Luxury Cosmetics & the INDIAN Consumer

A study on the premium cosmetic brands and the evolving perception of Indian ConsumerSubmitted ToProf. Devashish Das GuptaAssociate Professor, IIM Lucknow

Submitted BySonal RawatWMP10038Term IX, IIM Lucknow (Noida)

 CIS: Consumer Behaviour

Abstract & Introduction

Parameters of Study

Evolving Indian consumer and their buying behaviour w.r.t to international brands. Frugal Spendthrift Actively seeking luxury Growing brands Globalization (Increase in the luxury segment of India) Disposable income (Increased luxury spending), brand awareness and purchasing power Luxury branded cosmetics (makeup, body, hair, etc.). Price being a primary factor: keywords premium, luxury and international are used

interchangeably Size of the High Income group (HIG) consumers growing (40% of monthly income spend on

luxury brands) (Management, Top of the Pyramid) Increasing brand awareness and the growing purchasing power Geography: Delhi-NCR

Defining Luxury

Economic definition : A luxury good is a good for which demand increases more than proportionally as income rises, and is a contrast to a "necessity good", for which demand increases proportionally less than income. High income elasticity of demand: as people become wealthier, they will buy more and more of the luxury good also a

decline in income will decrease the demand of these goods. A luxury good may become a normal good or even an inferior good at different income levels, e.g. a wealthy person stops

buying increasing numbers of luxury cars for his or her automobile collection to start collecting airplanes (at such an income level, the luxury car would become an inferior good).

Some luxury products have been claimed to be examples of Veblen goods, with a positive price elasticity of demand: for example, making a perfume more expensive can increase its perceived value as a luxury good to such an extent that sales can go up, rather than down.

Cambridge English Dictionary: Meaning of “luxury goods”: expensive things, such as jewellery and make-up, that are pleasant to have but are not necessary. Luxury items are also known as "positional goods" because they signal that the owner has achieved a certain position or status

within society to be able to afford them. Luxury is a relative term that could change depending on the consumer. For a student owning any car (5 Lakhs +) is a luxury,

for a mid-level executive owning a Mercedes C Class can be a luxury. According to Brun & Castelli (2013), historically luxury goods were always linked with wealth, exclusivity and power, as well as the satisfaction of non-basic necessities.

It is impossible to develop a specific definition of luxury which can encompass all consumers. The industry surpassed €1 trillion in retail sales value in 2015 and delivered healthy growth of 5% year over year

Why cosmetics as the PRODUCT?

SOURCE: TWITTER AND IPSOS, "ENGAGING THE AFFLUENTIALS," MARCH 17, 2016

Indian Luxury Segment 1-2

GDP GrowthNumber of millionaires in the

country

REAL GDP GROWTH OF INDIA 2010-2020* (SOURCE HTTP://WWW.STATISTA.COM/STATISTICS/263617/GROSS-DOMESTIC-PRODUCT-GDP-GROWTH-RATE-IN-INDIA/)

Rising Wealth (Source Top of the pyramid 2016, Kotak Wealth Management)

Indian Luxury Segment 2-2

Spending on Luxury GoodsIncreasing demand for luxury

goods

Percentage increase in spending from 2013 to 2014 (Source Euromonitor)

INDIANS SPENDING ON LUXURY GOODS (SOURCE EUOMONITOR)

Research Methodology

Phase I

Conducted qualitative research In-depth interviews: to explore

perspectives and understand the dimensions that they consider when buying international cosmetic brands (specifically make-up segment).

Phase II

Significance level: 0.5 Tests used

Cross Tabulations (cross-tabs) : Analyzing the relationship between two or more variables

Chi-square test for independence: Significant association between the two categorical variables

Chi-square Goodness of fit test Lambda: Asymmetrical measure of

association (nominal variables) Gamma: Symmetrical measure of

association suitable (ordinal & dichotomous nominal variables )

Respondent Profile

Products Bought by Consumers Gender & Product Types

AntiAgeing

Shaving

Nail

Teeth

LIPS

Eye_FACE

Bath

Creams

Hair

Perfumes

0% 2% 4% 6% 8% 10% 12% 14% 16% 18%

3%

8%

8%

9%

10%

11%

11%

11%

12%

15%

Eye & Face

Lips

Nail

Teeth

Hair

Shaving

Perfumes

Bath

Creams

Anti Ageing

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

8%

8%

6%

43%

39%

84%

65%

31%

33%

10%

69%

65%

54%

44%

67%

18%

75%

59%

63%

18%

Male Female

Consumers Introduction to Brand

1

0 20 40 60 80 100 120

110

103

77

49

46

32

Celebrity Endorsements International Travel Print MediaMall Family, Friends, etc. Digital Media

RO1: To understand variables that influence consumer choosing a specific brand?

