In the first part, I talked about how we could hypothetically disrupt the fragrance industry using two basic strategy tools: the value stick and the value chain.
In this second part, I will look at potential disruption approaches using two additional tools, value driver reinvention and non-customer acquisition. These methods are parts of what is known as the “Blue Ocean Strategy” invented by INSEAD professors Chan Kim Renée Mauborgne. So go read up on their works if you want to know more.
I will conduct value driver reinvention in two steps. In the first step, I list out the attributes of my product that brings value to the customer and how much importance my customers are currently placing on them. For the fragrance industry, such value drivers can be mapped onto the following value canvas:
Here, we assume that a typical consumer doesn’t worry so much about high price (value = 2). Instead, he or she focuses more on how good and long-lasting the scent is (value = 4 and 3), how beautiful the bottle looks (value = 3) and most importantly, how the product brings confidence and class to the him or her by way of advertizing, icon, embodied beliefs, etc.(value = 5).
For the second step, I challenge the status quo by posing the question: “Should I decide to disrupt this business, how do I reinvent the value drivers and adjust the level of importance placed on them?” One approach might be the following:
In this approach, I decreased price at the expense of look and class. This is done by switching to inexpensive bottles and eliminating advertizing expenses. In addition, I introduced two new value drivers not previously considered: (1) the uniqueness of the perfume the consumer is using vis-à-vis his or her peers, and (2) the variety of fragrance the consumer may own at the same time. These attributes are now attainable as I have simplified the procedure of scent creation (thereby allowing more scents to be manufactured with the same lead time) and allow consumers to purchase many different perfumes that are now cheaper.
Even I as experiment with value drivers for fragrance, I can only disrupt the market in substantial ways if I can either (1) better monetize and/or (2) enlarge the consumer base. This is where the final tool comes in: non-customer acquisition.
As you can see in the graph below, the customer base of the incumbent offering is made up primarily of wealthy individuals or young people who are having a stable income. Women are also more likely to be attracted to the image of class of fragrance than men. As I tilt the value drivers towards the disruption model described above, I draw the attention of infrequent consumers such as students and mid-income earners. Men who are more realistic purchasers are also now likely to buy perfume as price becomes more reasonable while excessive advertising is eliminated. As the transition continues, I may even be able to gain previous non-customers such as elderly people and children and convert customers from adjacent categories such as deodorant spray. Please note that I may also lose some existing customers as my value proposition shifts away from what they currently consumes, hence the benefits and costs must be considered together.
As you can see, with a little bit of trial and error there is potentially huge room for disruptive models to take root in this ancient industry. We have seen some of this at play already: fake perfume swamping the Chinese market, $10 bottles cologne all over the streets of New York, and many other solutions as you search for the phrase “low-cost perfume” on the Internet. It’s difficult to evaluate whether these attempts have yet dealt significant blows to the incumbent players or merely presented themselves as “cheap” alternatives that are largely ignored by mass consumers. In my opinion, a real contender with a well-thought-out business plan, innovative products and excellent logistical and IT infrastructure is still to emerge in the years to come, especially as the current economic crisis has shown to be more resilient than expected.
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