Aug 2015 - Managerial Level Case Study

Scent

learncima.com 1
Know Your Preseen (KYP)
This is known as Know Your Pre-seen (KYP) issued by
LearnCIMA.com

KYP is a repetition of the pre-seen and the objective is to

make reading the pre-seen user-friendly.

There are several slides included outside the pre-seen

and they have been marked with an “e”.

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Financial Manager of Scent

Your are a Financial Manager in Scent, a fragrance

manufacturer.

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Before we begin- Movie Time!
Perfume: The Story of a Murderer

2006 German Fantasy Thriller

Film directed by Tom Tykwer
Based on Patrick Süskind's
1985 novel called ‘Perfume’

Click icon below

to watch trailer

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Trailer: https://www.youtube.com/watch?v=zutiIw_2e2g
General Information about Scent

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Company Profile

Industry – Perfume Industry

Name – Scent
Home Country – Zeeland
Head Office – Capital City of Zeeland
Inception – 1945

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Company Profile

Facilities
– Development Laboratory– At Head Office
– 3 Major Factories – Outskirts of the Capital city
– South west of Zeeland
Company Structure – Divisional structure
– 4 Divisions

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Company Profile
(2015)
Revenue – Z$ 1,267 million
Gross profit – Z$ 576 million
Net profit – Z$ 42 million

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Scent – The Fragrance Manufacturer

Home country is
Zeeland

Scent is one of the world’s leading

Scent is a Perfume Houses
Fragrance
Manufacturer

Scent exports products globally

9 to over 100 countries
Scent – Company History
Timeline Scent was
established 70
1945
years ago by two
brothers

Joseph Frederic
the great
1995
grandson of one
founder is now They developed a successful
the Deputy CEO range of fine fragrances
Many of them are still being
sold today
2015 Some shares are still being
For the last 20 years Scent has been owned by descendants of the
quoted on the national stock exchange
10 founders
Fragrances, Aromatic Compounds
& the Fragrance Industry

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Perfume “e”
Perfume is a liquid with a pleasant smell, usually made
from oils taken from flowers or spices used on the
human body, animals, food, objects, and living spaces.

Perfumes have been known to exist in some of the

earliest human civilizations such as in ancient
Mesopotamia and Egypt, through ancient texts or from
archaeological digs.

Wall paintings of
Ancient Egyptians
using Perfume

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Perfume “e”
Modern perfumery began in the late 19th century with
the commercial synthesis (artificial combination) of
different aroma compounds which allowed for the
creation of perfumes with smells previously
unattainable solely from natural aromatics alone.

1880s Solon Palmer

"Gardenglo" Perfume Bottle

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Perfume - etymology “e”

‘Perfume’ originated from the Latin word ‘parfumare’ (to

smoke through) – ‘per’ (through) + ‘fumare’ (to smoke)
which formed the French word ‘parfum’ (pleasant-
smelling smoke from a burning substance)

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Fragrance “e”
A Fragrance is a chemical compound that has a smell or
odour.

Synonyms: Aroma Compound, Odorant, Aroma

A Fragrance is:
‘’a pleasant and usually sweet smell’’
‘’ a perfume or cologne’’

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Meaning of Scent (Noun)“e”

1. ‘’a pleasant smell that is produced by something’’

Ex: The flower has a wonderful scent.

2. ‘’a smell that is left by an animal or person and that can be

sensed and followed by some animals (such as dogs)’’
Ex: The dogs followed the fox's scent.
- often used figuratively (non-literal/symbolically)
Ex: The reporter was on the scent of a big story. [=was
following/investigating a big story]

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Meaning of Scent (Noun)“e”

3. ‘’a slight indication of something that is going to happen or

that might happen’’
Ex: There was a scent [=hint] of trouble in the air. [=trouble was
developing].

4. ‘’a liquid that is put on your body to give it a pleasant

odour’’
Ex: a bottle of scent.

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Meaning of Scent (Verb)“e”

1. ‘’to become aware of (something) by smell’’

Ex: The dog scented a rabbit.
- often used figuratively (non-literal/symbolically)
Ex: We scented [=sensed, detected] trouble and left.

2. ‘’ to give (something) a pleasing smell’’

Ex: Roses scented [=perfumed] the air.
- often used as (be) scented
Ex: The room was scented by the flowers.
Ex: The air was scented with/by her perfume.

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Fragrances & Cosmetics
Fragrances are regarded as part of the cosmetics
industry.

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Cosmetics “e”
Cosmetics (also known as makeup or make-up) are care
substances used to enhance the appearance or odor of the
human body.

They are generally mixtures of chemical compounds, some

being derived from natural sources (such as coconut oil)
and many being synthetics.

A subset of cosmetics is called

"make-up," which refers primarily
to colouring products intended
to alter the user’s appearance.

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Types of Cosmetics “e”
Cosmetics include:
skin-care creams baby products
lotions bath oils
powders bubble baths
perfumes bath salts and many other types
lipsticks of products.
fingernail & toe nail polish
eye & facial makeup
towelettes
permanent waves
coloured contact lenses
hair colours
hair sprays and gels
deodorants
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Cosmetics Industry “e”
The cosmetic industry is dominated by a small number
of multinational corporations that originated in the early
20th century, but the distribution and sale of cosmetics is
spread among a wide range of different businesses.

The largest cosmetic companies are The L'Oréal Group,

The Procter & Gamble Company, Unilever, Shiseido
Company, Limited and Estée Lauder Companies, Inc.

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Describing & Categorization of Perfumes “e”
A perfume can be described using Fragrance Notes and
also using the family/group/category the perfume
belongs to.

There are several main types of Fragrance Categories:

1. Olfactory Fragrance Groups
2. Traditional
• Emerged around 1900
3. Modern
• Since 1945, due to great advances in the technology of perfume
creation (i.e., compound design and synthesis) as well as the
natural development of styles and tastes, new categories have
emerged to describe modern scents
4. Fragrance Wheel
• Created in 1983 by Michael Edwards
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Fragrance Notes “e”
Fragrances develop in 3 stages, and you will notice that
different aromas are released as these stages progress with
time.

