The strategic plan to launch Kilian into one of beauty’s most sought after markets.
YMA Scholarship Competition 2019 Case Study B: Merchandising and Marketing
Meet Kilian Hennessy Descending from a family of cognac makers, Kilian Hennessy knows luxury better than most. Being raised around luxury all his life, it was a natural decision to proceed to forge a legacy of his own in the world of fragrance. Kilian Hennessy, known to be the Tom Ford of niche perfumes (Molina, 2013), founded his brand Kilian on three main pillars which have allowed him to create a luxury niche fragrance brand that is truly unique in the marketplace. A key pillar for Kilian is to put visual appeal back into fragrance. To accomplish this, each product is just as luxurious on the outside as it is on the inside. Both the bottle and the box are designed with sustainability, and luxury in mind, which is what sets Kilian’s aesthetic apart. The second brand pillar ensures that the fragrances within the bottles are just as unique as the packaging. Each fragrance belongs to a collection inspired by different fantasies, each revolving around uncommon scent facets. The final pillar encompasses Kilian’s mission to “achieve a perfect alliance between elegance and uncompromising luxury” (Pasternack, 2016). Kilian is considered an eco luxe brand because of the sustainable quality that it delivers. The brand offers fragrance refill sets, as a way to ensure the customer gets the most out of their product. Because of this philosophy, Kilian is considered to be of utmost prestige in the niche fragrance market (Pasternack, 2016). Although fragrance was put aside in China during the cultural revolution, there is a new generation of consumers with a sophisticated taste for niche fragrances in China and the surrounding territories. Now is the time for Kilian to enter Hong Kong.
Figure 1: Kilian Mascot
Figure 2: Kilian Bottle
Figure 3: Kilian Detail Shot
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Tom Ford in China
Many brands have recognized the financial opportunity that currently lies in China and have made the decision to expand and either succeed or fail in one of the world’s most sought after markets. Tom Ford entered the Chinese luxury scene in 2015 and has been doubling in business ever since (Strugatz, 2017). Estee Lauder company has seen a 20% jump in profits from the China Market, and considers it to be one of their fastest growing markets (Wei, 2017). This includes the Hong Kong market. Estee Lauder attributes this growth in sales to social media, claiming that up to forty percent of the company’s sales in China come from the millennial sector (Wei, 2017). Knowing the power of using local influencers, Tom Ford took full advantage of this for his “Fabulous Night in Beijing” in May 2018 by inviting Asian beauty bloggers and elite faces to experience his Private Label fragrance collection (Ap, 2018). Ford wanted the Chinese consumer to know they were a priority when launching this collection. Tom Ford made sure the launch was an unforgettable three night event for Asian elite, that the public could enjoy later on as well (Figure 4). Tom Ford recognized it was important for the public to know the brand identity when launching to China, understanding that for some, Tom Ford was not a brand, but a name associated with Gucci (Lam,2013). In order to introduce Tom Ford to China, products were introduced into the market gradually starting with menswear, then womenswear and finally beauty to connect the two. Tom Ford Beauty’s success in China lies in the immersive experiences he created for his customers, the way he educated the public about his brand prior to launching his fragrances, and the key role Asian influencers play in reaching the target consumer.
Figure 4: Fabulous Night in Bejing Black Orchid Room
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Jo Malone in China
Jo Malone has also been successful in the Chinese market. The Estee Lauder brand initially announced a partnership with the Lane Crawford Joyce Group for exclusive distribution rights to the Jo Malone luxury lifestyle brand in Hong Kong in 2008. The agreement negotiated both free standing boutiques as well as in store shops in popular department store Lane Crawford (“Jo Malone to Expand in Asia”, 2008). This was a mutually beneficial agreement for both parties in that Jo Malone got exposure in an already popular and well known department store that their target customer already frequents and Lane Crawford got to expand their luxury niche fragrance portfolio. The first store was opened in Hong Kong in the Lane Crawford at the IFC mall, replicating the same interior design as the Jo Malone flagship store in London, as to give the Hong Kong client the same authentic experience (“Jo Malone to Expand in Asia”, 2008). Jo Malone also recognized the importance of educating the customer about the product as well as the brand, and heald tea parties at popular luxury hotels in key cities (“China’s fragrance market: a learning curve for businesses and consumers”, 2018). Holding events at hotels plays a key role in gaining the patronage of local consumers as well as the global travelers. This kind of event plays a dual role in product education as well as customer experience and good word of mouth, a marketing strategy Jo Malone prides themself on.
