Flare Fragrances: Analysis

5Cs

•Company

•Customers

•Collaborators

•Competitors

•Context

Company & Competitors

• A leading U.S. producer of women’s 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 five more recently introduced brands. • May add to the efficiency 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 million—Case 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 18–34• 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 18–34 age segment, who often demonstrate loyalty to the fragrance as they age.

• The brand has difficulty 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 reflects 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

FemaleFemaleFemale MaleMaleAGE AND SEX OF

PURCHASERUnder 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

FemaleFemaleFemale MaleMale

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

ChannelChannelExisting 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 women’s

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.

• Flare’s 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 & difficult unless Flare can rapidly build expertise selling to drug stores.

• Other challenges to increasing drugstore distribution• First, sales of women’s 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.

• Profitable consumer promotions such as saleable samples rather than PWP and GWP promotions, which are space inefficient and difficult 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 flattening 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 satisfied while staying within the Loveliest brand

franchise.• Finally, Flare has previously introduced another five 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

targets—women aged 18–24, 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

influenced 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 first 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 sufficiently

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

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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 $! 400,000Brochures $! 100,000 Total $! 875,000

$! 7,500,000 Savvy 1st year factory sales goalSavvy 1st year factory sales goal

Possible Outcomes

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