Perfumes

INDUSTRIAL CODES

NAICS: 32-5620 Toilet Preparation Manufacturing

SIC: 2844 Perfumes, Cosmetics, and Other Toilet Preparations Manufacturing

NAICS-Based Product Codes: 32-56204111, 32-56204121, 32-56204131, 32-562042, and 32-56204211

PRODUCT OVERVIEW

Perfume products are substances that emit pleasant aromas. While fragrant liquids used for the body are generally referred to as perfumes, the product may actually be a perfume, a perfume oil mixture or blend, a cologne, or toilet water. Perfumes are classified based on the ratio of aroma to alcohol and water. Regardless of how they are classed, all perfumes are characterized by their top notes, heart notes, and base notes.

Perfumes have been used for thousands of years. The word perfume comes from the Latin words for through smoke, per fume. Many of the early uses of perfumes were connected to religious ceremonies and involved burning incense or herbs. The pleasant smell of citrus oil squeezed from the rind of a fruit onto the skin was an early form of body perfume. The nineteenth and twentieth centuries were a turning point in perfume manufacturing. Coty, now the top U.S. perfume manufacturer, was established in Paris in 1904 and is considered to be the founder of the modern perfume industry. Perfume making was influenced, like all manufacturing, by the spread of automation, the development of mass production, and advancements in chemistry. Modern chemistry laid the foundations of perfumery as we know it today.

Even with the founding of the modern perfume industry and the spread of automation, perfume products are still characterized as they were in the seventeenth and eighteenth centuries: by their top notes, heart notes, and base notes. Each new perfume created and introduced into the marketplace includes a discussion of top notes, heart notes, and base notes. Perfume notes emerge at different times, last different lengths of time, and convey different impressions.

Top notes are aromas that are perceived immediately when a perfume product is opened and applied to skin. Combined, they create the key aroma that will form a person's initial impression of a perfume. Consequently, they are very important in the selling of a perfume. The scents of this note class are usually described as fresh, assertive, or sharp. The compounds that contribute to top notes are strong in scent, very volatile, and evaporate quickly. Citrus and ginger scents are common top notes.

Heart notes emerge after the top notes dissipate due to their volatility. Heart note compounds form the main body of a perfume and are often designed to mask the sometimes unpleasant initial impression of base notes, which by their nature tend to become more pleasant with time due to the fact that they emerge slowly. The scent of heart note compounds is usually more mellow and rounded; less sharp and assertive than top notes. Aromas produced from compounds within this heart class appear anywhere from two minutes to one hour after the application of a perfume. Lavender and rose scents were used historically as typical heart notes; more recently common heart notes are iris and jasmine. In perfume endeavors, top notes and heart notes are discussed together as head notes.

Base notes emerge slowly. They are also known as dry down compounds because they emerge after top notes have dried down and dissipated due to their volatility. The most expensive top notes volatilize rapidly because they are perfume oils and natural essential oils. Base and heart notes combine to form the main theme of a perfume. Base notes bring depth and solidness to a perfume. Base note compounds often contain fixatives used to fix or slow down the evaporation rate of more expensive top notes and the lighter heart notes by reducing their volatility. The compounds of this class of scents are typically rich and deep and are usually not perceived until 30 minutes after the application of the perfume. Musk, vetiver, and scents of plant resins are commonly used as base notes.

In addition to their top notes, heart notes, and base notes, perfume products are characterized by discussions of the juice and the bottle. For example, Vera Wang launched a new perfume in January 2007 called Truly Pink. Its top notes are white freesia, white cassis, and lychee blossom; heart notes include lily of the valley, rose accord, and peony; and base notes are creamy woods, iris, and violet wood. The juice is tinted a pale pink. The bottle comes in the same bottle type as the first Vera Wang scent, Vera Wang Signature, but the glass is tinted a slight pink. The cost is $85 for 3.4 ounces of eau du parfum spray. Discussions of the juice and the bottle are important because these contribute to the overall product image. Perfume bottles are designed by the manufacturer to reflect the character of the fragrance inside, whether light and flowery or dark and musky. The notes, the juice, and the bottle combine to create a complete product that can be launched into the market.

MARKET

Perfume is part of the $28 billion annual market for toilet preparation products in the United States. Perfume is a toilet preparation product based on the French term toilette, which refers both to the room where the toilet is, and activities connected to that room. As a result, toiletries refers to the broad class of products used as part of performing one's toilette, and includes perfumes and toilet waters. The value of all shipments of toilet products is provided in a U.S. Census Bureau report titled "Toilet Preparation Manufacturing: 2002." The major toilette product categories are presented in Figure 169 by shipments and by percentage, depicted by the pie slice, of the total industry. Perfumes in 2002 accounted for 10 percent, or $2.9 billion, of the $28 billion per year toiletries industry.