Figure 5: Jo Malone Hong Kong
Kilian X Hong Kong: A Plan for Global Expansion History Despite having a rich fragrance history, China had a setback within the beauty industry during the rise of communism in the late 1960’s under the rule of Mao Zedong (Scentcillo, 2015). Luxury items such as cosmetics and fragrance were illegal. Because of this, cultural reference to the use of fragrance and perfumes is limited in this region, causing the current state of the market to be one of opportunity, discovery and growth. 3
Although members of the millennial generation don't often recall seeing their parents use fragrance daily, they are discovering the luxury of fragrance and are open to adopting the habit of daily fragrance use (Dove, 2018). Young Chinese adults will indulge in Kilian products, as the brand’s product assortment is exactly what they are looking for: unique and luxurious fragrances.
Hong Kong Market Segmentation Being that Hong Kong is an administrative region of the people’s republic of China, it operates independently, but shares the same consumer fragrance preferences as China. The Hong Kong market is complex, being that it consists of affluent Hong Kong residents, mainland Chinese consumers and global travelers, all equally important to attract (GovHK, n.d.). Purchasing decisions for this segment of the market depend on several factors. China’s rich history plays a large role in cultural traditions set in place today. Confucianism, a cultural concept based on maintaining relationships and building respect, is what Chinese culture was founded on (Mclaughlin, 2013). Because of this, gift giving is a huge part of this region’s culture and plays a part in what the consumer buys and what motivates purchasing decisions. Knowing this, we can see how luxury brands such as Tiffany & Co. are thriving in Hong Kong and other parts of China. Gifts are a representation of the person giving them as well as the relationship between the giver and receiver, therefore people give gifts to last such as jewelry, glassware, and luxury items. This can also explain why travel retail is so important in Asia, being that when traveling, people are even more inclined to buy gifts. The mainland chinese shoppers are the primary purchasers of luxury goods in Hong Kong, and have the biggest impact on the retail economy (Euromonitor, 2018).
Figure 6: Hong Kong Skyline
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The 2018 revenue for fragrance in China is 178 million USD, and is expected to grow 3% annually (Statista, 2018). Helping to contribute to this revenue is a growing middle class, as well as a millenial market that craves luxury, in particular, niche fragrances (Euromonitor, 2018). It is a common belief that the Chinese consumer prefers lighter, more subdued fragrances due to a lack of being accustomed to fragrance culture. This is true for the older generation, however the younger consumer has shown a preference for unique fragrances that express their individual style with unique stories (Euromonitor, 2018). In fact, the Chinese consumer has grown to be a bit more sophisticated and has began to have a growing interest in niche luxury fragrances over fragrances from major houses including Coty inc, Parfums Christian Dior, and Chanel SA. Up until 2017 these were the top three players in the fragrance industry in China, but due to competition from niche fragrance brands, sales for these companies have plateaued (Euromonitor, 2018).
Global Traveler Segment Hong Kong is a destination shopping city, attracting travelers from some of the most affluent areas in the world. Tourism is a major pillar in Hong Kong’s economy, contributing to almost 17% of GDP as of 2017 (”Hong Kong Contribution of travel and tourism to GDP”, 2017). With this kind of attention on Hong Kong’s retail landscape, appealing to the global traveler segment is crucial. Not only are these travelers splurging on themselves, they are also purchasing gifts. The common thread between all of these customers is the craving they have for luxury, in particular niche fragrances. In 2017 alone, 58.4 million tourist visited Hong Kong and overnight arrivals grew by 5% (Tourism performance in 2017, 2017).
Figure 7: Hong Kong International Airport Shopping Terminal 5
Kilian Arrives in Hong Kong: A Strategic Plan The Mandarin Oriental Hotel The first Kilian boutique to reach Hong Kong will be located in the Mandarin Oriental Hotel in the heart of downtown Hong Kong. This is a strategic decision to get the product in front of all segments, the Chinese consumer segments and the global travelers who will be staying in the hotel or around the area. This comes as a lesson from Jo Malone, who proved partnerships like this are beneficial to both parties. Being that the aesthetic of Kilian boutiques is very distinct, the store design will be true to the brand identity. In addition to this, the store will be unique by incorporating work by Chinese artist Ai Weiwei into the store design (see figure 8). Ai Weiwei will be creating a porcelain sculpture for the main entryway of the store. As learned from Tom Ford’s launch guest list, it is crucial to tailor all events and store design of a new launch to the local clientele and make sure they are priority. Not only has Ai Weiwei worked as an artist for retail, he is an important human rights activist. Incorporating him into the Kilian store also stands for a new beginning for China and it’s territory’s fragrance industry in terms of cultural progress after the cultural revolution. As far as product assortment, all of Kilian’s core product categories will be carried in the boutique (See appendix C for financial plan). The assortment plan includes all of Kilian’s niche fragrances as well as an exclusive Hong Kong fragrance in an effort to appeal to the millenials who want unique fragrances. The product assortment is tailored to both the Chinese consumer and global traveler segments by including the full range of home goods, body care and scented jewelry to cater to the important gift giving culture, as well as the craving for luxury.
