Dalhousie University Victorinox Swiss Army Marketing Strategy Case Analysis Paper Times New Roman 12pt font, 1-inch regular margins, double-spaced. Approxi

Dalhousie University Victorinox Swiss Army Marketing Strategy Case Analysis Paper Times New Roman 12pt font, 1-inch regular margins, double-spaced.
Approximately 1-2 pages which does not include cover, table of contents and appendices.
• Problem statement
• Situation analysis: 4-5 key points along with their implications for the decision
• LIST of alternatives (clearly stated)
• Decision criteria (clearly listed; ideally, numbered)
• Choice and rationale (one short para explaining how/why it is the best alternative given your DC)
• If space permits, some details of implementation/control
• Some financial analysis: usually, chosen alternatives; occasionally, can be other general analysis (no financial analysis will lead
to an F)
Length: 1-2 pages, single-spaced, SWISS ARMY: DIVERSIFYING INTO THE FRAGRANCE BUSINESS
Professor Ian Alon, Associate Professor Marc Fetscherin and Claudia Carvajal wrote this case solely to provide material for class
discussion. The authors do not intend to Wustrate either effective or ineffective handling of a managerial situation. The authors may
have disguised certain names and other identifying Information to protect confidentiality
This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the
permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights
organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Westem
University, London, Ontario, Canada, N6G ON 1: (t) 519.661.3208: (e) cases@lvey.ca; www.iveycases.com.
Copyright © 2014, Richard Ivey School of Business Foundation
Version: 2016-03-04
In 2005, Victorinox, the manufacturer of the famous Swiss Army Knives, acquired its main competitor,
Wenger S.A. The acquisition also included Wenger’s knives, watches and its fragrance label. By
acquiring Wenger, Victorinox became the world’s main manufacturer of the famous Swiss Army Knife as
well as a key player in sales of the Swiss Army Watch (some smaller competitors sold watches under the
“Swiss Army” or “Swiss Military“ label). Urs Wyss, head of marketing at Victorinox, was asked to assess
how to handle the acquired fragrance business unit. Should Victorinox design a business strategy to enter
the fragrance industry? Should Victorinox diversify into the fragrance business and, if so, how? Should
the firm attempt to transfer its existing brand attributes to fragrance products or should it sell fragrances
under another brand name? Urs Wyss was asked to present a plan to Carl Elsener, the CEO of the
company, regarding how best to deal with the newly acquired fragrance business unit.
COMPANY ORIGINS
In 1884, Karl Elsener, the great-grandfather of the current CEO, opened a cutlery workshop in Ibach-
Schwyz, Switzerland, to deliver knives to Swiss Army soldiers. He designed a product that included
various functions and tools, all in one simple and easy-to-carry knife. Since then, Victorinox had been
responsible for the many innovative features of the famous “Swiss Army Knife.” Millions of people
throughout the world associated Victorinox with typical Swiss values such as innovation, reliability,
functionality and quality.
For over 120 years, Victorinox had remained true to its mission, which was the driver behind the
company’s culture and orientation: “to provide our fellow human beings all over the world with practical,
functional, reasonably priced and top-quality products.*2 Victorinox was identified and known by its
brand names, “Victorinox” and “Victorinox Swiss Army” (the two umbrella brands). In the dynamic
global marketplace, where products were becoming increasingly similar and imitations of innovations
were standard practice, a strong brand could develop its own orientation, making differentiation possible.
Therefore, each product category and its constituent products united a number of core company values:
quality, innovation, functionality and iconic design (see Exhibit 1). Victorinox was the largest employer
* “bach-Schwyz (Switzerland), 2012, ” Victorinox, www.victorinox.com/us/content/Heritage_page_default, accessed
February 6, 2014
2 lbid., accessed March 7, 2014.
