Beauty and Cosmetic Industry

Alya Mistry, Stefanie Pinsley, Simi Salako, Jessica Zheng

Agenda

1. Introduction 2. Industry Analysis3. Primetime Data Analysis4. Advertising Strategies5. Industry Outlook &

Recommendations

Industry AnalysisIntroduction

Industry Analysis Primetime Data Advertising Strategies

Industry Outlook & Recommendations

● Why Beauty?○ We noticed a distinct shift in the

major advertising mediums employed

○ We love beauty! (maybe not all of us)

○ We are avid consumers of beauty and

lifestyle content on social media

● 2016 total industry revenue totalled $42.3 billion

● Revenues have been increasing over the past 5 years

Introduction: Why Beauty?

Introduction to the Major Players● Estee Lauder Inc.

○ Founded in 1946 by Joseph & Estee Lauder (NYC)

○ Global producer, developer and retailer of skin products, makeup, fragrances & hair care

products

○ Market Share: 15.5%○ Brand Names: Estee Lauder, Clinique, Origins, Aveda, M*A*C, Bumble and bumble○ Sells products through limited distribution channel

■ Maintains high-quality reputation

○ 2016 Revenue: $6.564 Billion (result of high disposable income/consumer confidence)● Strategic Modernization Initiative (2014)

○ Helped cut costs through implementation of a common framework across firm

○ Savings enabled Estee Lauder to acquire: Rodin Olio Lusso, GLAMGLOW, and Le Labo

Introduction to the Major Players

● L’Oreal USA Inc.○ Market Share: 7.5%

○ Brand Names: L’Oreal, Garnier, Maybelline, Lancome, Kiehl’s, Ralph Lauren (fragrance), Urban Decay

○ Wholly owned subsidiary of L’Oreal Group (HQ in Paris)

○ Products most often sold in drug stores and mass merchandisers such as Walmart

○ Company developed world’s first safe commercial hair dye in 1909

■ Has since developed reputation as leader in beauty product research

○ 2016 Revenue Estimation: $3.17 Billion

■ Industry-relevant revenue declined in 2015 primarily due to the falling value of Euro

(L’Oreal is a European Based Company)

Introduction to the Major Players

● Mary Kay Inc.○ Market Share: 5.4%

○ Brand Names: Mary Kay

○ Originated in 1963 in Addison, TX

■ Has become one of world’s largest

direct sales companies

■ Famous for selling to independent

contractors (Mary Kay merchants)

○ 2016 Revenue: $2.285 Billion

● Other players○ Unilever - Market Share: 4.9%

○ Proctor & Gamble Co. - Market Share: 3.7%

○ Coty Inc. - Market Share: 2.8%

Industry AnalysisIndustry Analysis

Introduction Primetime Data Advertising Strategies

Industry Outlook & Recommendations

Skin Care Products

Hair Care ProductsOther

Cosmetics

Perfumes and Colognes

Product & Services Segmentation

Background and Products

The cosmetics industry is dominated by a small number of multinational corporations that originated in the early 20th century, but the distribution and sale of cosmetics is spread among a wide range of different businesses.

The industry prepares

● Blends, compounds and packaged beauty products and cosmetics.

● Products included in this industry are perfumes, makeup items, hair preparations, face creams, lotions and other toiletries.

Industry Performance and Production Costs● Relatively High● 9.1% of revenue for average industry● Average industry profit margin has risen during the past five years

● Susceptible to economic downturns when consumers cut luxury spending

● Focus on more manual production techniques, including the creation of hand-blended and custom-blended cosmetics.

● Growing consumer preference for environmentally friendly goods

PROFIT

PRODUCTION

ExportFourth Lowest Income Quintile

Lowest Income Quintile

Second Lowest Income Quintile

Third Lowest Income Quintile

● Consumers in these income quintiles are the least likely to experiment with trying new products

● Limited disposable incomes and are most likely to buy low-value industry goods that

do not carry a high price tag.

Highest Income Quintile

● Consumers benefit from higher disposable income, leading to stronger demand for industry goods.

● Aspirational shoppers, likely splurge on small luxuries, such as designer lipsticks or

brand-name shampoos.