1. Top Note
• The initial, lighter smell of the fragrance which lasts around 8-
15 minutes. Examples of these notes include citruses, powdery
scents and light florals.
2. Heart or Middle Note
• The main elements of the fragrance, these notes develop after
the top note clears, usually around 30 minutes after being
sprayed. Heart notes most often include heavier floral scents.
3. Base Note
• The last to develop and helps fix the fragrance to the skin. This
is where you will smell the bolder notes of the scent, such as
smokes and leathers which become more noticeable when the
fragrance has been on the skin for a while.
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Fragrance Notes “e”

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Main Olfactory Fragrance Groups “e”
‘Olfactory’ means relating to the sense of smell.

Grouping & categorisation of perfumes is not definite or

precise.

Many fragrances contain aspects of different families.

Classification by Olfactory
family is a starting point for a
description of a perfume, but
it cannot by itself denote the
specific characteristic of
that perfume.
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Main Olfactory Fragrance Groups “e”
Citrus Floral Chypre Oriental
Description Fresh & sharp Biggest group & Comprised of citrus top Based on spices
based on varies largely note, floral middle note & and related
aromas of with different oaky & musky bass scents
citrus fruits flowers
Aromatic • Lemon • Lilac • Oak moss • Resins
compound • Grapefruit • Lily • Sandalwood • Vanilla
examples • Orange • Rose • Patchouli • Cinnamon
Associated Energetic & Romantic & Thoughtful, resourceful & Exciting,
Personality lively Softer humble adventurous,
fearless &
courageous

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Main Olfactory Fragrance Groups “e”

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Traditional Classification “e”
• Fragrances that are dominated by a scent from one
Single Floral particular flower; in French called a soliflore.

Floral • Is a combination of fragrance of several flowers in a

Bouquet perfume compound.
• A large fragrance class featuring the sweet slightly animalic scents
Amber/ of ambergris or labdanum, often combined with vanilla, tonka
Oriental bean, flowers and woods. Can be enhanced by camphorous oils &
incense resins
• Fragrances that are dominated by woody scents, typically of
Woody agarwood, sandalwood, cedarwood, and vetiver. Patchouli, with its
camphoraceous smell, is commonly found in these perfumes.
• A fragrance family which features scents of honey, tobacco, wood
Leather and wood tars in its middle or base notes & a scent that indicates
to leather.
• Meaning Cyprus in French, includes fragrances built on a
Chypre similar accord consisting of bergamot, oakmoss, and
labdanum
• Meaning Fern in French, built on a base of lavender, coumarin and
Fougère oakmoss. Many men's fragrances belong to this fragrance family,
which is characterized by its sharp herbaceous and woody scent.
Modern Classification “e”
• Combining the traditional Single Floral & Floral Bouquet
Bright Floral categories
• A lighter and more modern interpretation of the Chypre
Green type, with pronounced cut grass, crushed green leaf and
cucumber-like scents.
• The newest category in perfume history, first appearing in 1988
Davidoff Cool Water. Leading to many of the modern androgynous
Aquatic/ perfumes. Generally contains calone, a synthetic scent discovered
Oceanic/ Ozonic in 1966, or other more recent synthetics. Also used to accent floral,
oriental, and woody fragrances.
• An old fragrance family that until recently consisted mainly of
"freshening" eau de colognes, due to the low tenacity of citrus
Citrus scents. Development of newer fragrance compounds has allowed
for the creation of primarily citrus fragrances.

Fruity • Featuring the aromas of fruits other than citrus, such as peach,
cassis (black currant), mango, passion fruit, and others.

• French: scents with "edible" or "dessert"-like qualities. These

Gourmand often contain notes like vanilla, tonka bean and coumarin, as well
as synthetic components designed to resemble food flavors.
The Fragrance Wheel “e”

The Fragrance
wheel is a relatively
new classification
method that is
widely used in
retail & in the
fragrance industry.

The method was

created in 1983 by
Michael Edwards, a
consultant in the
perfume industry.

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Aromatic Compounds
Fragrances consist of an aromatic compound.

They can be derived from either a natural or synthetic

(artificial) source.

Many natural compounds are obtained from flowers and

other plants which are grown and harvested for the
purpose.

Some compounds are derived from animals, although

many of the traditional animal compounds have been
phased out because of controversy surrounding their
collection.

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Aromatic Compounds
Instead of natural aromatic compounds, synthetic
compounds can be manufactured in the laboratory.

Chemical processes are used to mimic natural fragrances

that cannot be derived from natural sources,
such as animal products that have been phased out,
and also to produce fragrances that cannot be found in nature.

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Aromatic Compound Sources “e”
Plant sources
Bark (cinnamon & cascarilla )
Flowers & blossoms (rose, jasmine, citrus , clove , vanilla)
Fruits (citrus such as oranges, lemons, limes)
Leaves and twigs (lavender, hay & tomato leaves, patchouli, sage,
violets, rosemary, and citrus leaves)
Resins (labdanum, frankincense, myrrh, pine and fir resins)
Roots, rhizomes and bulbs (iris, rhizomes, vetiver roots, various
rhizomes of the ginger family)
Seeds (tonka bean, carrot seed, coriander, caraway, cocoa,
nutmeg, mace, cardamom)
Woods (sandalwood, rosewood, birch, cedar, juniper, and pine)
Seaweeds

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Aromatic Compound Sources “e”
Animal sources – now most are replaced with synthetic compounds
Ambergris ( released by sperm whales-doesn’t harm the whale)
Castoreum (from the North American beaver)
North American
Civet Musk ( from the Civet)
Beaver
Hyraceum (from the Rock Hyrax)
Honeycomb ( made by the honeybee)
Musk ( from the male Musk deer)

Rock Hyrax

Musk deer 35
Aromatic Compound Sources “e”
Synthetic sources
Many modern perfumes contain synthesized odorants. Synthetics can
provide fragrances which are not found in nature.

Synthetic aromatics are often used as an alternate source of

compounds that are not easily obtained from natural sources

The majority of the world's synthetic aromatics are created by

relatively few companies. They include:

International Flavors and Fragrances (IFF)

Givaudan
Firmenich
Takasago
Symrise

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Aromatic Compounds used by Scent
Some fragrance houses market high-end perfumes using
natural ingredients

But many have replaced expensive natural oils with

cheaper synthetics often without publicising the fact that
their fragrance has changed slightly.

Many of the
compounds used
by Scent are scarce
and some can be
difficult to obtain.