Perfume products vary in price because they vary in strength and they are classified by strength as well. Each strength is discussed separately to highlight increases and decreases in specific product categories, using five years of Census Bureau data from 1997 to 2002 as a basis for comparison. Perfume products include:

• Perfume oil mixtures and blends
• Colognes
• Perfumes
• Toilet waters

Perfume oil mixtures and blends

These are the most popular and largest of the perfume product classes. Perfume oil mixtures and belnds typically involve a blend that includes enhancers to augment the aroma, fixatives to fix or slow down the evaporation rate by reducing volatility, and extenders to increase the volume of the product without diluting the aroma. Shipments of perfume oil mixtures and blends more than doubled in value in the five-year period between 1997 and 2002, growing from $725 million to $1.5 billion. Perfume oil mixtures and blends represented 52 percent of the $2.9 billion year perfume market in 2002, twice what they represented in 1997. As a result of its doubling in growth, perfume oil mixtures and blends surged up in ranking from third place to first. More people now purchase this class because man-ufacturers make more products in order to take advantage of newly available synthetic organic perfume mixtures.

Colognes

Colognes are the second most popular of the perfume product classes. Cologne is a generic term for a type of lightly scented perfume that originated around 1709 in Cologne, Germany. Cologne is defined by its typical concentration of 3-5 percent perfume or natural oil diluted in 80-90 percent alcohol with water making up the rest. Colognes remained a steady second place in both 1997 and 2002, constituting approximately 25 percent of the perfume market. As a class, it fell during that time, with value of product shipments declining from $781 million to $733 million, a drop of 6 percent. This data suggests that interest in colognes is stagnating.

Perfumes

Perfumes are the third most popular of the perfume product classes. Perfume is defined by its typical concentration of 10-20 percent perfume or natural oil dissolved in alcohol with a trace of water. Perfumes declined in popularity between 1997 and 2002, losing out to perfume oil mixtures and blends, which leapfrogged over colognes to become a bestseller. Perfume lost its bestseller status. In 1997 perfumes captured 44 percent of the market for perfume products. Between 1997 and 2002 it dropped 65 percent, with the value of product shipments declining from $1.3 billion to $462 million. People are tending to buy less perfume and more perfume oil mixtures and blends to a large extent because manufacturers make fewer perfumes. Producers are buying fewer of the expensive natural oils and perfume in order to take advantage of newly available—and more affordable—synthetic organic perfume mixtures.

Toilet waters

What are known as toilet waters have always been the smallest segment of the perfume category. Toilet water is defined by its typical concentration of only 2 percent perfume or natural oil in 60-80 percent alcohol and 20 percent water. For many years, toilet waters were uncouth. They have become fashionable, partly because designer Marc Jacobs partnered with Coty Prestige to produce a best selling line of affordable unisex splash scents. The splash product is not meant to be dabbed on at wrists as a special occasion scent; it was designed to encourage casual and lighthearted use, and is sold in a big bottle with oversized proportions to invite users to splash it on everywhere. The first Marc Jacobs splash group rolled out in summer 2006 as Rain, Grass, and Cotton and was priced at $65 for 10 ounces, instead of the usual $85 for 3-4 ounces. This gave toilet waters a fresh new image. New products like this helped toilet waters increase in their importance to the industry overall. This tiny perfume class grew 84 percent in the five-year period between 1997 and 2002, from a product shipment value of $72 million up to $133 million. As a result of this 84 percent increase, toilet waters represented 5 percent of the $2.9 billion annual perfume market in 2002, twice what they represented in 1997.

KEY PRODUCERS/MANUFACTURERS

New fragrances are developed and introduced into the marketplace every year. The early twenty-first century saw increased activity in the perfume industry. For instance, more than 170 high-end fragrances were launched in 2005, according to a report summarized by Crain's Chicago Business in November 2006. Top manufacturers of perfume in the United States are Chanel, Coty, Estée Lauder, and Procter & Gamble.

Chanel

France-based Chanel is synonymous with high quality, high-end, prestige products. Chanel stays away from the mass market fearing that association with the lower end of the market can hurt sales. Chanel is a retailing and cultural icon, relying on the mythology surrounding Coco Chanel, the radically chic clothing designer who dominated the Paris couture world in the 1920s. She ran four businesses: a fashion house, a textile business, perfume laboratories, and a workshop for costume jewelry. In 1922 she introduced a perfume, Chanel No. 5. It remains a profitable Chanel product and ultimately made Coco a millionaire.

