be strong by 2020. A contrast between the performance of the forecast period and the review period at the 2015’s constant prices reveals that fragrances is likely to have an expansion by approximately 143 million pounds in absolute terms. This is with a value of 2% CAGR at 2015’s constant prices. This is faster compared to the small amount of CAGR that was witnessed from 2010 to 2015 period where there was the growth of the various categories by approximately 33 million pounds at the 2015’s constant prices. It is likely that from 2015 to 2020, fragrances will have an accelerated rate of growth and this is fueled by a rise in the growth of GDP per capita premiumisation, and favorable demographics. The cosmetic and the perfume industry in the UK have grown in strength mainly from diversification and innovation of the products. There has been the introduction of new products recently including natural, organic, and eco-ethical products and this has been a way of responding to the increasing sophisticated tastes of the consumers as well as the ethical consumerism’s growth. This softened the consumers’ income strain’s effects in the period’s early part with the significant growth of the industry in the period from 2012 to 2013 which was mainly a lacklustre for the economy of the UK. In 2015, there was a decline in the categories of the body and fragrance categories have been witnessing a value decline since 2015 following the persistence of the savvy shopping behaviour. However, a high interest in consumers in fragrances with position characteristics including high perfume extract concentrations and natural ingredients could ensure that the consumers are spending more especially the main fragrance brands. Apart from that, it is important for the retailers are encouraging the “impulse buying” instead of just focusing on in-store environment. Industry location Most of the UK’s Cosmetic and Perfume Manufacturing Industry’s geographic history originated from small-scale firms. Today, there has been the continuation of the industry to show a tilt towards the many parts of the globe and according to estimates, London alone has approximately 23.2% establishments. The firms have the tendency of being niche operators whose manufacturing is mainly on a small scale in comparison with industry players that are large. In terms of the industry establishment, the South East becomes number two and many investors are attracted to this region owing to the high population as well as capital proximate. Perfumes entail a mixture of aroma compounds and essential oils in addition to alcohol/water and they are meant to enhance the odour of the body. Primary Research The global perfume and fragrance market is expected to reach approximately 51 billion US dollars by 2022 and the main driver behind this is the perfume’s sacrosantic role in personal toilettes for women and men as well as the increasing consciousness of over the scent’s therapeutic effects in influencing the psychological and the emotional wellbeing (Ivancova 2013, 7). Apart from that, it is likely that the market will reap benefits from effervescent innovation of the products as well as the launch of aromas, new scents, and fragrances, niche’s and artists’ brands growing popularity. In addition, the demand for both male as well as female fragrances is currently high. With various consumers having a preference to ensure the creation of their personal signature scent, the demand for personal and customized fragrances is high. Asia-Pacific as well as the Middle East has the highest market growth presently with 7.1% and 7.3% CARG respectively (Mintel, 2016, p. 10). The healthy growth of the economy, rising living standards, changing trends of lifestyle, and increased spending, improved access to brands that are recognized globally, presence of large number of young buyers, as well as the presence of individuals of high net-worth are among the factors contributing towards this growth. The increased utilization of perfumes especially among the younger generations, the product push strategy by key players across the globe, the increasing penetration of the online sales, presence of perfume in various ranges of prices, as well as a rise in spending by the consumers are also factors that are likely to fuel the growth of the perfume industry. However, this growth is likely to be hindered by the availability of counterfeit products as well as the utilization of harmful chemicals as part of the ingredient (Bhasin 2016, 1). The global market of perfume is experiencing a rapid growth trend of customized perfumes as well as the utilization of customized perfumes as well as the utilization of ingredients that are renewable, in perfume making. Apart from that, the global manufacturers of perfume are also changing towards the production of perfumes that are microbial-based to cater for increasing health consciousness among the consumers (Mintel, 2016). Global Players The international players are currently partnering with e-commerce players to ensure that they are capitalizing on