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Natural vs Synthetic Compounds
Natural Compounds Synthetic Compounds
Strength Often prized for their subtlety Generally more consistent
(delicate features) and complexity
Can be cheaper than natural compounds
(not always the case)
Weakness Can be difficult to recreate a Can lack the complexity of a natural
consistent fragrance product
Example Oils extracted from a particular 1 kg of essential oil derived from rose
variety of flower may be affected blossoms requires between 3 and 5
by the location in which they have tonnes of rose blossoms, over a million
been grown and even by the flowers, to be hand-picked on the
weather in that location. morning when the flowers first open. The
resulting oil costs more than Z$5,000 per
kg, whereas the same amount of the
synthetic equivalent can be purchased for
less than Z$400.

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Fragrances
Generally consumers regard fragrances as a luxury
product.

But most consumers who use fragrances use them on a

daily basis in spite it being considered as a luxury.

A bottle of perfume can last for a considerable time with

careful application, even if its used almost daily.

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Fragrances
Fragrances are often purchased as gifts.

These factors mean that sales of perfume and other

fragrances are not particularly sensitive to economic
trends.

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Perfume Industry
The perfume industry generates global revenues of Z$30
billion (Z$30,000 million) a year.

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Global Fragrance market size 2012 - 2021“e”
The estimated size of the global fragrance market from
2012 to 2021 in million U.S. dollars

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Perfume Industry & Fashion Industry
Many consumers who could not afford clothing made by
a famous designer can enjoy some of the brand
experience by purchasing their fragrance.

For example, a leading fashion house recently stated that

85% of its revenue came from perfume sales.

Global Fashion
Houses which also
sell perfumes

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Top 3 Fragrance Industry trends in 2015 “e”
1. Niche fragrances to become more popular

According to Euromonitor International, the rising

popularity of niche fragrances is the first noticeable
trend for this year.

Consumers will continue to look for an effective identity

and ability to relate emotionally and personally to a
fragrance and in line with this, industry players are
formulating fragrances with alternative ingredients such
as sea salt and saffron among such ingredients.

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Top 3 Fragrance Industry trends in 2015 “e”
1. Niche fragrances to become more popular

Estée Lauder’s recent acquisitions of Le Labo and Frédéric

Malle illustrate the attempt of big players to tap into this
market segment.

However, the explosion of niche fragrances in the market also

means that competition is intensifying.

In order to address this challenge, it

is recommended that fragrance player
should “sustain their niche intent and
avoid commoditising the scent.”

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Top 3 Fragrance Industry trends in 2015 “e”
2. Increased personalization

This is the second trend identified

by Euromonitor International.

The recent My Burberry launch by

Burberry allows consumers to
monogram bottles of the fragrance
with their initials.

Its noted that brands increasingly

allow consumers to personalise
fragrance bottles. Similar initiatives
were seen from Serge Lutens, Atelier
Cologne and Guerlain 46
Top 3 Fragrance Industry trends in 2015 “e”
3. Innovations in retail experiences
The third trend pointed by
Euromonitor International is
the increased competition
between department stores
and specialized retailers to
enhance the consumer
purchasing experience
through new retail formats.

An example is the fragrance

library opened at New York’s
Saks Fifth Avenue. In the
library, consumers can learn
more about fragrances and
the heritage behind them. 47
Top 3 Fragrance Industry trends in 2015 “e”
3. Innovations in retail experiences

Euromonitor’s analyst also points out standalone stores

of brands such as Chanel and Dior where consumers can
find a wide product mix featuring key heritage
fragrances, as well as fashionable new items or best
selling ones.
Also the exclusive collections that top fragrance brands
have been developing during recent years can be added.

Read more: http://blog.euromonitor.com/2014/12/three-trends-

shaping-the-fragrances-market-for-2015.html

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Famous Global Perfume Brands “e”
Calvin Klein

 Calvin Klein Inc. is an

upscale fashion house
founded by American
fashion designer Calvin
Klein.
 Headquartered in Midtown
Manhattan, New York City
and is currently owned by
Phillips-Van Heusen. Dolce & Gabbana

 An Italian luxury industry fashion

house started by Italian designers
Domenico Dolce & Stefano
Gabbana in 1985.
 Produces clothing, footwear,
handbags, sunglasses, watches,
49 jewellery, perfumery & cosmetics.
Famous Global Perfume Brands “e”
Gucci
 An Italian fashion and
leather goods brand, part of
the Gucci Group, which is
owned by French company
Kering.
 Founded by Guccio Gucci in
Florence in 1921.
 Gucci is also the biggest-
selling Italian brand. Chanel
 Chanel S.A. is a French
privately held company.
 It is a high fashion house
that specializes in haute
couture and ready-to-wear
clothes, luxury goods and
fashion accessories.
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Famous Global Perfume Brands “e”
Prada
Prada S.p.A. is an Italian luxury fashion house, specilialized
ready-to-wear, leather and fashion accessories, shoes, luggage,
perfumes, watches etc., founded in 1913 by Mario Prada.
Bulgari
Is an Italian jewellery and luxury goods brand that produces and
markets several product lines including jewellery, watches,
fragrances, accessories, and hotels.

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Famous Global Perfume Brands “e”
Christian Dior
Parfums Christian Dior is the perfumery and cosmetics line of the
French fashion house, Christian Dior S.A..
However, the line belongs to the perfumes and cosmetics portfolio
of the world's largest luxury group, the LVMH Group.
Begun in 1947 with the introduction of the women's Miss Dior
perfume, Parfums Christian Dior has since come to include men's
frangrances as well.

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Famous Global Perfume Brands “e”
Firmenich
Firmenich SA is a private Swiss company in the perfume and
flavor business. It is the largest privately owned company in the
field and ranks number two worldwide.
Firmenich has created perfumes for over 100 years and produced
a number of well-known flavours.

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Famous Global Perfume Brands “e”
Guerlain
Guerlain is a French perfume house, among the oldest in the
world. It has a large customer following, and has traditionally
been held in high esteem in the perfume industry.
Perfumes by Guerlain are often said to be characterized by a
common olfactory accord known as the "Guerlinade." A perfume
by the same name was launched by Guerlain in 1921.
Lancôme
Lancôme Paris is a French luxury cosmetics house that
distributes products internationally. Owned by L'Oréal since
1964, Lancôme is part of the Luxury Products division, which
offers skin care, fragrances and makeup at higher-end prices.