In 1924, Pierre Wertheimer became her partner in the perfume business; the Wertheimers control the perfume company today. Chanel No. 5 is the number three perfume worldwide for its seductive blend of jasmine, patchouli and ylang-ylang. Chanel exemplifies the historically close ties between couture fashion and perfume. For decades, Chanel's exclusive Rue Gambon Collection of perfumes was available only in Chanel Boutiques in Paris. It was expanded as Les Exclusifs de Chanel, now a collection of 10 very limited edition fragrances, and launched in the United States in February 2007. Ultimately it was the Chanel perfume more than couture that made the name famous. Coco Chanel established the model for close ties between perfume and clothing design. It is a model more popular in this century than it was in the last.

Chanel's perfume lineup includes No. 5, Chance, Allure, Allure Sensuelle, Coco, Coco Mademoiselle, No. 19, No. 22, Crystalle, and the ten scents of the Rue Gambon Collection.

Coty and Coty Prestige

Mass marketers Coty and Coty Prestige are owned by Benckiser GmbH, a German privately held financial holding company. Coty was created in Paris in 1904 and is the largest U.S. fragrance company, consistently capturing 36 percent of the mass market with its almost unheard of portfolio of more than 35 brands, each with an oeuvre of products. Coty is the company known for its pop star perfumes. Coty pop star perfumes include Celine Dion, Jennifer Lopez, Shania Twain, and Kylie Minogue, among others. Coty Prestige is generally associated with clothing designers. Coty Prestige introduced CK One in 1994 as one of the first unisex scents. It created a sensation with the launch of its second Marc Jacobs splash group called Ivy, Violet, and Amber launched in fall 2006. Ivy has top notes of sparkling nutmeg, cardamom, and mandarin; heart notes are cool candy cane accord and fresh orris; and base notes are warm suede, tonka bean, vetiver, and sandalwood. Its juice is tinted pale green. Violet's top notes are sparkling bergamot and peony; heart notes are violet, orchid, orris, and creamy cashmere accord; base notes are cedarwood, vanilla, musk, and gingerbread. Its juice is tinted a pale lavender. Amber has top notes of crystallized ginger and star anise; heart notes of cassia bark, ancient amber, and lys; and base notes of tonka bean, cashmere wood, and benzoin. Its juice is tinted a pale golden tone. All Marc Jacobs splash scents are unisex.

Coty Prestige perfume brands are Calvin Klein, Cerruti, Chloe, Jette Joop, Jil Sander, Joop!, Kenneth Cole, Marc Jacobs, Nikos, Vera Wang, Vivienne Westwood, Jennifer Lopez, Sarah Jessica Parker, Baby Phat, Chopard, Davidoff, Desperate Housewives, Lancaster, Nautica, and Phat Farm. Coty perfume brands are Esprit, Miss Sixty, Pierre Cardin, Celine Dion, David and Victoria Beckham, Isabella Rossellini, mary-kateandashley, Shania Twain, adidas, Aspen, Astor, Calgon, Chupa Chups, Exclamation, Jovan, Miss Sporty, Rimmel, Stetson, and Vanilla Fields.

Estée Lauder

Estée Lauder began operations in 1946, primarily as a skin care company. Just seven years later, it introduced its first perfume and named it Youth Dew, proving that the youth concept is not entirely new. In 2006, disregarding the overall U.S. perfume market slump, it launched three prestige perfume brands. Missoni, from the Italian clothing design house, was launched to get a foothold in the European market. Unforgivable from Sean John was launched to attract men and to tap into the growing African American demographic. The first fragrance from designer Tom Ford, Black Orchid, was launched and expanded by Ford with Fall 2006 and Spring 2007 collections called Amber Noon and Azurée. Unforgivable ranked second in the prestige men's fragrance category and was so successful that Lauder introduced flankers and ancillary products in 2006. These included Sensual Body Spray, After Shave, After Shave Balm, Shower Gel, and Deodorant Stick. Actress Gwyneth Paltrow is the spokesmodel for both Pleasures and Pure White Linen. Pure White Linen is a modernized version of the original White Linen that Estée herself formulated and loved. It is a bestseller with top notes of grapefruit, mandarin, rose tea, raspberry, pear, green Granny Smith apple, lilies, white freesia, white ginger, and cardamom; a floral heart of red tulips, rose absolute, wild honeysuckle, gardenia petals, tuberose, jasmine, iris, and osmanthus; and base notes of white cedarwood, patchouli, and white heliotropine.

