Scents and sensibility

The fashion industry is about to teach Procter & Gamble’s marketing department, the world’s biggest and brashest, a lesson about class. You may be able to buy the most expensive frock in town, but its how you wear it that counts.

P&G is celebrating its coming of age as a purveyor of premium fragrance brands by signing a deal with French haute couture house Herve Leger (MW June 26), while jettisoning 11 mass-market fragrance brands.

But just as the champagne corks and party poppers are primed to pop, top fashion retailer Harvey Nichols is about to spoil P&G’s party by delisting all ten Giorgio Beverly Hills brands because P&G broke the first rule in the fine fragrance market – maintaining aspiration and exclusivity. The second is, don’t get delisted from Harvey Nichols.

A spokeswoman from Harvey Nichols’ fragrance buying division, which ironically was the first to launch Giorgio in the UK in 1982, says: “Our policy is to provide exclusive and aspirational brands. We think the Giorgio Beverly Hills brands have lost this – they’re just not very fashionable any more.”

Harvey Nichols does, however, want to keep P&G’s Hugo brand, which is launching its long-awaited Hugo Woman later this year. But P&G’s “all or nothing” mass-market approach won’t allow the department store to keep Hugo without Giorgio.

This raises the question, can P&G’s mass-market business school and number-crunching culture adapt into the exclusive and creatively driven fine fragrance market?

P&G’s refusal to allow Harvey Nichols to keep Hugo is typical of the company’s aggressive marketing strategy, which is geared towards driving volume to create high margins.

Richard Pinder, deputy managing director at Oglivy & Mather, who used to work with P&G at Grey Advertising, says: “Rather than trying to adapt P&G will only take on the fine fragrance market on its own terms. The question is whether the market will respond positively to this.”

The fine fragrance market is based on high distribution and structural costs, which is the antithesis of the P&G way of doing business. Pinder suspects that P&G thought it was taking on a small high-margin business, but what it got was a small low-margin business.

Now with Herve Leger, P&G looks as if it plans to continue its challenge to the traditional élite perfume houses such as Givenchy, Christian Dior and Chanel, which dominate the fragrance market. It remains to be seen, however, whether it can sell fragrance as well as it does Pantene and Fairy Liquid, and whether it can dominate the counters of Harvey Nichols and Selfridges as it does the shelves of Tesco and Asda.

P&G has always marketed mass-market brands which need to be promoted for 52 weeks of the year. A source close to P&G says the company needs to crack the unique marketing process of fine fragrances, which are heavily promoted at launch and supported through the fashion press and seasonal promotions.

He says: “The likes of Harvey Nichols, Harrods and Liberty believe it is important to have a presence in the high-end fashion titles such as Vogue and Elle. But you won’t find P&G brands in these titles.”

Neither Harrods nor Liberty stock Giorgio.

Instead, P&G tends to put all of its media spend into IPC magazines where it can get high coverage across a range of mass-market women’s weekly and monthly titles.

It could be argued that the Hugo Boss range has done well largely because of the upmarket cache of its fashion label, but also because in media terms there is a limited pool of very similar titles to choose from.

The source says: “Ironically P&G is better at selling to men in the fragrance market with Hugo Boss, probably because it doesn’t feel that it knows much about selling to men.”

The common belief is that when a brand gets “Procterised” it be-comes immersed in “value” and “benefit” rather than emotion. Emotional selling is anathema to P&G, and according to Hilary Dart, the cosmetics and perfume development manager at Selfridges, it is also the only thing that counts in perfume retailing.

This ethos runs throughout the company, and although P&G’s fragrance division claims to run as a separate entity, as does Unilever’s Calvin Klein and Elizabeth Arden, a source within Unilever says there is an imperative for companies like Unilever and P&G to merge internal operations.

She says: “They often buy up new operations which they allow to run independently for a while and then merge them with other operations to make economies of scale.”

Unilever’s chief executive Niall Fitzgerald is implementing a worldwide rationalisation of operations to achieve economies across markets by merging backroom operations.

This is where the real cultural differences between the small élite fashion houses such as Chanel and Givenchy and the likes of Unilever and P&G lie. The classic French perfume houses have different priorities and agendas to P&G.

Another source close to P&G says: “Chanel and Givenchy have spent decades carefully building and maintaining their exclusive image. P&G is used to achieving quick results by driving up volumes through aggressive advertising. It simply doesn’t understand the concept of patience, which in perfume terms involves wooing and visiting clients on a regular basis.”

Pinder suspects P&G will either have a tremendous success or fail miserably in the fine fragrance market. He says: “It’ll see what it can get from the market for a few more years and then quit.”

The company is unlikely ever to invest a vast amount in the business – the massive long-term cost involved in revamping the failing Giorgio Beverly Hills perfumes, for example, is not compatible with P&G’s marketing mentality.

The managing director of a leading French fragrance company says, however, if P&G is committed to hire the right people and invest money in the packaging and distribution of its fragrance products it will perform as well as anyone else.

Pinder says P&G’s fragrance division even has the potential to benefit other areas of the business. He comments: “Fragrance development is a very useful skill base to have for a company which makes soaps and detergents.”

It is clear that with 120 fine fragrances launching every year into what is one of the most fragmented markets around, it is important for brands to be seen in the right places.

Mike Wortley, account manager at Grey for P&G’s fragrances, admits it is important for brands to be distributed first and foremost in top department stores such as Harvey Nichols and Harrods.

The fragmentation of the market will never allow one player to dominate, so unless P&G starts playing by some of the rules it might find its fine fragrances increasingly being rejected by the élite circles that sustain the market.

Discounters thwart luxury scent market

The fine fragrance market has been thwarted in recent years by supermarkets such as Superdrug, Asda and Tesco and The Perfume Shop, which have been able to undercut the prices of the traditional perfumeries and department stores by using unauthorised suppliers.

Five years after Superdrug first caused a storm with its cut-price fine fragrance campaign, the European Court is about to decide whether to ban retailers from advertising knock-down prices for luxury goods.

The concern among fashion houses like Christian Dior, which brought the case to the European Court of Justice, is that by selling cut-price goods in supermarkets the exclusive and aspirational image that their brands rest on is being forced down.

Peter Norman, managing director of French fashion house Givenchy, says: “Shopping for perfumes should be a pleasant and aspirational experience. By placing our products among vegetables and slashing the prices, their desirability is undermined.”

Companies such as Givenchy, Clarins and Chanel have set up tracking systems in an attempt to stem supply. The “grey market” does not deal in illegal goods like the black market, but the methods by which goods are obtained are unauthorised. Stock is usually brought in from overseas, which is why regular supplies cannot be guaranteed.

Supermarkets which use the grey market claim, however, that authorised dealers such as the large department stores and perfumeries which sell perfumes at recommended retail prices are reaping unnecessarily high profit margins.

At the end of 1993 the Monopolies & Mergers Commission acknowledged the existence of a monopoly favouring the fine fragrance houses, but refused to admit it was against the public interest.

Its report stated: “Fine fragrances are marketed as luxury products… We accept that suppliers need to control their distribution in order to protect the brand images which customers evidently value. There is no shortage of fragrances at much lower prices.”

Although discounting continues to thrive, perfume houses are trying to ensure maximum exclusivity and believe post-recession customers are seeking luxury and aspirational products more than ever before.