Alfin: Marketing and Cosmetic Industry

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Case summary

Alfin Fragrance Inc. was a US based importer and marketer of high end French perfumes and cosmetics. The company was going to introduce an industry breakthrough product – Glycel, which was acted like an anti aging crème. The product would be demonstrated and sold at the best departmental and Glycel was expected to provide Alfin Fragrance a fortune as an annual sales of $ 30 million was expected in 1987. The industry observers speculated that Alfin Fragrance needs some external financing to support its growth. But Alfin had to make its financing choice – whether the company will go for external debt or it will issue equity.

Problems Statement:

In this case, we are going to analyze the following problems which are relevant to the case: • How Alfin Fragrance Inc. would finance its growth if it introduced the highly anticipated anti aging cosmetic miracle – Glycel. Should Alfin go for debt or it should issue new equity capital to finance the growth? • How Alfin Fragrance Inc. would manage its problematic working capital? • Trademark and licensing infringements were very common in the industry. Was there any possibility that Alfin might face any legal suit? • The marketing campaign of Alfin Fragrance was very traditional and their focus was only niche market. Was a traditional marketing effort enough for Alfin to sustain in the market?

Macroeconomic and Market overview in USA in 1985:

Overall economy and the market was not so stable in 1985 but economy and market speculators view that the depression of the economy and the market would turned to a growing one in 1986 because of the changing pattern among the American consumers. Many industries observed downturn because customers were reluctant to buy nondurable. Though this happened in 1985, some industry observers estimated that the cosmetic industry would turn around in 1986 because of the possibilities of introducing industry breakthrough products like Glycel and others cosmetic firms. Another observation toward the positive future trends of cosmetic industry is the Baby boomers (who were born during the Post-World War II) were aging then and they showed their interest in skin care and antiaging products. The following graph shows the stock price changes during June 1984 – December 1985. During that time we can address some unusual trend in December 1985 where both the cosmetic industry and aggregate stock index roar because of the positive expectation among the investors and marketers toward the cosmetic industry. Some favorable information like introducing new anti aging lotion and sun protection crème were available then. [pic]

Cosmetic Industry overview of USA in 1985:

The cosmetic industry of USA has the following characteristics: • Market Size: The cosmetic and toiletries industries were huge and consisted of at least 150 companies. • Market Growth Rate: Sales of all toiletries and cosmetic companies were growing at an average rate of 2% to 3% per year. • Average profitability of the industry was $13.3 million. • Brand loyalty and product proliferation ignited the competition of the industry. • Companies relied heavily on advertising for selling their product. • There was a tendency among the companies in the cosmetic and toiletries industry to copy other’s product. That’s why trademark infringement suits were common in the industry. • Most of the companies in the industry were sold their product in departmental stores, discount shops or in drug stores.

Analysis of Porter’s Five Factors Model:
Here, we are going to analyze the cosmetic and toiletries industry by analyzing the elements of Porter’s five factors model below: Rivalry among the competing firms:
The rivalry between the companies of cosmetic and toiletries industry is very high because of the following reasons: • Large number of competitors because more that 150 companies were...
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