Figure 8: Kilian Hong Kong Store Design Render
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Hong Kong Exclusive Fragrance Kilian has a total of seven stand alone boutiques around the world. For each boutique, Kilian has created a fragrance that is exclusively sold in that location. This strategy includes the creation of an exclusive Hong Kong fragrance for the boutique inside the Mandarin Oriental Hotel. The formula for this draws its inspiration from the local flower markets, Victoria harbor, and Thatchers maple, which is only found in high elevations in Hong Kong. Fragrant Harbor is the epitome of a Saturday in Hong Kong. The scent unfolds on the skin, just as a day of adventures would unfold into a sensual evening on the town (please see Appendix C for fragrance formula created for Fragrant Harbor). Because of the luxurious nature of the Mandarin Oriental Hotel, Kilian candles in a small 2 oz size and Kilian shower gel and body lotion toiletries will be presented in the bathrooms of each hotel room, along with information on how to purchase them in the boutique downstairs. The scent of these products will be the exclusive Fragrant Harbor scent. This fragrance will be very lucrative due to the exclusivity of distribution making it more desirable by the Chinese consumer segment but also being that it makes for a unique gift for all target segments.
Reaching Global Travelers Travel retail is a large factor in the Hong Kong economy, and plays an instrumental role in gift giving in the Chinese culture (Tourism Performance in 2017, 2017). Because of this, Kilian will have a boutique inside the Hong Kong International Airport. This will ensure that global travelers as well as Mainland Chinese consumer traveling to Hong Kong are exposed to Kilian at least once, and possibly twice if they fly in and out of HKIA. The shop itself will remain on brand in terms of aesthetic, and will carry Kilian’s full product assortment. Although the product assortment will be the same as the boutique in the Mandarin Oriental Hotel, the store itself will be catered more towards gift giving by offering free custom bottle and candle engravings, gift wrapping and the option to pack and ship to any location in the world.
Figure 9: Fragrant Harbor Bottle
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The Face of Kilian Hong Kong Yao Chen, one of Asia’s most influential women, is known for her work as an actress as well as a philanthropist. Not only is her work admired in Forbes, but by 80 million followers on her weibo account. The amount of influence that she has is astounding, as well as her inspiring work as a humanitarian (Forbes.com, 2015). Not only is she influential among the local consumer, she fits the aesthetic of Kilian with her edgy, sexy appearance. Yao attracts the millennial following, as well as the admiration of the sophisticated young adult women. Yao Chen will create waves in terms of fragrance culture and will put Kilian in front of the Chinese consumer segment (See Figure 10).
The Launch Party For Kilian’s launch to Hong Kong, there will be a three day event, kicking off with a VIP dinner for China and Hong Kong’s most elite and influential faces. The event itself will include founder Kilian Hennessy providing one on one fragrance consultations and product signings. On the first evening of the event, a VIP dinner will be hosted including 180 special guests, including the face of Kilian Hong Kong, Yao Chen. In addition to the store design, Ai Weiwei will also attend the event, as well as help design it. The dinner will be held in the Man Wah dining room, and will be catered by the Mandarin Oriental Hotel’s in house bespoke culinary team. This will provide influencers and industry experts to get acquainted with the brand as well as Kilian Hennessy. At each dining spot, an exclusive Fragrant Harbor scent gift package, elegantly wrapped in black and gold, with a handwritten note from Kilian himself will be awaiting each guest. This will show guests the commitment Figure 10: Yao Chen
Kilian has to Hong Kong, as well as play into the important role of gift giving in Chinese culture.
