Splashing Out on Scents

Givaudan S.A, the world’s largest producer of fragrance in addition to being a food flavoring manufacturer, said Friday it is responding by increasing the prices for the products it makes.

4/11/2011 --- Bottles of perfume move down a production line at a manufacturing plant.
Users of Paco Rabanne, Prada and Opium aftershave and perfumes may now pause for thought as they splash on the latest scents.

Thanks to the ongoing surge in ingredients like orange oil and turpentine, the price is probably going up.

Givaudan S.A, the world’s largest producer of fragrance in addition to being a food flavoring manufacturer, said Friday it is responding by increasing the prices for the products it makes including the perfumes mentioned above.

Ingredients like geranium and patchouli are spiraling up in price as climate change plays havoc with their growing patterns and harvest, and political unrest tightens some of the supply. With prices of some expected to double this year, Swiss-based Givaudan says it is being forced to take action to protect its margins.

But will this affect orders?
Not really on the fragrance front, as these are luxury products after all. Givaudan said it is confident in its ability to pass on the price increases. Givaudan reckons that 75% of the repurchasing decisions for household and personal care products are based on the smell.

“It’s not the price, or the brand, it is how smells that is important,” said company spokesman Peter Wullschleger.With food, where Givaudan makes flavorings for companies including Danone, Nestle and Unilever, taste is the crucial factor in about 50% of second purchase decisions, he said.
“When it comes to luxury goods like fine fragrances, it is easier to pass on price increases than in nutrition,” said Philipp Gamper, an analyst at Bank Sarasin in Zurich.

Brand loyalty is quite high when it comes to what aftershave to use; most men either choose one aftershave and stick with it, or are bought it by someone else.  Women may have more perfumes, but also are unlikely to change from a product they like for a small price increase.
But overall the company is a fairly strong position.

Swiss industry, such as watches, pharmaceuticals and machinery, follows a strategy heavily focused on quality, which assures them of success against their international competitors, according to a recent study by Credit Suisse.

“Swiss products are generally more expensive, but their quality justifies the higher price,” the study said. “Swiss producers trying to compete on price are seldom successful.”
Meanwhile, with perfume, the price of the smelly stuff is usually around 10% of the overall cost.
The vast majority goes into design, packaging and marketing. Much of the money goes to the celebrities endorsing fragrances like Christina Aguilera and Britney Spears.
There is also a bit of price insensitivity because of the power of branding.
When it comes to perfume, marketers would say they are not selling fragrances, they are selling hopes and dreams—making people feel attractive, sexy and confident.

So, a few extra pounds, Euros or dollars isn’t going to make that much difference.