And how can you get quality fragrances at honest prices? (see below)
Perfume has always been considered a luxury product… but what exactly makes it so darned pricey? Why is perfume so expensive?
That’s certainly what I asked myself last week, as I walked out of a store having yet again spent over US $80 on a 3.4 FL Oz / 100ml eau de toilette. Of course, while that may seem hefty for a tiny bottle of liquid, any fragrance aficionado can tell you that perfumes are often far more expensive than even this. Just two weeks ago I purchased a niche eau de toilette, in the same size, for a whopping $230. Yes, it hurts my wallet… but the heart wants what the heart (or, in this case, nose) wants!
It seems we are all willing to pay the price; at almost $40 billion in global sales, the perfume industry isn’t hurting, that’s for sure. But it did get me thinking; what’s the real story behind what we pay at the perfume counter?
A quick search online reveals what you’d expect, which is that the cost is mostly due to a combination of three factors:
Ingredients – Perfume is made using potent aromatics and other ingredients.
Marketing – It can cost millions to launch a product and create awareness around it.
Packaging – Perfumes come in unique, highly sophisticated bottles.
All this sounds fairly reasonable. But how does it really break down? Well, let’s look at each part a little more closely.
There’s no question that some of the ingredients used in fragrance 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 currently averages over $30,000 per kg, and orris absolute, at a reported $50,000 per kg.
However, the vast majority of fragrances on the market are not spending that kind of money on ingredients!
Celebrated French perfumer Jean-Claude Ellena once said that the actual perfume accounts for only 6 percent of the total cost. These days, it seems, even that is a generous estimate. According to Chandler Burr in his book The Perfect Scent: A Year in the Perfume Industry in Paris and New York, “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.”
Perfume author Alyssa Harad agrees with this assessment, noting in her book Coming To My Senses that “often the actual cost of a perfume in a fifty-dollar bottle of commercial stuff is pennies.”
Meanwhile, it seems the industry continues to find ways to cut down on their ingredient costs. Burr notes in his book that, ten years prior, the ingredients for a fine fragrance could cost up to 300 euros (US $350) per kg, but that more recently, perfumers would consider a budget of even 100 euros per kg to be “like winning the lottery; 15 euros is more like it!” Burr’s book was published in 2008, so one can only imagine how much further the price, and subsequently the quality, of commercial perfume production has come down since.
Considering all this, you’d think perfume would be the business to be in! However, industry experts agree that profit margins on fragrances aren’t all that high; in fact, according to Burr, “in the end, profits in the perfume industry come back toward what insurance companies tend to make.” So, clearly, there’s more to this story.
You can create the most intoxicating scent in the world, but if no one knows about it, they aren’t going to be buying it.
Perhaps it’s not surprising, then, that a big part of what you’re paying for in a bottle of perfume is its marketing. From the elaborate ad campaigns themselves to the magazine, television and billboard placements where they are seen, everything has a price. In his book, Burr quotes Carlos Timiraos, Coty’s VP of Global Marketing at the time, as saying that “the launch will cost you 2 to 3 million dollars at a minimum, then annual advertising and marketing costs tens of millions.”
The most expensive advertisement ever made was for a perfume. The 2004 Chanel No. 5 ad, featuring Nicole Kidman, cost a smooth $33 million to produce. Setting the bar high? Undoubtedly. But that year saw record sales for the iconic perfume, and people can still remember the ad to this day. All this serves to reinforce how important marketing is to the fragrance industry.
Although most perfume brands aren’t quite spending that kind of cash on their ad campaigns, the budgets are still high; according to a 2016 report by A.T. Kearney, roughly $800 million a year is spent on fragrance marketing. Mind you, the same report confirms that much of it seems to be in vain, because most people aren’t that strongly influenced by perfume ads… but they’re still spending it, and they pass the cost along to us, the consumers.
Perfume bottles & packaging
Packaging is indeed important when it comes to scent. The bottle needs to protect the perfume’s quality and integrity by being safe and airtight. The box should protect it from light, ensuring a long shelf life until it is purchased. From a perfume company’s perspective though, these are far from 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. Trine Mork of popular fragrance blog, ScentGourmand, writes that “the weight of the bottle and the quality of the box are important in making customers feel that they have gotten value from their purchase.”
Of course, this adds to the overall cost of production, and ultimately to the price tag in the store.
What else adds to the cost?
There are a few other, perhaps less obvious, costs that also add to the total.
Perfumers create the perfume. They are often called ‘ghosts’, because even though they created the perfume, they are not widely known to the public. Most of them work for a few big international fragrance companies whose names most people have never heard.
Three of these companies -– Givaudin, Firmenich, and International Flavour and Fragrance (IFF) – control nearly 50 percent of the market, supplying all the perfume brands, like Estee Lauder and Coty, with the ‘juice’ that goes into their bottles.
Scent makers like Givaudan reportedly put a 300 to 400 percent margin on their formulae – or, as Burr puts it, “if they have a $10 per kg raw material cost, they might charge Estee Lauder $40 per kg for it.”
Related to marketing, but in a category of its own, is the licensing of a scent. Celebrity status comes at a price! The celeb often has very little, if any, role in the actual product development, yet according to Leah Bourne, Senior Editor of Stylecaster, celebrities can make “between 5 and 10 percent of sales for licensing their name to a scent, on top of an upfront payment of $3 million plus.”
Then there’s the retailers. Retail markups can be substantial. Department stores and specialty perfume shops need to cover things like staff salaries and commissions, in-store marketing and displays, and normal overheads… and of course, they’re also entitled to a chunk of actual profit. Reports vary, but generally it seems a markup of anywhere from 20 to 80 percent is to be expected at the retail stage.
So, to sum it all up, according to a revealing article on AOL’s DailyFinance, the breakdown of a $100 eau de toilette could look something like this:
Sales Commission: $6
Licensing Fee: $4
Manufacturer’s overhead: $15
Manufacturer’s Profit: $15
Retailer’s Overhead: $25
Retailer’s Profit: 15
And the actual juice: $2
That’s right – the very product itself is the least valuable part of the whole equation. We are happily throwing our hard-earned money at companies who have built an enormous, expensive, you might even say bloated industry around a very simple thing: scented water. Considering all this, it seems unfortunate that perfume should be so costly. It’s a pleasure that, in my opinion, should be enjoyed by many more.
Fortunately, the digital world is quickly changing the equation when it comes to perfume-shopping. We at Splash of Scent are able to avoid expenses such as brick-and-mortar retail shops and traditional marketing, so we can keep our overhead costs low. This makes it possible to sell high quality perfumes (with premium ingredients) for a lot less than they would be in a department store or specialty shop, making the world of fine fragrance that much more accessible.
And that certainly smells like a good idea to us.