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The Wechat Experience WeChat is the most important app in China and Hong Kong right now, and has proven itself profitable for the brands who have adapted it strategically (Mauron, 2017). Considering at least 550 million out of the 650 million subscribers to the app live in China, it is necessary that Kilian integrates Wechat into the launch strategy. Kilian will launch an app in app within WeChat three weeks prior to the launch of the boutique in Hong Kong. This will allow awareness to be created through sneak peaks of the store design as well as an ad campaign with brand ambassador Yao Chen. Users who adapt the app will have the chance to win a scent consultation with Kilian. Based on the success other brands have had, the app must interact with the user further than just giving them another platform to buy on. Although the app will contain a link to the Kilian website, the app will incorporate other features to make the user feel close to the brand. A feature will be incorporated that will ask the user simply how they feel, and will in turn match them with an ultimate fantasy. Each fantasy will be based off of different Kilian fragrance inspirations. Starbucks had huge success doing something similar, by sending users a song that corresponds with the emoticon they identified with, which led to attracting 62,000 fans. This allows for the customer to connect with the fragrances on a visual story level. Because users can’t smell a fragrance through an app, we will entice them to come into the store to experience the fragrances. The Kilian app will also allow users to locate a store, communicate with customer service, make appointments with the Kilian boutique, register as client, as well as connect with e- commerce website. The app will also allow users to view Yao Chen’s favorite Kilian fragrances. There will be a gift giving feature that will allow the user to gift any of Kilians products.
Figure 11: Log In Page
Figure 12: Home Page
Figure 13: Ultimate Fantasy 9
The customer will have the choice to engrave the bottle, and select custom gift wrapping. This adds more value to the act of gift giving for the customer as it allows for them to have a customized experience. Kilian must set themselves apart from the rest in such a unique and growing marketplace. This will be very popular, as there is no other brand on WeChat doing this (See appendix A for more images). Follow this link for a demonstration on how this app will delight and engage customers: https://xd.adobe.com/view/3d1c3765-2598-41cb-5c64-629504d96460-4b2d/?fullscreen
Financial Plan Sales for fall 2019 for the Kilian boutique are projected at 2,131,400 USD based on a turn of 2.5 and average stock of 865,200 USD. The 6 month plan was built from an assortment plan, and accounts for travelers buying holiday gifts as well as the immensly popular Singles day (See Appendix B for complete financial plans).
Looking Ahead to the Future Once the launch to Hong Kong proves to be successful, Kilian will plan to expand globally to Sydney, Australia. Being that Sydney has a similar market in terms of global travelers, this will be a lucrative destination for the next Kilian boutique. Sydney is home to several world class bridal designers, providing the perfect opportunity to collaborate with Nektaria to create the first ever Kilian bridal fragrance. Rather than being a scent she wears down the aisle, it would be more of a scent she wears with her husband at night. Nektaria’s dresses are very sexy and luxurious just like Kilian, making the two brands a perfect match. The lessons learned from the entry of Kilian into Hong Kong and Sydney can be applied as a proven formula for future global expansion (see figure 14). Figure 14: Expansion Map
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Appendix A Kilian WeChat App Prototype Follow this link for a demonstration on how this app will delight and engage customers: https://xd.adobe.com/view/3d1c3765-2598-41cb-5c64-629504d96460-4b2d/?fullscreen Home Page
Ultimate Fantasy Feature
sources
Gift Kilian Feature
App Screenshots
Engraving Feature
Gifting Feature
Appointment Creator
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Appendix B Complete Financial Plan !"##$%&'( Fall 2019 Buying Plan )&&&*+, -./$0"#.+$1#"2$3 -./$0"#.+$1#"2$425/+ 67.8"9.$:25/$;./"5# <27.2/=8>$?482=7.8 67.8"9.$0/=@A$3 67.8"9.$0/=@A$425/+ ;.B4@/5=2$3 ;.B4@/5=2$C <D:$C ED$C
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Assortment Plan
*Sku includes 1.7 oz Fragrance, Refill, and Travel Size *Products in blue account for the Hong Kong Exclusive Fragrance 12
Appendix C The Fragrance Formula Created for Fragrant Harbor Fragrance Formula Citrus Facet: lemon, Bergamont, Grapefruit, Mandarin, Lime
15%
Fresh Floral: Lily, Lilac, Freesia, Magnolia, Neroli
25%
Marine Facet: Calone, Helional, Floralozone
25%
Fougere Facet: Geranium, Oakmoss, Vetiver, Coumarine
5%
Amber Facet: Benzoin, Labdanum, Vanilla
20%
Oriental Facet: Patchoulli, Spice
5%
Thatchers Maple Absolute
5%
Fragrant Harbor opens with fresh citrus notes that bloom into a light floral heart, elluding to the local floral markets. From here the scent flows into a juicy marine concotion of calone and helional, reminiscent of Victoria Harbor. At itâ&#x20AC;&#x2122;s base, notes of vetiver, vanilla, amber and spice round out the scent, leaving a warm and sensual aroma. To finish it off Thatchers maple, discovered in high elevations in Hong Kong, leave a sweet and exotic scent on the skin.
