The global cosmetics market in 2017 was valued at over US$532 billion. This large market, which includes products for the likes of hair care, skin care, oral care, color cosmetics, fragrances, soaps and shower gels etc. is expected to grow at an annual rate of more than 7% in the next five years[1].
Historically, this market has been dominated by large players with well-known brands such as L’Oreal, Coty, Revlon, Elizabeth Arden… but like in most other consumer markets, the winds of change are blowing in the beauty products market too. The following trends are especially noteworthy in terms of their impact on the future of this business and how players must respond, as they impact both the demand and supply sides of this industry:
- Baby Boomers and Generation X consumers are being supplanted by millennials and Generation Z
- Growing move away from synthetic chemical-based products to those made from natural ingredients
- Rapid growth outside western markets, especially in countries like China
- Ready capacity for outsourced manufacturing is available in North America, Europe and Asia
- Outsourced R&D of cosmetics and beauty products is now far easier than before
- Convergence of channels to enhance experience
- Digital technologies are making it easier for sellers to connect with and sell to consumers and prospective consumers
- Social media is playing a key role in influencing first-time product users.
The most disruptive outcome arising from the combination of the above trends is the rise of the so-called “indie” players in the beauty products industry. These are typically new companies or brands, “independent” of large existing players.
What makes “indies” successful?
Given their newness, indies are in a good position to be able to take advantage of trends at every stage of the value chain.
Target market: Customers from Gen Z are digital natives. They rely on input and opinions of peers rather than brand recall or advertising. In the LS International Career Success Podcast, Gianni Pieraccioni, experienced Board-level executive with decades of experience in the consumer products space makes prescient observations about Gen Z, which accounts for a major chunk of first-time users. He says “These are people who either reject or do not know the brands of their mothers… they are the selfie generation… and they really are very much individualistic consumers”. He further adds, “They don’t look for brands… they see products rather than brands and jump from one to another in a perennial search…”.
Indies are able to come out with new products and because the loyalty to brands is rapidly decreasing in a key segment of the market, they can target that segment very effectively. And because this segment has both the money and the willingness to spend, it represents an ideal niche for up-and-coming indies.
Reduced time-to-market: By outsourcing R&D as well as manufacturing, indies are able to compress the time needed to launch new products or target new geographies. In addition to not having to lock up capital in fixed assets like manufacturing facilities or invest in in-house R&D, indies have the flexibility to capitalize on unique opportunities- for example, categories with shorter life cycles. These drive revenue and cashflows, while also creating brand awareness.
And because indies have outsourced manufacturing arrangements, they can scale up or scale down quantities more quickly. By tying up with manufacturers who have excess capacity around the globe, indies can also focus on reducing logistics costs, thus being able to benefit from the ability to reduce prices or gain from higher bottom-lines.
Marketing: Online sales eliminate the need for indies to invest heavily in their own stores. To take advantage of merchandising opportunities in brick and mortar stores, they can tie up with companies like Ulta, the US-based beauty product chain that offers superior customer experience by converging channels. In the above-mentioned LS International podcast, Mr. Pieraccioni explains how Ulta is making a difference. “You enter a store and you have mass-market products, prestige products and professional products… and the reason why they can offer all three categories and overcome the idiosyncrasies of the channels and the exclusivity of the channels is because they also offer services in store. They offer skin care services, makeup services and a full salon for hair color, hair care. So, by doing this, they are basically creating an experience for the consumer…the consumer is allowed to have access to every kind of product from every kind of channel in one place.”
Using social media channels to create demand is now very much a reality. For example, the US brand Glossier (which already has a cult following) was launched on Instagram; its website came much later. Glossier’s products were developed based on interviews conducted by founder Emily Weiss, a former beauty editor with Intothegloss.com. As Glossier’s web site informs visitors, Ms. Weiss “wanted to make beauty as much of an element of personal style as fashion” and that “Personal choice is the most important decision a brand can never make”. This fits perfectly with the highly individualistic style that a growing number of younger generation consumers are- irrespective of whether their gender and location[2].
Marketing as a business function has been one of the earliest to acknowledge the power of digital media and social media to influence target segments. Over time, technologies have made it easier to profile individual preferences and tastes with such finesse that customers are sent digital marketing communications based on evidence of their interest. In this knowledge-powered economy where there is greater propensity to consume video than pages of text-based copy, informed vloggers (video bloggers) are emerging as a powerful set of influencers, especially in the beauty products industry. Beauty bloggers like Zoella, Tanya Burr and others have millions of followers across channels like YouTube, Instagram and Snapchat. In a recent blog, beauty blogger Sophie Bianchi writes that in her opinion, “beauty vloggers are influential due to their likability, similarity to viewers, physical attractiveness, expertise and trustworthiness”[3].
The emergence of beauty bloggers as influencers is a huge change from times when celebrities were used as brand ambassadors. Another reason why the venerated habit of celebrities endorsing beauty products started losing its sheen was because technology allowed images to be doctored to make models look perfect. So people like you and me, who were supposed to be influenced by advertisements featuring “flawless” models, started becoming sceptical. In combination with other reasons listed earlier, loyalty to brands started to erode[4].
Digital technology is making it even easier for consumers to purchase online. Mr. Pieraccioni points to how in China, consumers can already purchase directly from social media platforms, without separately having to visit company websites or ecommerce portals. Such capabilities give indies tremendous opportunity to leapfrog more-established competitors with much larger advertising budgets.
If the above sounds like huge change for the industry, it’s because it is! Indies need talent that understands the brick-and-mortar aspects of this business, while traditional players need talent that can shake up ossified, conventional ways of thinking and infuse agility, innovation and technology-enabled transformation so that they too can remain relevant in the emerging landscape. And of course, established players willing to acquire indies need experienced talent for deal-making and integrating the acquired company with the acquiror.
PS: Men use beauty products too and the range of products they are willing to try is only growing. So right there’s another box you have to think outside of!
[1] https://www.reuters.com/brandfeatures/venture-capital/article?id=30351
[2] https://www.glossier.com/about
[3] https://www.huffingtonpost.co.uk/sophie-bianchi/beauty-bloggers-zoella_b_11566248.html?guccounter=1
[4] https://www.theguardian.com/fashion/2018/mar/08/glam-or-sham-are-youtubes-beauty-vloggers-selling-out