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Flare Fragrances: Analysis

5Cs
Company
Customers
Collaborators
Competitors
Context
Company & Competitors
A leading U.S. producer of womens fragrances.
Projected annual growth in 2008 sales declined to 2% after
rising 12% in 2007.
Revenues were $193.6 million in 2006, followed by $216.8
million in 2007, and projected to be $221.1 million in 2008.
Options for 2009 sales growth
expansion of current distribution into drug stores
introduction of a new brand.
Late in 2008, major competitors is also planning to introduce a
new brand in the same price range and targeted at the same
market but with a substantially higher level of advertising and
promotion support.
Company Situation
At the end of 2007, Flare had a 9.5% share women's fragrance market
Strong, 33-year-old Loveliest brand name
Acts as an umbrella for ve more recently introduced brands.
May add to the efciency of Flare's advertising expenditures
Flare also has a good record of
(1) regular new product introductions
(2) good brand and advertising awareness
(3) good penetration of general merchandise chains and mass merchandisers
(4) a high-quality sales force with low turnover.
Loveliest brand gradually broadened its potential customer base and its appeal to more price-
oriented classes of trade.
With the increasing number of prestige products selling through mass channels
May be partly responsible for weak dollar sales in 2008.
Flare department store distribution is weaker than its mass market penetration
Flare is dependent on the medium-price segment and mass market for the bulk of its sales.
Flare's dependency on a single brand name may be inadequate to straddle an increasingly
segmented market.
Flare's share of industry advertising is weakening. Flare advertising expenditures in 2007 were
19.2% of sales ($41.6 million/$216.8 millionCase Exhibit 4), compared to 23% for the industry.
In 2008, Loveliest appeared likely to be outspent by its competitors again.
Customers/Segmentation
Consumers segmented by prices willing to pay & where they shop for them.
Demographic target is women aged 1834
Heaviest users of women's toiletries
Advertising is mainly targeted to
users themselves
women who buy fragrances as gifts,
men who buy fragrance gifts for women.
A typical brand probably attracts a user group within the high usage 1834 age segment, who
often demonstrate loyalty to the fragrance as they age.
The brand has difculty appealing to younger women entering the market, so need for new-
product introductions to appeal to new age cohorts and to capture users looking to own
more than one brand of fragrance.
Perfume is sold largely on the basis of psychic performance
Brand names, advertising appeals, and packaging
Create an image or portray a life-style which reects aspirations
For example, Natural is likely to appeal to women who emphasise healthy living and a
concern for the environment;
Various brands enhance a woman's chances of being or feeling attractive, successful, and
loving, or reinforce a particular self-image.
Possible Segmentation
Female Female Female Male Male
AGE AND SEX OF
PURCHASER
Under 18 18-34 35+ 18-34 35+
OBJECTIVE OF PURCHASER
(USER)
NATURE OF BRAND(S)
PURCHASED
PRICE SENSITIVITY
WHERE PURCHASED
ADVERTISING SENSITIVITY
Frequency of Purchase
Possible Segmentation
Female Female Female Male Male
AGE AND SEX OF
PURCHASER
Under 18 18-34 35+ 18-34 35+
OBJECTIVE OF
PURCHASER (USER)
Gift For Mother,
Create Self Image
CREATE SELF
IMAGE
MAINTAIN SELF
IMAGE AND/OR HAS
IT (USER)
GIFT, PROJECT
IMAGE Onto Woman
GIFT, PROJECT
IMAGE On To
Woman
NATURE OF BRAND(S)
PURCHASED
BRAND USED
REGULARLY BY
RECIPIENT
MULTIPLE BRANDS
FOR SPECIFIC
OCCASIONS & FOR
EXPERIMENTATION
(HEAVY USER)
REGULAR BRAND,
LESS BRAND
SWITCHING
BRAND ALREADY
USED OR NEW
BRAND
BRAND ALREADY
USED OR NEW
BRAND
PRICE SENSITIVITY HIGH LOW MEDIUM LOW LOW
WHERE PURCHASED
MASS/DISCOUNT/
DRUG STORES
SPECIALTY/
PRESTIGE
DEPARTMENT
STORES
SEARS, PENNEY
DEPARTMENT
STORES
SPECIALTY/
DEPARTMENT
STORES
SPECIALTY/
DEPARTMENT
STORES
ADVERTISING SENSITIVITY
MEDIUM/HIGH
OCCASIONAL
HIGH MEDIUM/LOW MEDIUM MEDIUM
Frequency of Purchase Occasional High Medium Medium Medium
Strategic Options: Ansoff
Channel Channel
Existing New
Product
Existing 1 2
Product
New 3 4
Channel Positioning?