● High disposable income levels and are consequently able to purchase more price-premium cosmetics and other personal-care items.

● More likely to shop at high-end department stores and specialty retailers, where high-value industry goods are sold.

● Over the five years to 2016, more overseas shoppers have been attracted to the prestige associated with US-made cosmetics and have splurged on industry goods.

Market Segmentation

Based on Revenue Contributed

Industry Trade BalanceExports to.. Imports from..

Other 59.9%Canada 21%

UK 8.3%

Mexico 5.4%Australia 5.4%

Other 41.3%

France 23%

China 14.3%

Canada 13.3%

Italy 8.1%

Based on Revenue Contributed

● HHI 1043.27 Moderately Concentrated and Highly Competitive Industry● Differentiation based on Quality, Packaging and Customer Service● Barriers to entry: moderate and increasing● More focus on natural and organic ingredients has altered industry and production

3 MAJOR MARKET PLAYERS

15.5% Market Share 7.5 %Market Share5.4% Market Share

5.4% 7.5% 15.5% 71.6%Mary Kay

Loreal Estee Lauder

Other

Industry Performance

Government RegulationsCosmetics that may be hazardous to consumers when misused must bear appropriate label warnings and adequate directions for safe use. According to the FDA, the statements must be prominent and conspicuous, e.g. Cosmetics in self-pressurized containers (aerosol products), feminine deodorant sprays and children’s bubble bath products, etc

The FD&C Act does not require that cosmetic manufacturers or marketers test their products for safety

The FDA strongly urges cosmetic manufacturers to conduct appropriate tests to substantiate the safety of their cosmetics. If the safety of a product is not adequately substantiated, it may be considered misbranded and be subject to regulatory action.

SWOT AnalysisSTRENGTHS

WEAKNESSES

OPPORTUNITIES

THREATS

● Rising Industry Profits over past 5 years● Increased per capita consumption

● Decrease in Consumer Confidence Index● Moderate to low barriers to entry● Intense competition● Threat of market leaders

● Increase in R&D Spending● Lower price of crude oil, an important input● Can focus on smaller market segments● Differentiation ● Men and Senior Citizens market

● Consumption patterns depend on per capita income● Have to lower prices to cater to all demographics● Advertising and Promotion efforts are costly

Industry Organization: Key Selling IndustriesInorganic Chemical Manufacturing

Organic Chemical Manufacturing

Soap and Cleaning Compound Manufacturing

Industry Organization: Key Buying IndustriesSupermarkets & Grocery Stores

Pharmacy & Drug Stores

Beauty, Cosmetics & Fragrance Stores

Health Stores

Department StoresHair & Nail Salons

Consumers

Advertising StrategiesPrimetime Data Analysis

Introduction Industry Analysis Advertising Strategies

Industry Outlook & Recommendations

2014 Primetime Data Total number of beauty ads: 4537

Total number of brands: 23

Total number of companies: 13

Total ad spending: $269,753,600

Average ad spend per ad: $59,456.38

Average seconds per ad: 19 sec

Brands & Parent companies

Ad Expenditure per Company

Number of Ads per Company

Average expenditure per ad

TV Channels

TV Channels

Program Types ● Drama/Adventure

○ Originals - CW○ Vampire Diaries - CW○ Supernatural - CW

● Slice-Of-Life○ Shark Tank - ABC○ America’s Got Talent - NBC○ Voice - NBC

● Situation Comedy○ Modern Family - ABC○ Mom - CBS○ New Girl - FOX

Top TV Programs

Most Ad Spent Programs Total Ad Spend

VOICE-NBC $12,794,500

AMERICAN IDOL-FOX $11,178,200

DANCING WITH THE STARS $7,848,200

AMERICA'S GOT TALENT-NBC $7,488,000

SHARK TANK-ABC $6,044,900

BIG BANG THEORY-CBS $6,000,300

Most Expensive Programs Highest paid ad Brand

GRAMMY AWARDS $1,428,300 Cover Girl

WINTER OLYMPICS CLSNG CR $1,155,100 Cover Girl

OSCARS RED CARPET LV-ABC $660,000 Aveeno

VOICE-NBC $580,000 Revlon

WINTER OLYMPICS-NBC $577,500 Olay

GOLDEN GLOBE AWRDS-NBC $525,000 L'Oreal

Monthly Ad Expenditure● April

○ Dancing with the Stars (Semi-finals)○ American Idols (Semi-finals)

● March○ Oscar Red Carpet

● November○ CMA Awards○ American Music Awards

● January○ Grammy Awards○ Golden Globe Awards

● October○ The Voice

Neutrogena, Aveeno, Clean&Clear, Roc● Johnson & Johnson

● Skin-care products

● Target skin-problems ○ Wrinkles, acne, pores, etc.