Lauder's brands are DKNY (including Red Delicious, Be Delicious, Cashmere Mist, Gold), Missoni, Sean John, and Tom Ford. Estée Lauder brands are Beautiful, Beyond Paradise, Pleasures, Intuition, Pure White Linen, and the still-popular Youth Dew, now more than 50 years old. Beyond Paradise, Pleasures, and Intuition are also formulated for men. Actress Ashley Judd is the spokesmodel for American Beauties Wonderful fragrance. It was formulated by Lauder subsidiary Beauty Bank and represents Lauder's first foray into the mass market. It is distributed at Kohl's, a discount chain with 750 U.S. stores.

Procter & Gamble

Procter & Gamble (P&G) manufacturers products in five main segments: personal and beauty, house and home, health and wellness, baby and family, and pet nutrition and care. Prestige fragrances are sold under its personal and beauty segment. Even though P&G is known as a mass marketer, it incongruously produces only prestige perfumes in association with some of the most luxurious couture fashion houses in Italy, such as Dolce & Gabbana, Escada, and Valentino. These are all upscale fragrances sold only in prestige boutiques and department stores. When P&G added pop singer Christina Aguilera to its prestige fragrance line in January 2007, some complained that they were reducing themselves to Coty's level by focusing on pop stars. P&G's prestige perfume business is characterized by its Escada line, an elegant modern fragrance that blends floral notes with musky notes to capture the spirit of classic luxury. Escada's top notes are bergamot, Italian lemon, honeydew melon, cucumber, and freesia; its heart notes are orange blossom, jasmine, magnolia, and rose; its base notes are sandalwood, patchouli, amber, and vanilla. It costs $85 for 2.5 ounces sold in an elegant clear glass spray bottle with a sparkling pale green liquid. It has ancillary products including body lotion and shower gel, and flankers called Into the Blue and Sunset Heat.

P&G's brands are Baldesarinni, Boss, Bruno Banini, Dolce & Gabbana, Escada, Ghost, Giorgio Beverly Hills, Lacoste, Naomi Campbell, Puma, Valentino. Each has flankers and ancillary products. For instance, Dolce & Gabbana has Parfum, pour Homme, Light Blue (a feminine fragrance that captures the joy of living), Sicily, and Dolce & Gabbana Parfums for young people.

Other popular perfumes worldwide include Dior, owned by LVMH Moét Hennessy Louis Vuitton and headquartered in Paris, France; and Armani, owned by L'Oréal Paris with U.S. headquarters on Fifth Avenue in Manhattan, New York.

MATERIALS & SUPPLY CHAIN LOGISTICS

The materials used by manufacturers to create a perfume include the chemicals needed to make the product itself as well as the materials used to make the packaging. Perfume bottles are designed by manufacturers to reflect the character of the fragrance inside, whether light and flowery or dark and musky. As a whole, the $28 billion annual toiletries industry spent $8.0 billion in 2002 on the materials needed to make all kinds of toiletries, including perfume. Of this, $5.6 billion was spent on packaging, and $2.4 billion was spent on ingredients. The toiletries industry spends 70 percent on packaging, and 30 percent on buying ingredients that go into the product. The primary categories of ingredients needed to make toiletries of all kinds, according to data reported by the U.S. Census Bureau are, from largest to smallest in terms of industry-wide spending:

• Perfume oil mixtures and blends and essential oils (natural)
• Perfume materials (synthetic organic)
• Other synthetic organic chemicals
• Alcohols

Perfumes are essential to the perfume industry and are used to impart a pleasant aroma to both the product and the packaging. As a class, perfume ingredients accounted for almost 40 percent, or $935 million, of the annual $2.4 billion industry-wide ingredient cost of 2002. When purchasing aromas, more than 50 percent of the $935 million—$522 million—went toward perfume oil mixtures and blends. The cost to purchase natural essential oils decreased 7 percent between 1997 and 2002, dipping from $174 million down to $161 million. Natural essential oils are very concentrated and very expensive. Hundreds of pounds of plant matter are needed to make a single ounce. Depending on the plant, natural essential oils can variously be produced from the flower, seed, fruit, root, rinds, bark, or leaf. Different grades of essential oils are derived by a physical process (either distillation or expression). The expensive resulting essence is a volatile material that quickly evaporates. Most natural essential oils used in the United States, or the materials used to make them, are imported. Certain plants used to create essential oils such as sandalwood, cedar wood, and rosewood are at risk of over harvesting, creating havoc for the countries where they are sourced. Innovations in synthetic organic perfume materials are a boon for environmentalists and the industry alike.