53
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EXHIBIT 1: KEY MILESTONES IN THE HISTORY OF VICTORINOX
EXHIBIT 3: PRODUCT PORTFOLIO
Examples of Swiss Army Knives
1884
Karl Elsener opens
cutery workshop in
lbach-Schwyz
2001
Victorinox launches a fashion
line in the United States. The
first Victorinox store opens its
doors to the public in the trendy
Soho district of New York
1992
The company opens its
own sales subsidiary in
Japan
Examples of Cutlery Knives
1989
The Victorinox USA
distribution partner enters the
watch business in the United
States under the Swiss Army
brand
1999
Victorinox expands its watch
business and sets up Victorinox
Watch SA Partnership with the
American TRG Group located in
St. Louis Enter the International
travelgear market
2005
Victorinox acquires the American
company Wenger NA, which
includes the fragrance label’Swiss
Army Fragrance
WENGER
Source: Victorinox.com, accessed October 30, 2014.
Examples of Swiss Army Watches
EXHIBIT 2: WENGER’S SALES
:
Wenger’s Sales by Product Category, 2005
Million CHF
Million USD (est.)
Knives
22
16
Watches
5
4
Fragrances
13
9
Total
40
29
2005 Conversion Rate US$1 = CHF1.3822
Examples of Luggage
Note: CHF stands for “Swiss franc.
Source: Company files.
Examples of Swiss Army Fashions
Source: “bach-Schwyz (Switzerland), 2012,” www.victorinox.com/us/content/Heritage_page_default, accessed February 6,
2014.
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EXHIBIT 4: VICTORINOX’S NUMBER OF EMPLOYEES, 2005
EXHIBIT 7: GLOBAL FRAGRANCE MARKET BY CATEGORY, 2005
Subsidiary
Number of
Employees
19
45
138
Premium women’s fragrances
Premium men’s fragrances
Total premium market
Million US$
10,000
5,000
Share %
43.5
21.5
65
15,000
Brazil
Chile
China/Hong Kong
India
Japan
Mexico
63
Mass women’s fragrances
Mass men’s fragrances
Total mass market
84
5,000
3,000
8,000
20
13
33
Poland
87
8
290
734
North America
Total
Premium unisex fragrances
Mass unisex fragrances
Total unisex market
TOTAL
300
200
500
23,500
1
1
2
100
Source: Company files.
Note: Numbers are rounded.
Source: Beauty and Personal Care, Euromonitor, from trade sources/national statistics.
EXHIBIT 5: VICTORINOX’S SALES, 2005
EXHIBIT 8: WORLD DISTRIBUTION OF FRAGRANCES BY CHANNEL (EARLY 2000s)
Million CHF Million USD (est.)
Knives
230
166
Watches
20
14
Luggage
40
30
Apparel
10
7
Total
300
217
2005 Conversion Rate of US$1 = CHF1.3822
Department Stores
Specialty Stores
Direct Sales
Pharmacies/Drugstores
Grocery Stores
Discounters
Outdoor Markets
Other
Share %
27
29
15
14
9
4
1
1
Source: Company files.
Source: www.eclipsecoloursparis.com/pdf/evaflorcompanyprofile.pdf, accessed November 13, 2014.
EXHIBIT 6: GLOBAL FRAGRANCE MARKET, 2005
Share %
28
26
40
19
Million USD
6,640
6,160
4,500
2,150
2,150
1,898
2.5
23,500.5
Latin America
Western Europe
North America
Eastern Europe
Africa
Asia
Australia
Total
9
9
8
1
100%
Source: Ibis World, Global Cosmetics Manufacturing, 2013,
http://clients 1. ibisworld.com/reports/glindustry/default.aspx?entid=730, accessed February 21, 2014.
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With its innovations and application of the latest technologies, Victorinox, in collaboration with the TRG
Group, had become the leading innovator in the luggage market. At times it held about 60 pending
registered patents, including the ergonomically designed
curved handle system and the unique 360-degree
rotating swivel handle. The TRG Group had received many awards for its innovative market performance.
To a large extent, materials used in manufacturing the Victorinox Travel Gear originated in Asia.
Production was carried out by the world’s leading manufacturers in Asia under Victorinox’s supervision
of their inspection teams. This guaranteed that the company’s highest quality standards were maintained.
