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The sweet smell of success
Fragrances and perfumes have now evolved into a mainstream business within the cosmetics and personal care industries. The global fragrance industry has experienced moderate growth over the period spanning 2008-2012 with a (CAGR) of 3.7%. According to MarketLine, this industry grew by 4.4% in 2012. Growth in the industry is driven by trends towards urbanization which can enable emerging nations to sustain economic growth, as populations move toward larger cities and take up non-agricultural work, a new class of consumers will contribute to growth; and also increased importance of personal appearance and grooming. Moreover the wide range of choice in fragrance means that consumers are purchasing scents that not only complement their personality but is also personal to their identity and also use different scents which reflect on their mood and surroundings. For example in summer many consumers will buy more floral, sweet and fruity scents; in contrast to this, in winter musky, woody and oriental fragrances are popular. Economic prosperity in expanding markets and an increased demand for youth orientated fragrances and celebrity scents are expected to drive this industry further.
Moreover, consumers spend more on luxury goods when the economy is growing; according to the ‘lipstick effect theory’; when facing an economic crisis consumers will be more willing to buy less costly luxury goods. This is particularly problematic for companies that solely sell luxury products. It is therefore no wonder that many fragrance powerhouses are looking for growth in emerging markets.
Furthermore, the European market is suffering from weak consumer spending; the European debt crisis has added more downward pressure to the growth prospects within this industry. Some of the largest European fragrance industries such as France, Germany and the UK experienced stagnant growth during 2012. According to Eurostat, seasonally adjusted unemployment rates in the Euro area was 10.8% in February 2012 compared with 10% in 2011. This low growth and high unemployment rate has also affected the fragrance industry; in 2011 the market contracted by 0.8% and grew at a slow rate of 1% in 2012 resulting in a CAGR of -0.1% over 2008-2012. Low growth means that more fragrance companies will want to target low end consumers and those companies that are already targeting these consumers are in a stronger position to do so; as consumers will be searching for cheaper alternatives when the economy is down.
For further information on marketing strategies adopted by fragrance producers and fragrance industry product diversification, see our latest case study: The fragrance industry – the success of product diversification.