Purchasing of synthetic organic perfume materials almost quadrupled in the five-year period that ended in 2002, ballooning from $67 million to $252 million, an increase of 278 percent. Synthetic organic perfume materials are created primarily from chemical compounds obtained during petroleum distillation, a process which separates petroleum into fractions according to its boiling temperature. Synthetics both mimic fragrances found in nature, and provide fragrances not found in nature. For instance, Calone 1951 is a synthetic compound discovered by Pfizer in 1966 that has a fresh sea scent that is popularly used in contemporary perfumes. The advantages of synthetics are tremendous. Synthetic organic perfume materials benefit both manufacturers and environmentalists because they slow over-harvesting of plant materials needed to make essential oils. Synthetic organic perfume materials also enlarged the fragrance library, resulting in more than 2,000 odor profiles to choose from instead of only 200 plant-derived profiles. For manufacturers, synthetic organic perfume materials make economic sense because their prices are stable, and the product supply is consistently plentiful from year to year because aromas are no longer dependent upon plant harvest and variable weather conditions.

Synthetic organic chemicals are generally derived from petroleum products during its separation into fractions according to boiling ranges. In perfume, organic chemicals are most important as preservatives integral to making products with a long shelf life. Consumers expect perfumes to last a long time, even years, especially if it is a prestige product they purchased to use as a special occasion scent. The U.S. toiletries industry almost tripled its use of synthetic organic chemicals between 1997 and 2002, from purchases valued at $243 million to $721 million, an increase of 197 percent.

Spending on alcohols doubled in the five-year period from 1997 to 2002, mushrooming from $85 million to $179 million. After a scent is created, it is mixed with alcohol. The amount of alcohol varies. Perfumes contain alcohols such as cetyl, stearyl, cetearyl, or lanolin, which are commonly referred to as fatty alcohols. It is the ratio of alcohol to scent that determines whether the final product is classed as a perfume mixture oil or blend, perfume, cologne, or toilet water. Ultimately this combination affects how the finished product will be launched and distributed.

DISTRIBUTION CHANNEL

Perfume is classically distributed in three distinct channels: the department store channel, the mass market channel, and the travel retail channel. Within the industry these channels are content to co-exist in order to serve different market segments. The segments are often referred to as prestige, masstige, and travel retail. Prestige perfumes are classified based on the location where they are sold, primarily the specialty boutique or department store distribution channel. Low-price perfumes are often called masstige because they are sold using a mass market distribution channel. Travel retail is related to airport specialty shops and duty free policies that encourage spending.

The department store distribution channel is the classic purveyor of prestige perfume. It is an important channel representing 40 percent of all perfume sales in North America. This distribution channel has experienced a restructuring in the final decade of the twentieth century and first decade of the twenty-first century. The consolidation of several large retailers was part of this restructuring. Federated Department Stores acquired May Department Store Company in 2005. At the time the deal was finalized, Federated owned 458 stores nationwide, mostly known as Bloomingdale's and Macy's, while May operated 491 department stores nationwide under the names Lord & Taylor and Marshall Field's, among others. In September 2006 the May Department Store nameplates were formally changed to Macy's. All prestige perfume sales—or approximately 40 percent of the $2.9 billion perfume industry—had to deal with the resulting consolidations. In effect, the Federated May consolidation is a merger of the two biggest distribution channels for perfume. An estimated 75 stores closed.

The department store distribution channel involves delivering prestige perfume via a gift with purchase. This involves the teaser of a free gift with purchase to entice the customer to buy. The gift with purchase model was invented by Estée Lauder and became an almost instant classic. It became a national sensation when Clinique promoted it heavily as part of its twice-yearly Bonus Time to encourage consumer spending. The gift with purchase has power over the consumer and determines the outcome of a transaction. Manufacturers offer ever-more extravagant free gifts. Lauder's Missoni 2006 Christmas gift was a chocolate brown clutch bag with the purchase of eau du perfume spray. Coty Prestige's Lovely fragrance offered a Sarah Jessica Parker-themed umbrella with purchase; the ballet pink full-size umbrella decorated with perfume bottles and shoes no doubt appealed to Sarah Jessica Parker fans.

Some claim the department store distribution channel has become irrelevant to consumers and that prestige perfume brands need to diversify distribution. Others claim the department store distribution channel for prestige perfumes is already changing—growing and diversifying. Niche perfumery areas are being designed within department stores. The department store distribution channel is key in prestige perfumes because it sets perfume apart not only by price but by conveying an aura of exclusivity. Niche perfumery areas within the larger department stores increase sales.