Fashion
In 2001, male and female fashion collections were developed that could be used throughout all seasons of
the year. Each collection offered new materials and colours for travel and performance-friendly outerwear
for a range of environments and situations. Victorinox’s male and female customers were active and
engaged, and they demanded both flexibility and quality. Functional design combined with innovative
materials ensured comfort and ease as the wearer engaged in travel, business or leisure activities. The
innovative and durable materials and careful manufacturing satisfied their daily needs. Victorinox worked
closely with renowned manufacturers from around the world to develop and create new styles and
materials. Textiles and patterns primarily came from Europe and Japan. The world’s leading textile
manufacturers produced clothing under Victorinox’s supervision
including fragrances. With the growing desire in consumers to present better self-images, beauty product
manufacturers had started to enjoy a growing demand for their products. One characteristic of these
buyers was their “brand-consciousness” (good quality for low prices), meaning that demand for products
that boasted a “good value for the price* was growing rapidly, especially among the better-known brands.
In general, with the exception of certain individual countries, the fragrance industry as a whole was not
very regulated. There were no global standards for fragrances; therefore, companies had to abide by local
rules that varied by country. Such rules and regulations were primarily related to the components in the
products, the labeling information the packaging materials. In addition, in the fragrance industry most
developed countries did not impose tariffs as barriers. However, in emerging economies some tariffs
existed. As for technological advances, the industry required a moderate level of technology, and a wide
range of chemicals was used in the manufacture of personal care products and cosmetics, such as
cleansing agents, waxes, fats, oils and surfactants. Innovation was important due to the maturity of the
industry and the rapidly changing consumer behaviour.
The fragrance industry required substantial start-up funds. It was difficult establish relationships with
distributors and consumers since the major players already had a strong presence and relationships. In
addition, new brands of cosmetics and fragrances were not rapidly adopted by consumers since the major
brands enjoyed strong brand loyalty.” The quality of ingredients was very important, since the production
of fragrances required special chemicals that were appropriate for use on the skin. Compared to large
manufacturers, suppliers of primary materials were small; therefore, established relationships were
important in order to receive “better treatment and secure the best ingredients. As for advertising, in
order to build brand awareness and create brand loyalty, manufacturers advertised directly to consumers.
Therefore, retailers often stocked up on popular brands. However, perfumes were seen as luxury (non-
necessary) items, and there were lower-priced substitutes, such as deodorants and body sprays, which
were more accessible to price-sensitive consumers, as well as counterfeit products, especially in emerging
Sales
markets.13
Victorinox’s sales took place in a large number of shop-in-shop retail locations. These sales were
supplemented by a newly opened Victorinox brand store in New York. Victorinox had sales subsidiaries
in eight countries and distribution partnerships in over 100 countries on five continents (see Exhibit 4).
The distribution of Victorinox fashions was exclusively carried out through carefully selected sales
channels. Furthermore, distribution partners were exclusive retailers as well as e-commerce sites for
luxury products (see Exhibit 5).
The global fragrance industry generated revenues of about $23.5 billion in 2005 (see Exhibit 6). In 2005,
the premium fragrance market accounted for a total of $15 billion, and the mass fragrance market
accounted for $8 billion (see Exhibit 7). In this competitive industry, companies used pricing, promotion
and distribution strategies as well as innovative packaging to target consumers and capture market share.
Department stores and specialty stores were the most dominant distribution channels, constituting over 50
per cent of sales (see Exhibit 8). Moreover, the market was dominated by several key players, such as
L’Oréal, Coty, Procter & Gamble, Avon and LVMH, which by the end of 2005 had captured almost 40
per cent of the global market, followed by many smaller niche players, such as Liz Claiborne, Mary Kay,
Revlon and Bulgari (see Exhibit 9).
AN OVERVIEW OF THE GLOBAL FRAGRANCE INDUSTRY
WHAT SHOULD BE DONE NEXT?
The global fragrance industry saw a significant decline in profits during the early 2000s due to the
underperformance of the American economy resulting from high unemployment and fears of war.” In
addition, fluctuations in the prices of primary products, such as oil and chemicals, affected its profit
margins. However, there were positive industrial forecasts due to the growing middle classes in emerging
markets. As their income increased, consumers in these markets were able and willing to spend money on
non-necessary products, such as fragrances. The BRIC countries (Brazil, Russia, India and China), with
large populations ranging from about 140 million (Russia) to 1.2 billion (China), all had strong economies
and growing middle classes. Furthermore, demand for fragrances was rapidly growing among consumers
in their late teens to middle age (Generation Y), who were increasingly interested in beauty products,
In the fall of 2005, Carl Elsener, CEO of Victorinox, called a meeting of his top management and posed
to Urs Wyss and his team the following challenging questions: What should they do with their newly
acquired fragrance business unit? Should they really diversify into the fragrance business? Should they
attempt to transfer existing brand attributes or should they adopt a new brand to market their perfumes?