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Famous Global Perfume Brands “e”
Burberry
Burberry Group plc is a British luxury fashion house,
distributing clothing, fashion accessories, fragrances and
cosmetics.
Its distinctive tartan pattern has become one of its most widely
copied trademarks. Burberry is most famous for its trench coat,
which was designed by founder Thomas Burberry.
The company has branded stores and franchises around the
world and also sells through concessions in third-party stores.

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Famous Global Perfume Brands “e”
Givaudan
Givaudan is a Swiss manufacturer of flavorings and fragrances.
The company's scents and flavors are developed most often for
food and beverage makers, but they are also used frequently in
household goods, as well as grooming and personal care
products.
Givaudan was founded as a perfumery company in 1895 in
Zurich by Leon and Xavier Givaudan
In 2008, Givaudan released one of the world's first mobile
perfume recommendation tools, the iPerfumer app.

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Worlds Most Expensive Perfumes “e”
DKNY Golden Delicious Million Dollar Fragrance Bottle
$1 million
 In 2011, DKNY divulged its brilliant apple-formed million dollar
bottle of perfume which contains 2,909 valuable stones.
 The perfume is created in 14-karat yellow and white gold and
contains 183 yellow sapphires, 2,700 white precious stones, a 1.6-
carat turquoise Paraiba tourmaline from Brazil, a 7.18-carat oval
Cabochon sapphire from Sri Lanka, 15 striking pink jewels from
Australia, 4-rose cut precious stones, a 3.07-carat oval cut ruby, a
4.03-carat pear shape rose cut
jewel, and a 2.43-carat perfect
clear yellow Canary precious stone
embellishing the cap.
 The bottle would be sold to an
aroma devotee and all returns
would be given to the worldwide
philanthropy Action against Hunger.
Worlds Most Expensive Perfumes “e”
Clive Christian No. 1 Imperial Majesty Perfume
$12,721.89 per ounce
 This perfume holds the Guinness Book of World Records title as the
most costly perfume on the planet.
 Discharged in 2005, just a 10-container run of this super-uncommon,
super-restrictive restricted version aroma was discharged available
to be purchased in the celebrated Harrods store in London and
Bergdorf Goodman in New York. The “No. 1 Imperial Majesty” is truly
simply a Clive Christian No. 1 –
in an exceptionally favour bottle.
 The entire jug contains 16.9
ounces of aroma (importance the
expense for a jug is $215,000), and
is made via Baccarat, beautified with
a 5-carat white precious stone on
the neck and encompassed in a
18-carat robust gold neckline..
Worlds Most Expensive Perfumes “e”
Baccarat Les LarmesSacrees de Thebes
$6,800 per ounce
 This perfume is costly for both the smell itself and the container it
comes in.
 Baccarat is an extravagance gem crystal producer and one of the
main decisions in artisan bottle creation for top of the line perfume
organizations as far and wide as possible.
 In 1998, the organization propelled three of its own constrained
release scents, and this one was the minimum delivered, making it
the rarest and generally significant.
Products of Scent & Perfume
Concentrations

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Scents Product divisions & Products

Fine Fragrance Celebrity Bath & Body Home

• Manufactures Fragrance Fragrance Fragrance
legacy fragrances • Manufactures • Manufactures a • Manufactures
• Generally celebrity range of bath room scent
intended to be fragrances oils, shower gels, diffusers &
sold in the long • Manages soaps & body candles
term. relationship with lotions to match • Smallest division
• Many were 1st the celebrities perfumes
developed by • Generates
the founders & approx. 50% of
still sold today Scents revenue

Wim
Cinque
Fleur Wilder
Fleurs
d’Herbe 61
Cologne
Scents Product divisions & Products
Fleur Cinque
Legacy d’Herbe Fleurs
Fine Fragrance fragrances

Celebrity Celebrity Wim

fragrances Wilder
Fragrance
Cologne

Bath oils, Shower

Bath & Body
gels, Soaps &
Fragrance Body lotions
4 Product
Divisions Home Room scent
diffusers &
Fragrance candles

Scent manufactures ranges of Wim Wilder

fragrances for both men & women is a fictional
Hollywood
• Perfumes & Eau de toilette for women action hero
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• Aftershave & Cologne for men
Scents Product divisions & Products
Intended to be
sold in the long All perfume
Fine Fragrance term
(Legacy fragrances in
Perfumes) Many were first Scent
developed by &
founders Every new
perfume product
Associated with
Celebrity popular in Scent
Fragrance celebrities such
as Wim Wilder falls into the 2
4 Product Bath & Body
categories –
Divisions Fragrance Fine or Celebrity

Home
Fragrance

Scent manufactures a wide range of

branded fragrances
63
Expensive vs Cheap Products in Scent

Supported through
More permanent
Expensive brand name
advertising &
promotions

Generates
Cheap Celebrity endorsed publicity &
awareness

 More expensive products in Scent are usually given a more permanent

brand name that can be supported through advertising & promotions.

 New products aimed at the lower end of the market are named after
celebrities to increase publicity for the product’s launch.

 The market is keen to buy a product that is associated with a favourite

musician or film star. 64
Scents Product - Fleur d’Herbe

 Name: Fleur d’Herbe Fleur

 Type: Women’s Perfume d’Herbe
 Creation: 1950’s
 Price: Z$100 (considered very expensive)
 Ingredients used: Natural ingrediants
 Product Type in Scent: Legacy Perfume
 Marketing & Branding:
 Advertised extensively on TV & magazines
 Beautifully packed in a luxury box & bottle
 Associated with many actors, singers and film stars over the
years
 Compared with: (in recent newspaper article)
 Discount supermarket Sellit’s Z$3.99 priced perfume
called ‘Fall’

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Perfume Concentrations “e”
Specific terms are used to describe a fragrance's approximate
concentration by percent/volume of perfume oil.
A list of common terms is as follows:

No Type Code Other names Aromatic Oil %

1 Parfum / Extrait Perfume extract / 15–40%
Perfume
2 Esprit de Parfum ESdP 15–30%
3 Eau de Parfum EdP Eau de perfume/
millésime 10–20%
Parfum de Toilette PdT
4 Eau de Toilette EdT 5–15%
5 Eau de Cologne EdC 3–8%
6 Perfume mist 3–8%
7 Splash & Aftershave EdS 1–3%
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Different product types
There are no formal agreed definitions of different
product types, such as aftershave versus cologne, and the
various names are used almost interchangeably.

