Flare Fragrance Case

Flare Fragrances Company, Inc.: Analyzing Growth Opportunities Opportunities

Key issue: Flare wants to deliver at least $7.5 million incremental revenue in

2009 20 09 and and su survi rvive ve the the seve severe re econ econom omic ic envi enviro ronm nmen ent. t. Two Two meth method ods s are

available, one involves launching a new brand – Savvy; the other involves intensifying Flare’s penetration into the drugstore channel.

Current situation of the industry: In US market, 2008, 74% women and 75% girls use fragrance products. The total US fragrances retail market was $5.7 billion in 2007, among them $3.8 billion was women fragrances. Flare takes 9.5% market share, exceeded by Depuis, Suzanne Weber and Aromatique. Sales channels of fragrances include mass market, drug stores, department stores and others.

SWOT analysis of Flare Fragrances Company: S: Flare is the No.4 player in the U.S. women’s fragrances market. Loveliest is maintaining its 3% share of the market-$77 million. Flare dominates sales of fragrances through mass channels.

W: The company was confined to the United States.  The drugstore sales team lacks experience and management level

O:  The potential market for women’s fragrance is huge  Traditionally higher-end fragrances will be the best performers in the coming years.

Department/drugstore channel have huge markets but Flare accounts for only 5.7% and 2.6%

T: major competitor Aromatique would launch a new perfume brand, Dulcet. Mid-tier and premium brands increasingly available in mass channels

Evaluation of each option: Project 1: Launching Savvy  Project 2: Deepening Flare’s penetration into drag store channel Project 3: Launching a new premium brand targeting at high-end market and thus shore up and even penetrate department stores/Prestige channel According to Exhibit 1, Flare’s shares of drug store channel and department store channel are 2.6% and 5.7%, with the each market size of $367 million and $930 million. To meet the goal of $7.5 million incremental revenue, the shares of drug store channel and department store channel should increase by 2% and 0.8%, respectively, after the penetration. As is shown in Exhibit 6, Savvy ’s target market and its price are not so much different from those of other brands under the Loveliest. Savvy is not a proper to be a breaking-out brand and is less likely to shore up department store market. Moreover, since Loveliest already has five brands with it, the adding of another will not dilute so heavily. Therefore, Savvy should be

advertised with Loveliest labelled on it and the media plan should be $2,2500,00 according to Exhibit 7.  The risk-and-return analysis of each option is as follows: Project

Cost

Expected task

Risk

Return

Project 1

Launch and advertisin g ($2.25 million)

Revenue 7.5 million

Cannibalization of existing brand; possible failure of launching

Project 2

advertisin g

Increase the Damage to market share of  relationship with the channel by other retail 2%. accounts;

Project 3

Launch and advertisin g ($4.5 million)

Increase the High cost; Shore up market share of  Possible failure of  department store the channel by the launching channel; open high0.8%; Revenue end market; making $7.5 million halo effect to launch more premium brands.

A breaking-out brand with possibility to make halo effect ; Increasing revenue; more share in drug store channel

Final recommendation: According to the above analysis, the final recommendation is Project 3: introducing

a new breaking out premium brand targeting at high-end market (Retail price $80 for 1.7 oz.), thus Flare thus can shore up and even penetrate department stores/Prestige channel. The new brand’s target consumers are women aged from 34 to 65, who have the highest likelihood to buy perfume and to be loyal to a favourite brand and scent. In addition, using its possible halo effect due to umbrella brand, Flare can gain more profit in long-term

profits. The trade margin and introductory deals are as the same as savvy in Exhibit 6.

Implementation plan: Based on the media plan for savvy , the advertising budget for this new brand is $4.5 million for a celebrity launch. Accordingly, the retail sales are estimated to be $7.5 million. The production of 0.5 million 1/8 oz. samples to be distributed free at the point of sale costs $0.4 million.  Taking full advantage of the earlier-stage work that has been done for Project 1 and Project 2, the implementation plan is as follows: Plan and preparation: January, February Earlier-stage advertising (targeting at both men and women): March to September Launching: first order accepted in May, 2009, first shipments in September, 2009. Sales team for department store Channel: the whole 2009

Risk and contingency assessment of the recommendation plan: 1. Consumers under economic pressure trade down from luxury brands to

mass alternatives, which is a negative trend for premium brands. But the current market is still large. 2.  The difficulty of rooting a new brand into the target consumers as they

have low willingness to try new scent. But once they choose this brand, they will have high loyalty.