The mass market distribution channel for masstige perfumes is broadening, even fragmenting. Studies show consumers are less brand loyal and more willing to shop at a variety of channels. The mass market distribution channel now includes a throng of outlets: drugs stores such as CVS, Rite Aid, and Walgreens; food stores; mass merchandisers including K-Mart, Target, and Wal-Mart; warehouse clubs such as Costco and Sam's Club; and nontraditional retailers such as e-commerce sites on the Internet. The ever-expanding mass market distribution channel now includes technologies such as cell phones, podcasts, cable TV channels like QVC, and even infomercials on broadcast TV. One prevalent tactic used by makers to meet the mass market is perfume-scented advertisements in glossy magazines.

The travel retail distribution channel is related to airport specialty shops and duty free policies that encourage spending before, during, and after airplane travel. It usually involves prestige perfume brands. The travel channel is spurred by specialty in-flight catalogs, in-flight glossy magazine advertisements, and in-flight sales manned by flight attendants. In-flight sales are unique in that they are often conducted simultaneously in a variety of currencies. When international travel increased after the 1960s, sales of luxurious prestige perfumes increased. Some makers have products available only in travel retail, to maintain their prestigious aura of exclusivity. For the largest perfume makers, the travel retail distribution channel can involve more than 1,000 outlets, representing an important distribution channel for perfume. For example, in fiscal 2006 travel retail comprised approximately 7 percent of Lauder's total sales and 20 percent of its operating income. The extent to which the threat of terrorism has decreased air travel is of concern to the perfume industry as it impacts this distribution channel. Of particular concern was the late 2006 ban on any carry-on liquids that arose for international travel as a result of an uncovered plot to use liquid explosives to down an international flight. The liquid ban was later lifted but was a reminder of the vulnerability of the travel retail distribution channel.

KEY USERS

Women of all ages have been known to use perfume products. For perfume, social factors contribute to the tolerance of sometimes extraordinary price tags. Perfume products invite the consumer into a world of beautiful things. Perfume products are popular for those who have an aspirational lifestyle. Because the perfume industry as a whole is often tied very closely to the entire clothing design industry, a basic rule of thumb in the perfume business is that "perfume is to toilet water what haute couture is to ready-to-wear." Even if consumers cannot afford haute couture, they might be able to afford a prestigious perfume brand to be dabbed on at ears, wrists, and knees as a special occasion scent. Although the user of Chanel No. 5 may never buy Chanel couture fashion, owning No. 5 or No. 22 may allow a women to aspire to finer things.

Perfume is viewed as an extension of the art of the couturier. Perfume is thought to reveal the innermost dimension of femininity, and most women who use it remain loyal to their brand because they feel it aptly reflects their feminine side. "Perfume is the poetry of fashion, its silent and secret mirror," according to Chanel's famous nose Jacques Polge. Polge created Coco and other world famous Chanel perfumes. He recently created six additional scents as part of the Les Exclusifs de Chanel line.

Men, although a smaller market for perfume than women, are nonetheless the recipients of much attention by manufacturers. Many lines of perfume are designed for men at both the prestige level and the masstige level.

Perfumes work on the olfactory sense, or sense of smell, a sense that works at both the conscious and unconscious level. The hint of an aroma can cause childhood memories—good or bad—to be invoked. Appeals to the sense of smell are all around us. The smell of food wafting by may entice us to dine. A realtor holding an open house will make every effort to create a homey environment, and something like the smell of freshly baked cookies can be helpful in this effort. Even automobile manufacturers know that the new car smell is part of the emotional appeal of purchasing a new car and some companies have spent large sums of money to produce aerosol sprays designed to enhance and prolong the new car smell. Perfume manufacturers are well aware of the power of the olfactory sense and its ability to arouse emotions that can in turn have an influence on buying decisions. Not surprisingly, the use of the product itself is usually a part of a perfume advertising campaign.

ADJACENT MARKETS

The perfume industry is complexly interwoven with the entire clothing design industry. Chanel exemplifies the historically close ties between couture fashion and perfume. Close ties between perfume and clothing design is a model still being pursued by manufacturers today. The perfume industry is also complexly interwoven with the advertising industry because perfume is often used to promote other products, whether ancillary, flankers, or an entire fashion house. For instance, in 2006 Lauder spent heavily on perfume advertising for three developing brands. The first was Missoni from the Italian clothing design house; spending on perfume was part of a larger promotional scheme designed to get a foothold in Europe. The second was Unforgivable from Sean John to attract men; spending was part of a promotional scheme designed to tap into the African American demographic. The third was designer Tom Ford's first fragrance, Black Orchid, a prestige product expanded by Ford with Fall 2006 and Spring 2007 collections called Amber Noon and Azurée. Because consumers tend to be loyal to their perfume brands, their loyalty often results in spending up and down a designer's entire line. Lauder acknowledged that such heavy perfume advertising costs negatively impacted its 2006 bottom line but believed it would ultimately pay off.