The following percentages are only very broadly

indicative rather than prescriptive.
Product type Aromatic compound Alcohol % Water %
(‘oil’) %
High quality 25 70 5
perfume/aftershave
Mid-market 10 75 15
perfume/aftershave
Eau de toilette/cologne 5 80 15

The above classification is based on the pre-seen

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Perfume Concentrations “e”
Fragrances consist of a concentration of perfume oils in a
solvent (usually alcohol).
The more perfume oil in a fragrance (and therefore the less
alcohol), the more ‘strength’ the fragrance has. The strengths
are broken down into the categories shown below:

68
Difference between product types
Differences between different products in a fragrance range are not
only based on the water contents.

For example, Scent has a range called ‘Handle’ comprising:

a perfume,
an eau de toilette
a bath oil

Handle
Perfume Eau de toilette Bath oil
Similarities Identical in many aspects such as fragrance
Differences Perfume has a much higher concentration
of aromatic compound
Similarities All 3 – have the same fragrance
Differences Bath oil is made from different synthetic compounds to help
retain fragrance when diluted in hot bath water
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Perfume Solvents
The aromatic compound may be diluted with a solvent,
such as ethanol.

The compound is then likely to be further diluted with

oil, such as coconut oil, to carry the fragrance and avoid
harming the wearer’s skin.

70
Perfume Solvents “e”
Perfume oils are often diluted with a solvent, though this is
not always the case, and its necessity is disputed.

By far the most common solvent for perfume oil dilution is

ethanol like brandy, cognac, pisco, rakia and rectified strips
or a mixture of ethanol and water.

Perfume oil can also be

diluted by means of neutral-
smelling oils such as
fractionated coconut oil, or
liquid waxes such as jojoba oil.

71
General information about
Zeeland

72
Zeeland
Scent’s Home
country is
Zeeland

Head office is located in

the capital city

Development Laboratory
located at Head office

3 Major Factories located in:

– Outskirts of the capital city
– South west of Zeeland
73
Flower growing - South West Zeeland
 An area in south west of Zeeland has a
warm climate & fertile soil.

 For many years for flowers have been

grown for the the perfume industry in
that area.

 Companies based there harvest the

flowers & distil fragrances to make
perfumes.

Scent also has

a major factory
there

74
Zeeland – Flower growing
Some companies harvest the flowers & distil fragrances to
make perfumes.
Other companies import natural exotic fragrances from
overseas and producing synthetic (artificial) substitutes.

75
Zeeland
Zeeland’s currency is the Z dollar (Z$).

Zeeland has adopted International Financial Reporting

Standards. (IFRS)

76
Manufacturing Fragrances

77
Manufacturing Fragrances
The creation of a new fragrance is an art that requires a
skilled perfumer or ‘nose’.

The development process is ongoing: consumer tastes

change, fragrances sometimes have to be replaced or
manufacturers test the market with a new product

78
Perfumer “e”
A perfumer is a term used for an expert on creating perfume
compositions.

Sometimes referred to affectionately as a Nose (French: le nez)

due to their fine sense of smell and skill in producing olfactory
compositions.

A perfumer must have a keen knowledge of a large variety of

fragrance ingredients and their smells, and be able to
distinguish each of the fragrance ingredients whether alone or
in combination with other fragrances.

A perfumer must also know how each ingredient reveals itself

through time with other ingredients.

79
Perfumer “e”
Most perfumers are employed by several large fragrance
corporations in the world including Mane, Firmenich, IFF,
Givaudan, Takasago, and Symrise.

Some perfumers work exclusively for a perfume house or in

their own company which is not common.

The customers to the perfumer or their employers, are

typically fashion
houses or large
corporations of
various industries.

80
Work role of a Perfumer “e”
The perfumer typically begins a perfume project with a brief by the
perfumer's employer or an outside customer.

A brief will contain the specifications for the desired perfume, and will
describe in often poetic or abstract terms what the perfume should smell
like or what feelings it should evoke in those who smell it, along with a
maximum per litre price of the perfume oil concentrate.

This allowance, along with the intended application of the perfume, will
determine what aromatic ingredients will be used in the perfume
composition.

The perfumer will then go through the process of blending multiple

perfume mixtures and will attempt to capture the desired feelings specified
in the brief.

After presenting the perfume mixtures to the customers, the perfumer may
"win" the brief with their approval.
81
Work role of a Perfumer “e”
They proceed to work with the customer, often
with the direction provided by a panel or artistic
director, which guides and edits the modifications
on the composition of the perfume.

This process typically spans several months to

several years, going over many iterations & may
involve cultural & public surveys to tailor a
perfume to a particular market.

The perfume composition will then be either

used to enhance another product as a functional
fragrance (shampoos, make-up, detergents, car
interiors, etc.) or marketed & sold directly to the
public as a fine fragrance.

Alternatively, the perfumer may simply be inspired to create a perfume &

produce something that later becomes
82 marketable or wins a brief. This is more
common in smaller or independent perfume houses.
Fragrance Manufacturing Process “e”
1. Collection
Initial ingredients must be brought to the manufacturing center.
Plant substances are harvested from around the world, often hand-
picked for their fragrance.
Animal products are obtained by extracting the fatty substances
directly from the animal.
Aromatic chemicals used in synthetic perfumes are created in the
laboratory by perfume chemists.

83
Fragrance Manufacturing Process “e”
2. Extraction
Oils are extracted from plant substances by several methods: steam
distillation, solvent extraction, enfleurage, maceration, and
expression.
In solvent extraction, flowers are put into large rotating tanks or drums and
benzene or a petroleum ether is poured over the flowers, extracting the
essential oils. The flower parts dissolve in the solvents and leave a waxy
material that contains the oil, which is then placed in ethyl alcohol. The oil
dissolves in the alcohol and rises. Heat is used to evaporate the alcohol, which
once fully burned off, leaves a higher concentration of the perfume oil on the
bottom.

Maceration is similar to enfleurage except that warmed fats are used to soak
up the flower smell. As in solvent extraction, the grease and fats are dissolved
in alcohol to obtain the essential oils.

Expression is the oldest and least complex method of extraction. By this

process, now used in obtaining citrus oils from the rind, the fruit or plant is
manually or mechanically pressed until all the oil is squeezed out.
84
Fragrance Manufacturing Process “e”
2. Extraction
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 liquified. Oils can also be extracted by boiling plant substances
like flower petals in water instead of steaming them.