● Celebrity endorsement ○ Jennifer Aniston ○ Julia Roberts ○ Kristen Bell

● Dramatization ○ “In just 1 week…”

● Buzzwords○ “Naturally”○ “Radiant”○ “Reduce”

Olay

● P&G

● “Your Best Beautiful”

● Mostly anti-aging skin products

● “Olay Twin Study” campaign ○ Product test on identical twins ○ “100% of twins said they saw

improvements”

● Buzzwords○ “Ageless”○ “Younger” ○ “Radiant”

Maybelline New York● “Maybe she’s born with it. Maybe it’s

Maybelline.”

● Make-up brand

● Celebrity endorsement○ Adriana Lima

● Diversity

● Buzzwords ○ “Flawless”○ “Smooth”○ “Perfect”○ “Traceless”

L’Oreal Paris ● “You are worth it.”

● Skin care + make up

● Celebrity endorsement○ Beyonce ○ Jennifer Lopez○ Blake Lively

● Diversity

● Buzzwords○ “Perfect”○ “Younger”○ “Extraordinary”○ “Unique”

Cover Girl● “Easy, Breezy, Beautiful”

● Make-up brand

● #GirlsCan campaign ○ Women’s empowerment

● Celebrity endorsement○ Katy Perry○ Pink○ Ellen DeGeneres

● Youthful & Inclusive

● Buzzwords○ “Glam”○ “Rock” ○ “Bombshell”

Estee Lauder● “Bringing the best to everything we touch”

● Skin-care + Make-up ○ Higher end products○ Mature look

● Celebrity endorsement○ Gwyneth Paltrow○ Kendall Jenner

● Buzzwords○ “Experts”○ “Breakthroughs” ○ “Younger”○ “Supreme”

Overall TV advertising trends ● Celebrity endorsement

○ “If I use this product, I will look like him/her.”

● Exaggerated claims○ “Use this product and you will look 10 years younger in 4 weeks.”

● Diversity & Inclusivity ● Women empowerment● Persuasive ads

○ Mid-tier brands

● Complementary ads○ Premium brands

○ “Social Prestige”

● Informative?

Estee Lauder 2013 vs. 2016 Complementary / Symbolic: Conveys the idea that the product is “magical”

Persuasive / Informative

Advertising StrategiesAdvertising Strategies

Introduction Industry Analysis Primetime Data Industry Outlook & Recommendations

Beauty: The Pursuit of Perfection● Cosmetic industry still pushing women

towards the pursuit of perfection

● Advertising designed to make women feel

dissatisfied with their appearance

● Women feel pressure to meet an idealized

beauty standard

● Cosmetic companies highlight women’s

insecurities in their ads followed by an offer of

their product as a solution to this insecurity

● Most advertisements in the past have been on

print, billboards, or TV

● Now, we see a drastic shift towards digital...

The Digital Era● Brands beginning to inch away

from traditional advertising ● Transferring print and

broadcast dollars to digital efforts

● Consumers relying on personal, word of mouth recommendations or social media to find products

● Brands are partnering with social media influencers in order to connect with their target market

● Focused on creating a digital brand experience

Beauty on Social MediaBrands using social networks to increase user engagement and brand loyalty

Nearly all major beautyBrands had an

InstagramProfile in 2016

850 million totalFacebook video views

of the top 200beauty brands

Nearly 60% of beauty brands had

a profile on Snapchatin 2016

In June 2016, beauty related content generated more than

5 billion views per month on YouTube alone

YouTube

The amount of beauty-related content views on YouTube has increased from 200 million monthly views in 2009 to 5 billion monthly views in 2016.