Personal Experience and Benefits are the most important variables for consumer during decision making, followed closely by Value for Money, Review & Recommendation and Variety.

• Brand/Social Value• Review & Recommendation• Personal Experience• Variety (Colour, Skin Types, Scent,

Texture, etc.)• Benefits (long lasting, better

performance, waterproof)• Value for Money (similar products

across brands)• Sales Staff (Demo application)• Saver packs• International Awards

Review & Recom-

mendation

Personal Experience

Variety Benefits Value for Money

0

20

40

60

80

100

120

140

1 = Not Important 2 = Slightly Important3 = Moderately Important 4 = Important5 = Very Important

RO2: Is there significant preference of cosmetic International brands over Indian brands?

The result shows that customer do show preference while choosing products. They prefer International brands over Indian brands.

Avery strong relationship between preference and the eventual buying of cosmetic products. There are 7% responses that show a contrary opinion w.r.t. to preference and buying

A very strong relationship between gender and buying of cosmetic products: Females prefer international brands with 74% responding positively whereas only 30% males prefer to buy international brands.

H0: There is no preference seen when choosing productsHa: Customer prefer International over Indian brands

RO3: Is there frequent switching between cosmetic brands in premium segment?

Infrequent switching in cosmetic brands in premium segment.

H0: Consumers who buy international brands and the number of brands they are actively using are independent. Ha: Consumers who buy international brands and the number of brands they are actively using are not independent.

RO4: Do consumers prefer organic/natural cosmetic products over chemical based in premium segment?

Consumers prefer organic products/natural products Association of preferring natural products in premium and

Indian category, there is no dependence of type of product (International/Indian) to type of product (natural or chemical).

H0: Consumer do not prefer organic product over chemical based cosmetic product.Ha: Consumer prefer organic product over chemical based cosmetic product

10

20

40

60

80

100

120

140

160

122

137

87

68

37

151

47

EcoFriendly NoSideEffects BetterResults CompatibleNoAnimalTesting SafeToUse NoToxicSmells

Gender & Natural Products Benefits

Eco-friendly

No Side Effects

Better Results in the long run

Compatible

No Animal Testing

Safe To Use

No Toxic Smells

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

71%

73%

20%

29%

20%

87%

27%

70%

82%

64%

44%

22%

87%

27%

Male Female

RO5: Is spending on cosmetic products dependent on income or not?

Spend on cosmetics is independent of income of consumers. The gamma and lambda values also show no relationship between these variables concurring with the result of chi-square.

H0:  Consumer spending on cosmetic products is independent of the consumer’s income. Ha: Consumer spending on cosmetic products is not independent of the consumer’s income.

Conclusion

Personal Experience and Benefits are the most variables for an Indian consumer, implying that they are not blinding buying brands rather they are making informed choices. These factors are very important from the company’s standpoint as future marketing campaigns, message content, etc. should be built on these variables as these are a consumer’s focal point.

There is a growing market in India for top international brands, as Indian consumers show a strong preference to International brands over Indian brands.

Taking into account gender preference, For a company venturing into the Indian subcontinent, it would make more sense to keep their product portfolio heavier on the female consumers by having a distribution of 70-30 for female-male products.

If a company was planning to decide which product portfolio to launch, and they have a choice between men & women, they should launch the women’s collection and with time follow with men’s category.

Through this research we have seen that there is infrequent switching by consumers in cosmetic brands (premium segment. There could be implications for cost to acquire a customer (CTA) and lifetime value (LTV) of a customer.

There is a growing market for natural (herbal/organic) cosmetic products (Niche segments). The most significant factors for shoppers in natural segment are:

Safe to use No Side effects Eco-friendly

The spending that consumers are doing on luxury cosmetics has no relation at all to their income, there are any number of consumers who spend more on cosmetics than another consumer earning more monthly. This basically increases the customer base for luxury cosmetics. Affordability or budget of individual shoppers cannot be determined by income earnings.

Buying of luxury cosmetic products has very less to do with price and more to do with other factors like aspirations, perceptions, attitudes, etc. Further research needs to be conducted to understand what is driving Indian consumers to International cosmetic brands and their individual spending patterns.

Thank You