85
Fragrance Manufacturing Process “e”
2. Extraction
During enfleurage, flowers are spread on glass sheets coated with
grease. The glass sheets are placed between wooden frames in tiers.
Then the flowers are removed by hand and changed until the grease
has absorbed their fragrance.

Creating an enfleurage in the

2006 movie called ‘Perfume: A
story of a Murderer’
86
Fragrance Manufacturing Process “e”
2. Extraction
Methods

87
Fragrance Manufacturing Process “e”
3. Blending
Once the perfume oils are collected, they are ready to be blended
together according to a formula determined by a master in the
field, known as a "nose." It may take as many as 800 different
ingredients and several years to develop the special formula for a
scent.
After the scent has been created, it is mixed with alcohol. The
amount of alcohol in a scent can vary greatly.
Most full perfumes are made of about 10-20% perfume oils
dissolved in alcohol and a trace of water. Colognes contain
approximately 3-5% oil diluted in 80-90% alcohol, with water
making up about 10%. Toilet water has the least amount—2% oil
in 60-80% alcohol and 20% water.

88
Fragrance Manufacturing Process “e”
4. Aging
Fine perfume is often aged for several months or even years after it
is blended.
Following this, a "nose" will once again test the perfume to ensure
that the correct scent has been achieved.
Each essential oil and perfume has three notes: top notes, central
or heart notes and base notes.
More "notes," of various smells, may be further blended.

89
Intellectual Property, Brands &
Celebrity Endorsement
90
Intellectual Property Protection
Intellectual
Property
Protection

Actions taken
Possible Not Possible
by Scent
• Protect brand • Patent or • Scent owns a
names trademark a large number of
• Protect images specific and trademarks
• Protect bottles exact smell • Brand names
& packaging are owned
• Right to use • Owns the right
celebrity names to use specific
images, bottles
& package
designs

91
Scents & Competitors Products
Theoretically Scent or its competitors can analyse each others
products in a laboratory and the chemical elements could be
identified.

Practically its virtually impossible to make a perfect copy of

another manufacturer’s fragrances due to:
Not knowing the precise sources of the different aromatic
compounds used in the perfume
Not knowing the method in which they were combined

92
Intellectual property of Scent
A large number of trademarks
TM
The brand names
of its products

Scent owns The rights to use

the following : specific images
on its packaging

Bottles with
distinctive designs

TM
Many are trademarked & cannot
Packaging designs 93 be copied without permission
Developing Brands
Pays a marketing agency a fee to
create a brand name for a new
product
Potential brand
names are tested in
the marketplace by
the agency’s
General steps consultants
in developing
A fee is paid for
a Brand name
development of
in Scent
the brand name

All rights to the brand

belong to Scent
94
Celebrity Endorsement
Celebrity-endorsed fragrances are considered as very
important factor in the fragrance market.

Every year more than 500 new celebrity perfumes are

released in the whole industry.

The highest sale of celebrity fragrances are typically

during the year-end holiday season.

95
Celebrity Endorsement
A Celebrity is:

Agreed NOT to Time period of

Required to do
do contract
• Engage in • Endorse any • Right to use
promotional other celebrity’s
activities products in name by
• Photographed the fragrance Scent
for magazine or cosmetic • Normally
adverts market between 10-
• Filmed for 20 years
adverts

Intellectual rights related to

celebrity names are normally
more complicated
96
Famous Celebrity Perfumes “e”
Brad Pitt
Actor
Perfume House: Chanel
Introduced: 1921
Scent Classification: Floral Aldehyde
Featured in: Fall 2012 campaign

Madonna
Singer, world's top selling female recording artist of all time
Perfume: Truth or Dare
Perfume House: Dolce & Gabbana
Introduced: 2010
97
Famous Celebrity Perfumes “e”

Rihanna
Singer
Perfume House: Parlux Fragrances
Perfumes: Reb'l Fleur (2011), Rebelle (2012), Nude (2012) & Rogue (2013)
98
Famous Celebrity Perfumes “e”
James Franco
Actor
Perfume House: Gucci (Owned by P & G)
Perfumes: Gucci Pour Homme (2008)
Gucci Made to Measure (2013)
Scent Classification:
Gucci Pour Homme - Woody
Made to Measure - Spicy Oriental

99
Bottles, Packaging, Distribution &
Delivery

100
Bottles and Packaging
Bottles & packaging have iconic and distinctive designs.

They are featured prominently in advertising campaigns.

Packaging is designed by marketing agencies.

Packaging & bottles are manufactured by independent

manufacturers .

101
Distribution Channels
Department Stores

Specialist
Fragrance
shops
Retail Outlets

Pharmacies

Supermarkets
Online Stores
102
Distribution Channels
Department Stores
 Many exclusive department stores have fragrance
departments.
 Scents more expensive brands are stocked by these stores.
 Customers can try samples of different products.
 Advisers suggest suitable fragrances as gifts, depending on
the age & lifestyle of the intended recipient.

Other types of Stores

 These often compete on the basis of selling price.
 These aim for high volume sales.
 Therefore they require significant discounts from Scent.

Online Stores
 A number of online vendors sell Scent’s products.
 Online store customers often make repeat purchases
of known brands.
 Easy to deliver products by post as in small packages.
103
Delivery Process
 Scent sells exclusively to retailers.
 Products are only delivered in bulk to the retailers
warehouse or distribution center.
 Doesn’t deliver to retailers’ individual shops or
stores.

 Each order is packed securely and

loaded onto pallets for delivery.
104
Scent’s Board of Directors & Corporate
Structure

105
Scent’s Board of Directors
. CEO
Operations Finance
Director Director

Executive
Deputy Marketing
CEO Director

Board of
Directors

Chairman Non NED 1

Executive

NED 3 NED 2
106
Executive Directors
Georgy Stone – Chief Executive Officer

Since: 2010
Previous position: Creative director- Fine fragrance
division of Scent
Work Experience:
Began his career as blender of fragrances at a well-known
perfume producer.
Worked many years in the perfume industry.