Finally, how could they best compete and position themselves in this mature and competitive industry in
which they had no prior experience or brand awareness?
10 “Global Cosmetics Manufacturing, “IBISWorld, 2013,
http://clients 1.ibisworld.com/reports/glindustry/default.aspx?entid=730, accessed February 21, 2014.
11 “Retailing: Specialty, Standard & Poor’s, 2003,
www.netadvantage.standardandpoors.com/NASApp/NetAdvantage/showIndustrySurvey.do?code=res&date=/res_0303/res_
0303.htm (login required), accessed July 11, 2014.
12 BISWorld, op. cit.
13 Ibid.
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25.6
2
Ola
EXHIBIT 9: COMPANY MARKET SHARE, BY PERCENTAGE (2005 AND ESTIMATES)
Companies
2005 E2006 E2007 E2008 E2009 E2010
Other (less than 0.5% of market share)
26.7 26.4
26.4 29.3 30.1
Coty, Inc.
10.2 10.1 9.6
9.3
9 8.5
L’Oréal
Group
8.7
8.8 8.5
9.7
9.4 8.6
LVMH Moët Hennessy Louis Vuitton S.A.
7.1
7.2 7.2
7.1
7.1 6.7
Procter & Gamble Co.
6.8
7.7 7.8
7.9
7.8 7.5
Avon Products, Inc.
6.1
6.3 6.9
7.1
7.3 7.3
Estée Lauder Co., Inc.
5.9
5.8 5.5
5.2
5 4.6
Chanel S.A.
4.1
4
4
3.9
3.9 3.8
Puig Beauty & Fashion Group S.L.
2.9
3.1
3.3 3.5
Natura Cosméticos S.A.
2.2
2.9 3.3
3.6
4.2 5.3
Elizabeth Arden, Inc.
2.1
2.1
2
1.7
1.7 1.6
Gucci Group NV
1.8
1.8
1.8
0
Botica Comercial Farmacêutica Ltda.
1.7 1.8
22
2.5
3.9
Shiseido Co. Ltd.
1.7
1.6 1.6
1.5
1.5 1.4
Limited Brands, Inc.
1.5
1.4 1.1
0.9
0.9 0.8
Clarins S.A.
1.4
1.3 1.3
1.2
1.2 1.1
Euroitalia Sri
1.1
0.1
0.1
0.1
0.1 0.1
Vorwerk & Co. KG
0.9
0.9
1
1.1
1 1.1
Oriflame Cosmetics S.A.
0.8
0.9
1.2
1.5
1.5 1.6
Corporación Belcorp
0.7
0.8
0.9
1.1
1.2
Mary Kay, Inc.
0.7 0.7 0.7
0.6
0.6 0.6
Liz Claiborne Inc.
0.6
0.6 0.6
0.5
0.6 0.5
Revlon, Inc.
0.6
0.5 0.5
0.4
0.5 0.5
Unilever Group
0.6
0.6
0.7
0.7
0.6 0.6
Yves Rocher S.A.
0.6
0.6 0.6
0.5
0.5 0.5
Arabian Oud Co.
0.5
0.5
0.5
0.6
0.7 0.7
The Body Shop Plc
0.5
Inter Parfums, Inc.
0.5
0.5 0.5
0.5
0.5 0.5
Private labels
0.5
0.5 0.5
0.4
0.4 0.4
Tupperware Brands Corp.
0.5
0.5 0.5
0.5
0.5 0.5
1
Note: Historical regional global values are the aggregate of the country data in local currency at current prices converted into
the common currency using year over year exchange rates.
Source: Beauty and Personal Care, Euromonitor, from trade sources/national statistics.

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