Part of the payoff is press coverage in elite publications read by the type of consumer with an aspirational lifestyle that is part of Lauder's target market. Tom Ford's collections alone got press estimated to be worth $10 million in advertising value. Advertising expenditures on perfume launches drive sales into other lines of the perfume maker, and into the adjacent market of the clothing designer.

Perfume launches can be counted on to generate press activity, also known as free advertising, because perfume launches are often as eagerly awaited as a movie starring recent Oscar winners. Coty, the pop star perfumery, was ready in 2007 to launch the flanker to Celine Dion's first perfume. The flanker is known as Enchanting and was scheduled for release in Fall 2007 in tandem with Celine Dion's CD release. The perfume launch was part of the promotional package for CD sales. Coty is also collaborating with Touchstone Entertainment to create a Desperate Housewives perfume, which will be sold exclusively at Macy's and called Desperate Housewives Forbidden Fruit. In order to do so, Coty established a joint venture with Touchstone; the perfume launch targeted at the 23 million weekly Desperate Housewives viewers is also an advertisement for the hit show.

The adjacent market for a perfume launch can be an entire fashion line. Coach announced in January 2007 that they were launching their first scent ever, moving the iconic leather goods firm into perfumes for the first time. It was being produced for Coach by Lauder's subsidiary BeautyBank. Coach's president Reed Krakoff provided the hint that Coach expected the launch of the new perfume to be a loss leader. He told WWD, "For us to continually get people into our stores, we have to keep doing different things to create excitement. The fragrance is a new way to get customers in to see the world of Coach." The new Coach scent has top notes of tart green mandarin, guava, violet petals, and water lily; heart notes of genet flower, honey, orange flower, mimosa, and jasmine; and base notes of sandalwood, amber wood, and vanilla. Stockkeeping units include eau de parfum spray, purse spray, and solid perfume. The fragrance is part of Coach's advertising strategy as it begins to reposition itself as a lifestyle brand. The new perfume was actually part of the advertising, promotion, and distribution channel for the entire growing product line. Instead of just selling shoes and purses and its other iconic leather goods, Coach has spent ten years planning its roll out of eyewear, watches, knitware, and jewelry in order to expand its reach. Part of the rollout of the entire line includes a pefume to create excitement to get people into the store.

RESEARCH & DEVELOPMENT

Research and development behind the launch of new perfumes is surrounded by secrecy. Perfume formulations are closely guarded secrets. Much research and development effort involves identifying substitutes for the most essential components of perfumes, the natural essential oils. Natural essential oils are developed from plant materials. They are very concentrated and very expensive. Consequently, perfumers invest greatly in chemical research to develop new synthetic materials that may provide more inexpensive alternatives to natural essential oils and synthetic organic perfume materials already on the market.

Synthetic organic perfume materials are desirable because natural oils extracted from plant substances are rare and expensive. Plant substances are harvested from around the world, often hand-picked for their fragrance. Essential oils are extracted via steam distillation, solvent extraction, or expression. In steam distillation, steam is passed through plant material held in a still, whereby the essential oil turns to gas. This gas is then passed through tubes, cooled, and liquefied. Under solvent extraction, flowers are put into large rotating drums and a petroleum solvent is poured over them to extract the essential oils. The flower parts dissolve in the petroleum solvent and leave a waxy material that contains the expensive essential oil, which is then placed in ethyl alcohol; the oil dissolves in the alcohol and rises. Heat is then used to evaporate the alcohol that, once fully burned off, leaves a higher concentration of perfume oil on the bottom. Expression is the oldest and least complex method of extraction. By this process, still used to obtain citrus oils from the rind, the fruit or plant is manually or mechanically pressed until all the oil is squeezed out.

Because perfume oils and natural essential oils depend on harvests of plant substances, perfumery can be a very risky endeavor. Thousands of flowers are needed to obtain just one pound of essential oils, and if the season's crop is destroyed by disease or adverse weather, perfumeries could be in jeopardy. In addition, consistency is hard to maintain in natural oils. The same species of plant raised in several different areas with slightly different growing conditions may not yield oils with exactly the same scent. Synthetic organic perfume materials have allowed perfumers more freedom and stability in their art, even though natural ingredients are considered more desirable in the very finest perfumes. The use of synthetic perfumes and oils eliminates the need to extract oils from animals and removes the risk of a bad plant harvest. Perfumes today are being made and used in different ways than in previous centuries. Perfumes are being manufactured more frequently with synthetic organic perfume material rather than essential oils. Less concentrated forms of perfume are also becoming increasingly popular. Combined, these factors decrease the cost of the scents, encouraging more widespread and frequent, often daily, use.