Specialty Stores
Prestige
Department Stores
Discount
Department Stores
Drugstores
Discount/ Club
Stores
Internet/ Other Food Stores
Loveliest
Awash
Summit
Essential
Swept Away
Natural
Savvy
Dulcet?
Competitors
High Price
Medium Price
Low Price
Drugstore Decision: Good
In 2008, only 4.4% percent of sales were made to drugstores - potential
Drugstores accounted for 16.6% of retail dollar sales of womens
fragrances.
Consumers Flare has not consistently reached
Might improve the cost effectiveness of Flare's national advertising
Consistent with policy toward expanded distribution.
Leading drugstoreslook to go upscale with their image, Flare wants
strong presence at the counter and not miss the opportunity to build
share
Flare needs to stay relevant in mass market channel, so if Flare
ignores this push by drugstores, it risks allowing competitors to
capture drugstores customers seeking prestige and value.
Flares products become increasingly appealing to more price-
oriented channels such as drugstores, Inquiries have been received
from drug chains wishing to carry certain Flare products.
Drugstore Decision: Worries
Currently 2.6% share of the drugstore market.
To achieve target $7.5 million in incremental factory sales, Flare would have to almost double current
drug store share to 4.64%, assuming no cannibalization.
Risky & difcult unless Flare can rapidly build expertise selling to drug stores.
Other challenges to increasing drugstore distribution
First, sales of womens fragrances through drugstores are not growing.
Second, drugstores and other channels through which Flare is currently distributing may have
different expectations about the level and nature of appropriate marketing efforts from their
manufacturer suppliers. In particular, drugstores want:
Advertising to create consistent consumer pull and insure rapid product turnover. Flare currently
advertises in only two quarters.
Frequent trade deals and an opportunity to purchase more than 10% of merchandise on deal, as
is currently the case.
Protable consumer promotions such as saleable samples rather than PWP and GWP
promotions, which are space inefcient and difcult to administer in a self-service environment.
To carry only selected "faster moving" items rather than the entire Flare product line.
Third, not all Flare salespeople have experience personally selling to drugstore accounts
Fourth, strength of existing retail accounts may be impaired if distribution of the existing product line
were broadened within drugstores. Likely if drugstores begin price-discounting items in the existing
product line as is probable given a 40% trade margin, and if they were allowed to cherry-pick items
from the line without having to carry all the items.
Drugstore Marketing Options
Sell only to those chains that will begin to emphasize
assortment and service rather than low prices and convenience
Five entry options:
Allow drugstores to cherry-pick from the entire existing
product line.
Offer one or more of the existing product lines such as
Awash or Swept Away
Introduce a new product for drugstore distribution that
would carry the Loveliest name.
Introduce a new product for drugstore distribution that
would not carry the Loveliest name.
Allow drugstores to carry gift packs from the existing line or
gift packs specially designed for them.
New Product Decision
Sales are attening and both the sales force and the
trade need to be excited in the face of competitive
new product introductions.
Flare has historically introduced a new product every
few years, so one is expected.
Each new product attracts a cohort of users entering
the women's fragrances market who often remain
loyal to the brand as they age with the product
Fourth, Natural had a successful introduction, so the
precedent is set for another successful launch.
New Product Decision
Any new product will further fragment Flare's advertising effort?
Increasing distribution penetration or by changing the Loveliest advertising campaign?
Expansion can be achieved by playing to its strength and placing all advertising effort behind the main brand.
Should be launched under the Loveliest brand umbrella?
First, the costs and risks of any new product introduction are reduced due to advertising and packaging
economies.
Second, the visual impact of the Loveliest display at the point-of-purchase is enhanced.