107
Executive Directors
Beth Miller – Finance Director

Since: 2012
Qualification: Professionally qualified accountant
Work Experience:
Specialised in the luxury goods market
Worked for a number of renowned providers of high quality
goods since graduating in 1985

108
Executive Directors
Charles Chevalier – Operations Director

Since: 2005
Career at Scent: Since 2003, joined from a major competitor
Work Experience:
Began his career working for a producer and supplier of high
quality natural perfume oils

109
Executive Directors
Jaspar Skornia – Marketing Director

Since: 2002
Qualifications: Graduated from university with a
Marketing Degree
Work Experience:
Has worked in the sales division for several major companies
Most recent designation: Franchise Director for a major
manufacturer of perfumes, make up and skin care.

110
Executive Directors
Joseph Frederic – Deputy Chief Executive Officer

Since: not given

Relationship: Great grandson of one of the founders of Scent
Qualifications: Professionally qualified lawyer

111
Non Executive Directors
Ethan Bazalgette – Chairman

Since: 2010
Previous designation: CEO of Scent
Committees served: Audit & Nomination Committees
Other positions held: Director of the Zeeland Cosmetic,
Toiletry & Perfume Association

112
Non Executive Directors
Lewis Jamieson – Non-Executive Director

Since: 2012
Previous experience: Successful career in business
Qualifications: Professionally qualified lawyer specialising
in intellectual property protection
Committees served: Convener of Scent’s Nomination
committee

113
Non Executive Directors
Olivia MacMillan – Non-Executive Director

Since: 2009
Previous Experience: Highly successful career with
Zeeland’s largest bank
Committees served: Convener of Scent’s Audit committee

114
Non Executive Directors
Martyna Litwinienko – Non-Executive Director

Since: 2012
Previous experience: Partner with a major accountancy
firm
Committees served: Serves on both the nomination and
audit committees

115
Scent’s Corporate Structure

116
Scent’s Corporate Structure
Scent has a divisional structure.

Each of the four divisions is made up of a number of

subsidiary companies.

Some of which have been purchased as part of the group’s

expansion strategy.

Sales, customer relations & finance functions are managed

centrally at head office.

117
Risk Management

118
Foreign Exchange Risks

Foreign Exchange Risks

How? Why? Why?

• Fluctuation in • Exports to • Financial

foreign over 100 reports are in
exchange countries Z$
rates • International • Currency
• Effects profits operations is Risks (Ex:
& cash flows approx. 70% Translation
of business risks)

119
Legal Risks

Legal Risks

How? Why? Why?

• Subject to • Transacts with • Compliance

international over 100 with regulation
government countries on fragrance
laws & • International formulation can
regulations operations is be difficult and
• Subject to laws approx. 70% of expensive,
in Zeeland business requiring
reformulation,
relabelling or
discontinuation
of products.

120
Risks associated with Sales
Risks related to Sales

How? Effects Actions to mitigate

• No long-term • Revenue & cash • Maintain

contracts with flows will be relationships
customers affected with customers
• Demand for • Approx. 50% are • Demand for
celebrity from celebrity celebrity is based
fragrances fragrances & on reputation
diminishes huge risks due to and appeal -
demand drops Need to select
for celebrity correct
products celebrities &
manage
relationships

121
Celebrity misbehaviour & Impairment losses
Two celebrities who held endorsed fragrances with scent were
convicted of drug-related offences.

The fragrance ranges that bore their names are to be:

Reformulated slightly
Re-launched with completely different names &
Completely different packaging.

The cost of brand names associated with two celebrities were

considered as an impairment loss

Impairment losses are shown as part of cost of sales (in the

year ended June 2015)

122
Risks related to Customers

Risks related to Customers

Actions to
How? Why?
mitigate
• Customers’ poor • The fragrance • Making products
business industry is highly appealing to a
conditions will competitive and wide range of
also affect customer consumers
Scents business preferences can • Must be able to
as well change rapidly. anticipate &
• Ex: Reduction in respond to
retail demand, market trends
Credit risks of
customers

123
Expansion & Acquisition Risks

Expansion & Acquisition Risks

How? Why?

• Not be able to • Expansion of Scents

successfully business depends on
integrate acquired acquiring new
new businesses businesses
• Note being able to
achieve intended
benefits of
acquisition

124
Risks related to Intellectual Property

Risks of Intellectual Property

How? Effects

• Not be able to • Revenues would

protect our be adversely
brand names & affected
intellectual • Profits will be
property affected due to
• Impairment of impairment of
intangible assets intangible assets

125
Investment Risks & Information

Investment Risks

Projects are evaluated

How? using discounted cash flow
• Scent’s investment
strategy might lead
to investing in Weighted average cost of
negative net present
capital (WACC) is 12%
value projects.

126
General Information About LK

127
LK – Scents biggest competitor

Name – LK
Home Country – Zeeland
Inception – 2005
Founder – Olivia Kelly
Founders job – Hollywood make-up artist

LK is Scents biggest
competitor

128
LK – Scents biggest competitor
Products Made – (similar products to that of Scent but a smaller
range)
Perfumes
After Shaves
Bath oils
Home fragrances

Manufacturing location – All products in one Factory in

Zeeland
Factory location – intentionally located in an area of
high unemployment to make a positive
impact on the local community.

129
LK and Olivia Kelly
Founded LK ten years ago

A Hollywood make-up artist

Olivia Kelly received initial funding to establish LK from

a number of Hollywood stars with whom she had worked
while in the film industry.

She developed her own range of fragrance products,

using only:
organic and
natural ingredients
for the aromatic compound.

130
Celebrities and LK Products
LK’s products are focussed more on the sector occupied
by Scent’s celebrity fragrances.

LK has always promoted its products on the basis of

simplicity and sustainability.

These virtues are appealing to the Hollywood celebrities

who have invested in the company and lent their names
to some of its leading products.

They have also been able to use their contacts in the film
industry to persuade other leading celebrities to sign
contracts to lend their names to the company’s products.

131
LK – Social Responsibility

LK has a policy of assisting its employees as much as

possible.