these lucrative channels of sales. The segment of physical retail is predicted to have the highest share of the market and it is also likely to dominate the international market of perfumes. Apart from that, the growing health conscious is likely to cause many consumers to divert to the natural ingredient segment (Bhasin 2016, 1). The growing concerns of the consumers towards the utilization of the synthetic chemicals when manufacturing perfumes are making many perfume manufacturers to have a shift towards the manufacturing of natural perfumes. The value share of the natural perfume by 2016 was expected to be approximately 18.9% and with time, the CAGR is expected to be 7.9%. When it comes to value, the Western part of Europe has the highest share of revenue in terms of global market of perfume and North America is number position two. As a way of ensuring that more customers are reached, there has been the adoption of digital strategies of marketing to ensure that a wider base of customers is reached. Among the global leaders in the perfume industry include Estee Lauder Companies Inc, L,Oreal International, LVMH, Elizabeth Arden Inc, and Coty Inc. the past few decades have witnessed a modification in the personal and the beauty care products, and this is ensuring that the perfume industry is becoming a future prospective of the business for many entrepreneurs. The major players are reaching new markets such as in Africa and the Middle East. In terms of volume and value, the Latin America, the Middle East and Africa, as well as the Eastern Europe’s markets of perfume are anticipated to have a significant expansion. By 2008, the international fragrances industry worth was approximately $28.9 billion and by 2013, it was anticipated that this growth would have increased by about 3.2%. Since the US and the Western Europe’s markets have reached the maturity stage, it is important to ensure the movement of the market to other parts of the globe such as Africa. The rapid change in the consumer demands as well as the intense competition calls for the companies to ensure that the products are being differentiated through the endorsement by the celebrity and the brand development (Bhasin 2016, 1). Market contribution of various segments The online segment is likely to attain approximately 7.0% CAGR over the estimated period and it is projected to be the best segment in terms of CAGR. The demographics of the Unisex Perfumes are likely to witness a massive rate of growth with time, exhibiting a 6.9% CAGR. The increase in the launch of the various unisex products by the leading players as well as the rise of sales within the APEJ region is also among the drivers of drivers of this segment. The segment of men was anticipated to have a market share of approximately 34.9% by the end of last year and it is also expected to witness a much higher growth with time (Ivancova 2013, 15). Bibliographies Mintel. 2016. ‘Fragrances-UK-August 2016’. Available at: http://academic.mintel.com.ezproxy.kingston.ac.uk/display/748733/# Mintel. 2017. ‘Fragrances-UK-August 2016’. Available at: http://academic.mintel.com.ezproxy.kingston.ac.uk/display/782464/ (accessed 01 March 2017) Bhasin, H. 2016, Gucci marketing mix. Available at: http://www.marketing91.com/marketing-mix-of-gucci/ [Accessed 11 March 2017] Ivancova, A. 2013, International marketing strategies in the luxury cosmetic industry, BI Norwegian Business School. Morgan, B. (n. d) Marketing in the fragrance industry. Available at: http://www.ivoryresearch.com/writers/ben-morgan-ivory-research-writer/ [Accessed 11 March 2017] Palade, A 2011,Analysis of marketing mix on cosmetics products, Annals of the University of Petrosani, Economics, 11(4), 233-244. Smith, P and Chaffey, D.2005, E-Marketing excellence. 2nd edition. Oxford, England: Elsevier Butterworth-Heinemann Appendix Survey Questionare The perception of the consumers of women’s and men’s fragrances 1. Select your gender. Male Female 2. Do you wear cologne fragrances or perfume? Yes No (you may leave the survey, I appreciate you for your effort and time) 3. State one of the fragrances you have lately worn? (complete the remaining survey question on the basis of this fragrance) 4. Categorically, what was the cost of the fragrance? Expensive very expensive bargained-price value-priced Cheap 5. What feeling do you have wherever you wear the fragrance? (Select the best answer) Makes me experience classy or elegant feeling I recognize the designer label. I feel a link with others people wearing the fragrance. Makes me experience different feeling, unique as well as ensure that I am apart from the others. I have a reconnection with the inner self. I feel reliable. I feel melancholy. I feel connected with my emotions. I share my emotion with others. I feel a spark of happiness. I feel attached with my sensuality. Others retort to my sensuality feeling. None of these 6. If your answer was "none of these" to the previous question, what is your observation regarding how the feeling you have wherever you wear your fragnance? Read More