YouTube as a Search Engine for Beauty Info

Brands are aligning themselves with social

media influencers on platforms like

YouTube and Instagram in response to

consumers’ desires for more authentic and

trusted opinions about beauty products.

Influencers

Maybelline Collaboration with Beauty Guru Sammy Robinson● Makeup looks created by beauty gurus

with a brand’s products● Beauty personalities of this sort have a

huge amount of influence over their subscribers and viewers due to their candid and authentic nature

● Viewers trust the influencers they subscribe to much more than the brands

● These collaborations allow brands to connect with their target markets and expedite their path to purchase

Virtualization of Beauty Experience

L’Oreal’s Makeup Genius App Lancome’s Virtual Mirror on Lancome.com

● Providing users with the ability to instantly try-on products at home● Brands are trying to create a digital brand experience for a very experiential product

User Generated Content

Trends● LGBT● Male Adoption● Diverse Audience● Positive Body image● Cruelty Free● Organic● No Makeup Look

Manny Mua, Maybelline’s new brand spokesperson

Advertising Expenditures

Ad to Sales RatioIndustry: 2.74%

29.4%

23.15%

22.25%

18.04%

11.09%

Case Study: Powerful New Entrant● Online beauty start-up with cult-like following● Emerged from a popular blog Into the Gloss which featured candid interviews

with celebrities like Kim Kardashian and Karlie Kloss about their top shelf makeup picks and daily beauty routines

● Today, the blog has 1.5 million views per month ● Blog’s popularity led to the creation of the Glossier product line in 2014● Grew 600% in 2016 and expected to grow even more in 2017● No makeup-makeup, effortless, focused on skin care● Integration with user community to gain feedback● Unified brand identity (light pink theme, sans serif font, pink rose)● Underlying theme of supporting women

Glossier’s Target Market: The Girl on the Go● 16-28 years old● Shops through her Instagram and finds cool brands on

her social media feeds● “The Striver”● Interested in beauty blogs● Cares about and researches her skin care● Has some disposable income ● The young, working woman

Glossier Subway AdvertisementsTargeting their on-the-go woman

Packaging

Glossier’s use of Social Media ● Marketing strategies (packaging, subway ads)

lend itself to be posted on social media by users● Feedback loop: two-way conversation between

product team and user community (instantly read and reply to comments, live streams on Facebook and Instagram) - data driven

● User generated content ● Constantly checking glossier hashtags ● YouTube Channel

○ Get Ready With Me○ Beginner’s guide to their products ○ Interviews with regular women about their

beauty routines

Advertising StrategiesIndustry Outlook & Recommendations

Introduction Industry Analysis Primetime Data Advertising Strategies

Industry Outlook Key External Drivers: Consumer Confidence Index & R&D Expenditures

● CCI determines type of product

bought

○ more low-value products will

be purchased

● Slight increase in input price over

the next 5 years as the project R & D

expenditure increases

Industry Outlook External Driver: World Price of Crude Oil● Crude oil is an important input for

the Cosmetic and Beauty Products Manufacturing Industry (Many products use petroleum, refined crude oil)

● When the price of petroleum goes up, manufacturers must either absorb the loss and accept lower profit margins or pass the cost to consumers at the risk of alienating them○ Low-cost goods are favored by

consumers

Industry Outlook: Future Revenue● Costs of inputs will increase and there may be a slight loss of revenue due to

imported goods, however, revenue should continue to increase at a slow/steady rate due to

○ Rising per capita incomes

○ Increasing awareness of the importance of skin care

○ Trends driven by social media

○ Increase in market for men

● New entrants, new markets (globalization)● Potential losses in short-term but long-term outlook is bright

Recommendations● Target male beauty sector ● Create a brand image that supports and incorporates concepts of diversity &

inclusivity● Create products that cater to the no makeup / fresh face look ● Move ad dollars away from TV advertising and toward digital and social media

campaigns● Harness the power of conversation with your user base on social media to

determine in real time what they like and don’t like about products○ I.e. Live streams

○ Read and reply to comments

● Minimize the use of photoshop in campaigns / adverts ○ Models should be less glamorous and more girl next door / fresh faced

Advertising StrategiesQuestions?