CURRENT TRENDS

Current trends include splash scents that are more affordable and perfume launches in tandem with other promotions. Another notable trend is how much media excitement can surround the launching of new perfumes. For instance, the launch by Lauder of Tom Ford's Black Orchard perfume attracted the press equivalent of $10 million in advertising. "Fashion passes, style remains," Coco Chanel once said. The speed of fashion today has an additional accelerant: a hungry media—now including the electronic media—regularly in need of unveiling the next big thing.

An example is the media sensation created in March 2007 surrounding the launch of Chanel's Les Exclusifs de Chanel. The media sensation was fueled primarily via an alternative distribution system: blogging. The frenzy over the Les Exclusifs de Chanel launch reached a fever pitch on the Internet in the weeks before the launch. The launch involved the addition of six new Les Exclusifs perfume products to the existing collection of four very limited edition fragrances. The original four Les Exclusifs perfumes were created by Jacques Polge, the man with the famous nose who also created Chanel Coco. The original four feature rare, expensive ingredients and are known as 4 Cuir de Russie, Bois des îles, Chanel No. 22, and Gardenia.

To create the six additional Les Exclusifs de Chanel perfumes, Polge wanted unusual and special fragrances. He created them in limited editions only because he wanted to use ingredients not available in the quantity needed to create a widely-distributed fragrance. The six new fragrances are all named for locations important to Coco: Coromandel (a dry amberey oriental scent), 28 La Pausa (iris aroma), Bel Respiro (green leaves and stems scent), No. 18 (Ambrette seed focus), 31 rue Cambron (an experimental chypre that omits the classic oakmoss note), and Eau de Cologne (an "haute" cologne).

The new 28 La Pausa perfume is based on the iris. Like all the others, it is named for where Coco Chanel often spent time, in this case her estate on the Riv-iera called La Pausa. The top notes are bright, mildly citrusy, and cold, but not quite the metallic level of some iris fragrances. The heart notes are a simple creamy-buttery smooth iris. Base notes warm up slightly as it develops, and are mildly earthy-peppery. It is difficult to calculate the advertising value of the media sensation surrounding the launch of this line. However, Bel Respiro was highlighted not once, but twice in the March 2007 edition of In Style magazine, first as the staff selection of the month and later in a section called "best beauty finds."

TARGET MARKETS & SEGMENTATION

In addition to the price-based division of the perfume market, seen most clearly through the bifurcated distribution channel that deliver most perfumes to the end user—prestige and masstige—perfumers divide the market by gender and by age range. Some perfume brands target racial and ethnic groups specifically in an attempt to gain market share through an appeal to cultural roots.

In addition to this more traditional division of the market, manufacturers also address niche and developing market as they work to increase their presence in peoples' lives. One such evolving market for perfumers are the practitioners of aromatherapy. Aromatherapy represents the resurgence of perfumery as an art and as a backlash against what many see as the commodification of fragrance. Aromatherapy involves using perfume to heal, make people feel good, and improve relationships between people. The sense of smell is considered a right brain activity, which rules emotions, memory, and creativity. Aromatherapy involves purchasing small amounts of the expensive essential oils and combining them in custom formulations to cure physical illness and smooth emotional upheavals. Aromatherapy is said to be useful to help balance hormonal and body energy.

The theory behind aromatherapy is that using essential oils helps bolster the immune system when inhaled or topically applied. Smelling sweet smells also affects one's mood and can be used as a form of psychotherapy. In aromatherapy, research is being conducted to create organic synthetic human perfumes, the body scents humans produce to attract others. These would primarily involve synthetic pheromones that humans release to attract the opposite sex. Synthetics could be used to create scents that duplicate the effect of pheromones and stimulate sexual arousal receptors in the brain. In the future, perfumes may come to be perceived as less of a scent and more of a way to improve a person's physical and emotional well-being.

RELATED ASSOCIATIONS & ORGANIZATIONS

The American Society of Perfumers, http://www.perfumers.org

Cosmetic, Toiletry and Fragrance Association, http://www.ctfa.org

Research Institute for Fragrance Materials, http://www.rifm.org

Synthetic Organic Chemicals Manufacturers Association, http://www.socma.com

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see also Antiperspirants & Deodorants