Examples:
Single parents can apply for flexible working hour
arrangements that fit in with their child care responsibilities
Applicants who have been unemployed in the long-term can
apply for a training programme that improves their prospects of
obtaining a job upon completion
The factory of LK is deliberately located in an area of high
unemployment to make a positive impact on the local
community

132
Newspaper Articles in the Scent Case Study

133
Article#1: Celebrity-endorsed Perfume Cost

134
Article#1: Celebrity-endorsed Perfume Cost

135
Article#2: Restrictions on Raw materials

136
Article#3: Substitutes of Competitors

137
Article#3: Substitutes of Competitors

138
Article#4: Independent Producers

139
Scent Group’s Financials

140
Scent- Statement of Profit/Loss
30 June 2015 30 June 2014
Z$ Million Z$ Million
Revenue 1,267 1,436
Cost of goods sold (691) (723)
Gross profit 576 713
Selling, general and administrative expenses (507) (558)
Profit/loss from operations 69 155
Interest expense (27) (25)
Net profit/loss 42 130
Tax expense (54) (57)
Profit/(loss) for the year (12) 73

141
Scent- Statement of changes in Equity

Share capital Other Retained Total

components Earnings
of equity
Z$ Million Z$ Million Z$ Million Z$ Million

As at 30 June 2014 400 104 105 609

Loss on revaluation (21) (21)
Loss for year (12) (12)
Dividend (30) (30)
As at 30 June 2015 400 83 63 546

142
Scent- Statement of Financial Position
30 June 2015 30 June 2014
Z$ Million Z$ Million
Non current assets
Property, plant and equipment 117 107
Brands and trademarks 316 357
Goodwill 32 32
465 496
Current Assets
Inventories 348 326
Trade receivable 157 209
Cash and Cash Equivalents 54 63
559 598

Total Assets 1024 1094

143
Scent- Statement of Financial Position
30 June 2015 30 June 2014
Z$ Million Z$ Million
Equity
Share Capital 400 400
Revaluation reserve 83 104
Retained Earnings 63 105
546 609
Non-current liabilities
Loans 295 277
Deferred tax 52 46
347 323
Current Liabilities
Trade payables 82 111
Tax liabilities 49 51
131 162
Total equity and liabilities 144 1024 1094
Scent- Cash Flow Statement
30 June 2015 30 June 2014
Z$ Million Z$ Million
Cash flows from operating activities
Profit before finance costs 69 155
Depreciation, amortisation & impairment losses 139 90
Loss on disposal on non-current assets 5 1
Changes in inventories, trade paybl: & trade recv: 1 12
Tax paid (50) (59)
Net cash from operating activities 164 199
Cash flows from investing activities
Purchase of non-current assets (135) (82)
Proceeds of disposal of non-current assets 1 6
Net cash from investing activities (134) (76)
Cash flows from financing activities
Loans taken out/(repaid) 18 (25)
Dividends paid (30) (35)
Interest paid (27) (25)
Net cash from financing activities (39) (85)
Cash and cash equivalents at beginning of period 63 25
145
Cash and cash equivalents at end of period 54 63
Note 1 – Geographical Segmental Report

Europe, America Asia Total

Middle East
& Africa
Z$ million Z$ million Z$ million Z$ million

Revenue 405 646 216 1,267

Operating profit 25 29 15 69

Revenue Operating Profit

Europe, Europe,
17% Middle East 22% Middle East
32% & Africa 36% & Africa
America America

51% 42%
Asia Asia

146
Note 1 – Product wise Segmental Report
Fine Celebrity Bath & Body Home Total
Fragrance Fragrance Fragrance Fragrance
Z$ million Z$ million Z$ million Z$ million Z$ million

Revenue 380 570 228 89 1,267

Operating 26 21 14 8 69
profit

Revenue Operating profit

Fine Fine
7% Fragrance 12% Fragrance

Celebrity Celebrity
18% 30% 38%
Fragrance 20% Fragrance

Bath & Body Bath & Body

Fragrance Fragrance
45% 30% Home
Home
Fragrance Fragrance
147
Note 2 – Property, plant and equipment
Property Equipment Total
Cost or valuation Z$ Million Z$ Million Z$ Million
As at 30 June 2014 120 211 331
Additions 15 72 87
Disposals (65) (65)
Revaluation (35) (35)
As at 30 June 2015 100 218 318
Depreciation
As at 30 June 2014 61 163 224
Disposals (59) (59)
Revaluation (14) (14)
Charge for year 4 46 50
As at 30 June 2015 51 150 201
Net book value
As at 30 June 2014 49 68 117
As at 30 June 2015 59 48 107

148
Note 3 – Brands and Trademarks

Property
Cost Z$ Million
As at 30 June 2014 402
Additions 48
As at 30 June 2015 450
Amortisation and impairment losses
As at 30 June 2014 45
Impairment 54
Charge for year 35
As at 30 June 2015 134
Net book value
As at 30 June 2015 316
As at 30 June 2014 357

149
Note 3 – Brands and Trademarks

• Impairment losses are shown as part of cost of sales.

• They relate to the cost of brand names associated with

two celebrities who have been convicted of drug-related
offences.

• The fragrance ranges that bore their names are to be:

• reformulated slightly and
• relaunched with completely different names and
packaging.

150
Note 4 – Tax

• The tax expense for the year ended 30 June 2015

includes a penalty charge levied by the tax authorities in
respect of previous periods

151
LK- Statement of Profit/Loss
30 June 2015 30 June 2014
Z$ Million Z$ Million
Revenue 847 802
Cost of goods sold (496) (465)
Gross profit 351 337
Selling, general and administrative expenses (144) (138)
Profit/loss from operations 207 199
Interest expense (11) (12)
Net profit/loss 196 187
Tax expense (37) (32)
Profit/(loss) for the year 159 155

152
LK- Statement of changes in Equity

Share capital Retained Total

& Premium Earnings
Z$ Million Z$ Million Z$ Million

As at 30 June 2014 200 407 607

Profit for the year 159 159
Dividend (124) (124)
As at 30 June 2015 200 442 642

153
LK- Statement of Financial Position
30 June 2015 30 June 2014
Z$ Million Z$ Million
Non current assets
Property, plant and equipment 94 92
Brands and trademarks 205 132
Goodwill 18 18
317 242
Current Assets
Inventories 348 326
Trade receivable 157 209
Cash and Cash Equivalents 54 63
559 598

Total Assets 876 840

154
LK - Statement of Financial Position
30 June 2015 30 June 2014
Z$ Million Z$ Million
Equity
Share Capital 200 200
Retained Earnings 442 407
642 607
Non-current liabilities
Loans 140 140
Deferred tax 21 18
161 158
Current Liabilities
Trade payables 37 41
Tax liabilities 36 34
73 75
Total equity and liabilities 876 840
155
The end…

156