Every fragrance is very personal to the user. If we all used the same fragrance we would smell similar but not exactly the same, as our skin type, pH balance and hormones impact on the end result. This results in perfume producing a unique signature on individual people.
This is a huge market worldwide. According to Grandview Research the global perfume market was worth £25.6 billion in 2018 and expected to grow by 3.9% from 2019-25. WOW!!!
But does most perfume have to be expensive? We don't think so.
Perfume has always been considered a luxury product… but does it have to be and what exactly makes it so hugely expensive? That is, apart from the weird shaped bottles they often come in..
Lets look at the three main most common cost factors: Ingredients, Marketing & Packaging
Fragrance Ingredients
There are no two ways about it, some of the ingredients used in fragrances can be expensive. Particularly rare or sought-after ingredients, especially natural ones, can practically cost their weight in gold! Some of the most exorbitant examples include Oud oil, which can average over £10,700 a litre and Orris absolute, at a £10,200 a litre.
However, the vast majority of companies making the fragrances on the market are not spending that kind of money on their ingredients!
According to Chandler Burr in his book 'The Perfect Scent: A Year in the Perfume Industry in Paris and New York' (recommended, get from Amazon), “only 3 percent or so of the price in the shop is the smell. The rest is packaging, advertising and margins.” He adds, "the cheapness of the formula is the main reason why most ‘fine’ perfumes are total crap.”
Meanwhile, the industry apparently continues to find ways to cut down on their ingredient costs. Chandler Burr, the then New York Times perfume critic notes in his book that, ten years prior, the ingredients for a fine fragrance could cost up to £250-£260 per kg, but that more recently, perfumiers would consider a budget of even £85-£90 per kg to be “like winning the lottery; £13 is more like it!” Burr’s book was published in 2009, so one can only imagine how much the price has increased, and subsequently the quality, of commercial perfume production has come down since.
Where does the money go?
Marketing
You can create the best perfume in the world, but if people don't know about it, they're not going to buy it.
Therefore, it’s not surprising, that a big part of what you’re paying for in a bottle of fragrance is the marketing. From the extravagant ad campaigns to the magazines, television and billboard placements, everything has a price. Launching a fragrance will cost you £2 to £3 million at a minimum, plus annual advertising and marketing costs tens of millions.
The most expensive advertisement ever made, according to the Guiness world of records, was the four minute long 2004 Chanel No.5 ad, starring Nicole Kidman, which cost a cool £18 million to produce by Australian director, Baz Lurhmann. WOW!! But it worked, because that year saw record sales for the iconic perfume, and people can still remember the ad to this day, we certainly can. Which goes to show how important marketing is to the fragrance industry.
Although most perfume brands don't quite spend that kind of cash on their ad campaigns, the budgets are still high; An estimated £665m is spent on fragrance marketing by the industry every year. Much of this is spent on television commercials, print media, billboards, and in-store samples. (Bloomberg).
Perfume bottles & packaging
Packaging is no doubt important when it comes to scent. The bottle needs to protect the quality and integrity of the perfume by being safe and airtight. The box should protect it from light, ensuring a long shelf life until it is purchased. From the perspective of the perfume company though, these are not always the most important considerations.
A scent needs to come in a package that is unique, attractive, represents the brand well, and “feels good” to the person who’s going to be using it. This explains some of the interestingly shaped bottles some perfumes come in. It is understood that the weight and quality of the packaging can make people feel they are getting their moneys worth. Of course, this adds to the overall cost of production, and ultimately to the price tag in the shop.
What else adds to the cost?
There are a few other, for example, Perfumers, the people that create the perfume, are not widely known to the public. Also, they don't seem to get paid that much for such iconic work. The comparably website puts the salaries of the middle 60% of Perfumers in the US in the range of £22,335 - £61,600, at the top end, roughly £150,000. Most of them work for a small number of big international fragrance companies which most people have never heard of.
Three of these companies -– Givaudin (Swiss multinational manufacturer of flavours, fragrances and active cosmetic ingredients), Firmenich (is a private Swiss company in the fragrance and flavor business), and International Flavour and Fragrance (IFF) (American corporation that creates and manufactures food, beverage, health & biosciences, scent and pharma solutions) – control nearly 50% of the market, supplying all the perfume brands, like Estee Lauder and Coty, with the perfume that goes into their bottles. The Givaudin website proudly advertises the use of AI (artificial intelligence) in their perfume formula creations. We will let you decide what that will mean for the careers of Perfumiers going forward.
Scent makers like Givaudan reportedly put a 300 to 400% margin on their formulae – or, as Burr puts it, “if they have a £8 per kg raw material cost, they might charge Estee Lauder £32 per kg for it.”
In a category of its own, but related to marketing, is the affiliation of celebrities to a product. Celebrity status COSTS!! Aproximately between 5% and 10% of sales is for licensing a famous name to a scent, on top of an upfront payment of £2.5 million plus.
Then there are the retailers. Retail markups can be A LOT!! Department stores and speciality perfume shops need to cover staff salaries and commissions, in-store marketing and displays, and normal overheads… and of course, they are also entitled to a piece of the actual profit. Reports vary, but generally it seems a markup of anywhere from 20% to 80% is to be expected at the retail stage.
So, to sum it all up, according to a revealing article on AOL’s Daily Finance, 'Behind the Spritz: What Really Goes Into a Bottle of $100 Perfume' by Barbara Thau, the breakdown could look something like this:
Bottle: $6 (6%) - by commissioned artist.
Packaging: $4 (4%) - bottle packaging, testers and displays.
Marketing: $8 (8%) - magazines, outdoor ads on billboards and bus shelters, and TV etc.
Sales Commission: $6 (6%) - Sales people at department store beauty counters work on commission.
Celebrity Licensing Fee: $4 (4%) - The star celebrity gets a royalty for the use of their name, how much will depend on fame status.
Manufacturer overhead: $15 (15%) - Everything from the salary of the brand's CEO to corporate office expenses.
Manufacturer Profit: $15 (15%) - Estimate of what the retailer profits from the fragrance.
Retailer’s Overhead: $25 (25%) - Same as the manufacturer's corporate overhead, excluding the cost of the chemist.
Retailer’s Profit: $15 (15%) - The is the profit the stores generate from the perfume after corporate expenses.
The Scent: $2 (2%). In the end this is all I would want or need.
Now you can see why your Christmas and Birthday present perfumes are so expensive.....
But not ours as we have very few overheads and aim to keep packaging/marketing to a minimum.
Comments