Three new big things are happening in the beauty industry and they are going to shape the industry over many years. There are shorter-term trends like which color eye shadow is trending and there are trends that have been underway for a long time like clean beauty. But these three are new, they are long-term and they are big.
1. How Marketing Is Being Done Now
In the beauty business, there are three major categories of costs:
- Cost of Goods Sold (COGS). What it costs to make and deliver the stuff and packaging that consumers buy. COGS can generally be 5-30% of revenue and in the beauty business, 15-25% is typical.
- Marketing. Ranges from almost nothing to 50% of revenue and 25-40% is typical.
- Everything else like logistics, rent and other fixed costs. Shouldn’t be higher than 35% of revenue and is often lower.
For a lot of beauty companies, marketing is the biggest cost. Another way of looking at it is that what’s really being sold is marketing, more than anything else. Because marketing costs are so high, effective marketing is often the single most important factor in success or failure in beauty.
The way beauty marketing is done now is different. A joint study conducted by social media management company Dash Hudson and audience measurement and analytics company Nielsen created unique metrics to measure marketing effectiveness.
Two concepts are key now: engagement and entertainment. Engagement, which isn’t a new idea, is measured by the number of likes/comments/shares/reach that a brand consistently has on social media. Entertainment is a proprietary measurement to determine how, well, entertaining, the content is. Not surprisingly, the study found that the highest engagement and entertainment scores correlated directly with higher sales.
The format that moves consumers now is short videos (as short as 30 seconds but often a few minutes long) that tell a story. The challenge for brands is how to make it entertaining and still connect it to the brand and generate sales. That’s a new skill for many companies.
When you consider that the most important thing many beauty companies can do now is to make short videos that are entertaining and engaging, it means the business has entered an entirely new era.
2. Technology
There are three ways that technology is impacting the beauty industry differently than in the past:
- Product formulation – the use of new technology to develop new and effective formulas has exploded. Brands can now bring new products to market far faster than ever before.
- Personalization – this is going way beyond what it meant in the past. It can now account for what you eat, how much water you drink, the air in your city, your altitude, the time you spend in the sun and much more. Factors that were never considered before, like non-Eurocentricity and smaller racial/ethnic groups, are now being addressed.
- Marketing – Because marketing has gotten so much harder, technology is being used to create and measure the effectiveness of marketing.
I am a judge in a competition taking place this fall at the Beauty Matter Next Summit. You would be amazed at the number of startups focused on technology innovation in the beauty business and the range of new thinking that is poised to influence the industry. Technology’s impact on beauty, as important as it has been to date, doesn’t compare to what’s coming.
3. In A Word: Men
According to a Morning Consult survey conducted by health advocacy group EWG, men’s use of personal care products has almost doubled since their last survey in 2004. On average, men are now using 11 personal care products daily vs. six in 2004.
I can’t say how big the men’s market can be but the data indicate, unsurprisingly, that younger men are more inclined to use personal care products which means that as those men age, the market will be a significant market that can’t be ignored.
Marketing to men is different. While short-form video is important, there is less of it and more endorsements by celebrities and athletes with a higher percentage of product images than in marketing to women.
So there it is. Three trends that are shaping the industry that didn’t exist when your Mom (or Dad) went shopping for beauty and personal care products. And they’re not going away. Each one is more likely to increase in importance as younger consumers get older.
And that isn’t all about how beauty will change. A great deal of beauty is driven by wellness and the big beauty brands haven’t touched certain aspects of the wellness business like ingestibles, services and online-only brands.
In two years from now, the trends above will still be important. But based on what else is happening, there will be other trends that will be important as well and this may be the beginning of the biggest changes the beauty industry has seen in many decades.
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