Third, a consumer who needs a variety of fragrances can be satised while staying within the Loveliest brand
franchise.
Finally, Flare has previously introduced another ve successful lines using this approach.
Against introducing another Loveliest line.
First, the appeal of the 13-year-old Loveliest theme may be "tiring."
Second, if a sixth brand was introduced targeted at existing consumers and classes of trade, cannibalization
would be likely
Third, stretching the Loveliest brand name might hamper the new line's appeal and dilute the loyalty of current
Loveliest consumers.
Flare need not drop one of its existing lines - has never before dropped a product line
A point of market share in the mass channel is worth $6.65 million compared to $9.3 million for department stores
and $3.67 million for drug chains.
How its popularity in mass might impact the interests of department stores?
Would any short-term sales gains from that product come at the expense of alienating the department stores.
Should a new brand be launched exclusively in department stores this time to mitigate this?
Savvy
Savvy program is unlikely to cannibalize Loveliest (Exh 6)
Loveliest not to appear on the Savvy package.
Savvy is priced above the current Loveliest lines
May help to bolster department store interest in Flare products
Savvy advertising will be targeted at a segment that Loveliest advertising
targetswomen aged 1824, who tend to be less price-sensitive.
Appeal will be different
The "You're the love in Loveliest": fantasy and imagination
Savvy: appeal will be more provocative and more stylistic, but require
a sizeable advertising investment.
Despite Dulcet launch, Flare will gain nothing by waiting a year, the life-style
appeal of the two brands is very different
Savvy is viewed as "stylish, upbeat, and classy (Case Exhibit 5)
Dulcet appeals to teens and very young adults who are more heavily
inuenced by celebrities.
Financial Planning & Advertising Budgeting
Savvy factory sales in 2009: $7.5 million
44.53% contribution margin (Case Exhibit 2) and no contribution to overhead
So, $3.34 million is available for advertising and promotion expenditures if Savvy is to
break even in 2009
$875,000 would be spent on promotion
$2.46 million remains for advertising
Only the rst agency advertising plan of $2.25 million affordable
Uncertain life-cycle adds to the risk of heavy promotional investment requiring new brand
reaches breakeven as quickly as possible?
$7.5 million sales forecast for Savvy in 2009 is overly optimistic?
After factory sales of $7 million the year it launched, Natural grew to $9.1 million in 2008
(Case Exhibit 1) with a media budget spend of about 30% of its sales (Case Exhibit 4).
Nothing ventured, nothing gained?
$10 million advertising budget for Dulcet. The Savvy budget must be set at a sufciently
high level to enable Savvy advertising to be heard above the noise, especially if it is not
linked to the Loveliest brand.
Raise prices? Relatively modest price increase of 3%. On $221 million in 2008 sales, gives an
additional $6.63 million in revenues (for advertising and promotion)?
Ad Budget Proposals for Savvy
lan 1 lan 2 lan 3
1elevlslon $ 1,634,200 $ 3,308,400 $ 3,314,000
Magazlnes 239,630 319,300 863,300
ulglLal/Web 178,630 293,830 603,000
roducuon 137,300 210,600 249,730
8eserve - 167,830 267,730
1oLal $ 2,230,000 $ 4,300,000 $ 7,300,000
1 Note: Launch promotion budget is $875,000 including: 1 Note: Launch promotion budget is $875,000 including: 1 Note: Launch promotion budget is $875,000 including:
Large Prepacks $! 250,000 ($7.5mm*1/3*.1)
Small Prepacks $! 125,000 ($7.5mm*1/3*.05)
Sampling $! 400,000
Brochures $! 100,000
Total $! 875,000
$! 7,500,000 Savvy 1st year factory sales goal Savvy 1st year factory sales goal
Possible Outcomes
ASSuMlnC:
(1) 1hree posslble medla plans ln 2009 (LxhlblL 7) plus launch promouon expense (see below1 fromLxhblL 6) (1) 1hree posslble medla plans ln 2009 (LxhlblL 7) plus launch promouon expense (see below1 fromLxhblL 6) (1) 1hree posslble medla plans ln 2009 (LxhlblL 7) plus launch promouon expense (see below1 fromLxhblL 6) (1) 1hree posslble medla plans ln 2009 (LxhlblL 7) plus launch promouon expense (see below1 fromLxhblL 6) (1) 1hree posslble medla plans ln 2009 (LxhlblL 7) plus launch promouon expense (see below1 fromLxhblL 6) (1) 1hree posslble medla plans ln 2009 (LxhlblL 7) plus launch promouon expense (see below1 fromLxhblL 6)
(1) 1hree posslble levels of medla expendlLure ln 2010 (Lhe rsL assumes llare's hlsLorlcal spend of 19.2 of sales) (1) 1hree posslble levels of medla expendlLure ln 2010 (Lhe rsL assumes llare's hlsLorlcal spend of 19.2 of sales) (1) 1hree posslble levels of medla expendlLure ln 2010 (Lhe rsL assumes llare's hlsLorlcal spend of 19.2 of sales) (1) 1hree posslble levels of medla expendlLure ln 2010 (Lhe rsL assumes llare's hlsLorlcal spend of 19.2 of sales) (1) 1hree posslble levels of medla expendlLure ln 2010 (Lhe rsL assumes llare's hlsLorlcal spend of 19.2 of sales) (1) 1hree posslble levels of medla expendlLure ln 2010 (Lhe rsL assumes llare's hlsLorlcal spend of 19.2 of sales)
(3) $7.3 mllllon ln 2009 sales followed by Lwo scenarlos for 2010: sales sLay aL or grow Lo $8.33 mllllon (3) $7.3 mllllon ln 2009 sales followed by Lwo scenarlos for 2010: sales sLay aL or grow Lo $8.33 mllllon (3) $7.3 mllllon ln 2009 sales followed by Lwo scenarlos for 2010: sales sLay aL or grow Lo $8.33 mllllon (3) $7.3 mllllon ln 2009 sales followed by Lwo scenarlos for 2010: sales sLay aL or grow Lo $8.33 mllllon (3) $7.3 mllllon ln 2009 sales followed by Lwo scenarlos for 2010: sales sLay aL or grow Lo $8.33 mllllon (3) $7.3 mllllon ln 2009 sales followed by Lwo scenarlos for 2010: sales sLay aL or grow Lo $8.33 mllllon
(whlch would glve !"##$ a slmllar growLh raLe Lo llare's prevlous launch of %"&'(")) (whlch would glve !"##$ a slmllar growLh raLe Lo llare's prevlous launch of %"&'(")) (whlch would glve !"##$ a slmllar growLh raLe Lo llare's prevlous launch of %"&'(")) (whlch would glve !"##$ a slmllar growLh raLe Lo llare's prevlous launch of %"&'(")) (whlch would glve !"##$ a slmllar growLh raLe Lo llare's prevlous launch of %"&'(")) (whlch would glve !"##$ a slmllar growLh raLe Lo llare's prevlous launch of %"&'("))
(4) ConLrlbuuon margln of 44.33 (4) ConLrlbuuon margln of 44.33 (4) ConLrlbuuon margln of 44.33 (4) ConLrlbuuon margln of 44.33 (4) ConLrlbuuon margln of 44.33 (4) ConLrlbuuon margln of 44.33
Calcuauon: ((2009 Sales + 2010 Sales) x ConLrlbuuon Margln) - (2009 Medla 8udgeL + 2010 Medla 8udgeL) Calcuauon: ((2009 Sales + 2010 Sales) x ConLrlbuuon Margln) - (2009 Medla 8udgeL + 2010 Medla 8udgeL) Calcuauon: ((2009 Sales + 2010 Sales) x ConLrlbuuon Margln) - (2009 Medla 8udgeL + 2010 Medla 8udgeL) Calcuauon: ((2009 Sales + 2010 Sales) x ConLrlbuuon Margln) - (2009 Medla 8udgeL + 2010 Medla 8udgeL) Calcuauon: ((2009 Sales + 2010 Sales) x ConLrlbuuon Margln) - (2009 Medla 8udgeL + 2010 Medla 8udgeL) Calcuauon: ((2009 Sales + 2010 Sales) x ConLrlbuuon Margln) - (2009 Medla 8udgeL + 2010 Medla 8udgeL)