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Appendix D Sources Ap, T. (2018, June 12). The Big Business of China's Growing Niche Perfumes. Retrieved from https://w wd.com/beauty-industry-news/fragrance/china-prestige-fragrance-market-perfume-1202671486 Ap, T. (2018, May 14). Tom Ford Beauty's 'Fabulous' Night in Beijing. Retrieved from https:/w wd.com/beauty-industry-news/fragrance/tom-ford-private-blend-fabulous-fragrance-china-1202671412/ Perfumers and their customers in China still on a learning curve. (2018, January 08). Retrieved from https://www.scmp.com/lifestyle/fashion-luxury/art icle/2126931/chinas-fragrance-market-learn ing-curve-businesses-and Dove, R. (2018, April 16). Asia on the scent of luxury fragrances, says niche perfumer. Retrieved from https://www.scmp.com/lifestyle/fashion-beauty/article/2141605/asias-luxury-fragrance-market-niche brand-perfumer-believes Euromonitor International. (2018). Retrieved from http://www.euromonitor.com/fragrances-in-china/re port Forbes.com. (2015). Forbes Women of Power 2015. [online] Available at: https://www.forbes.com/pro file/yao-chen/#666f33f077491. GovHK: Homepage (Residents). (n.d.). Retrieved from https://www.gov.hk/en/residents/ H. (2018). Scent-sations: Master perfumer Kilian Hennessy on the art of fragrance. Retrieved from http:// www.hungertv.com/feature/scent-sations-master-perfum-er-kilian-hennessy-on-the-art-offragrance/# Jo Malone to Expand in Asia. (2008, July 08). Retrieved from https://www.business-wire.com/news/home /20080708005404/en/jo-malone-expand-asia Komarek, J. (2016, June 20). 7 Brands Mastering the Art of WeChat Marketing - Pixelter. Retrieved from https://pixe;ter.com/blog/wechat-marketing/ Lam, R. (2013, July 08). Tom Ford, Ego, and DNA: A Conversation With Two of China's Best Luxury Strategists. Retrieved from https://jingdaily.com/tom-ford-ego-and-dna-a-conversation-with-twoof-chinas-best-luxury-strategists/
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Appendix E Sources Mauron. (2017, March 09). How Luxury Fashion Brands in China Use WeChat in 2017. Retrieved from https://jingdaily.com/wechat-luxury-fashion-in-2017? McLaughlin, S. (2016, May 18). The Art of Giving Gifts in China. Retrieved from https://chinacultu recorner.com/2013/10/30/giving-gifts-in-china/ Molina, C. (2018, March 19). By Kilian's Latest Fragrance Launch Is Devilishly Good. Retrieved from https://www.elle.com/beauty/news/a18691/by-kilian-playing-with-the-devil/ Pasternak. (2016, February 29). EstĂŠe Lauder acquires eco-luxe fragrance brand By Kilian. Retrieved from http://travelmarketinsider.net/estee-lauder-acquires-eco-luxe-fragrance-brand-by-kilian/ Scenting places and spaces in Chinese culture. (n.d.). Retrieved from https://www.scentcillo.com/blog /scenting-places-and-spaces-chinese-culture Fragrances - Hong Kong | Statista Market Forecast. (n.d.). Retrieved from https://www.statista.com/out look/70050000/118/fragrances/hong-kong Wei. (2017, May). Bloggers Touting Makeup Secrets Spur Estee Lauder's China Sales. Retrieved from https://www.bloomberg.com/news/articles/2017-05-31/bloggers-touting-makeup-secrets-spur -estee-lauder-s-china-sales Hong Kong Contribution of travel and tourism to GDP (% of GDP), 1995-2017. (2017). Retrieved from https://knoema.com/atlas/Hong-Kong/topics/Tourism/Travel-and-Tourism-Total-Contribution -to-GDP/Contribution-of-travel-and-tourism-to-GDP-percent-of-GDP
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