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The beauty business is booming. Globally the cosmetics industry is worth $532 billion, with American consumers comprising the single largest market worldwide, responsible for a fifth of all cosmetics spending. And sales are only going to increase — the industry is projected to grow at a rate of 5 to 7 percent and exceed $800 billion by 2025.
The market for emerging cosmetics brands is huge, but that doesn’t mean it’s easy to get a new beauty business off the ground. As I learned when I began researching ideas for my own skincare startup, Qyral, newcomers to the cosmetics industry face many unique challenges as they struggle to find their feet.
Here are 7 strategies beauty entrepreneurs can use to get on the road to success.
1. Define your brand positioning
Nobody gets excited about bargain-basement products, so new beauty brands typically target upscale markets when launching new products. However there are nuances within the premium market space, so defining your brand positioning is vital to getting your marketing efforts right.
Will your products be masstige (“mass-prestige”), premium, or luxury?
Masstige products look and feel premium, but are priced just above mid-market rates. They are typically cheaper to produce than true premium products but still make consumers feel special when they use them.
Premium brands charge a higher price but have a higher perceived value than mass-market products. That could be because of the ingredients a product contains, the influential people who use it, or simply clever packaging design and marketing.
Luxury products are the true elite: the most expensive and least obtainable products that convey real status upon the user. If you position your brand as a luxury product, you will make significantly fewer sales than mass-market competitors, but can still come out ahead with much higher profit margins.
There are pros and cons to each branding strategy. Higher sales volume at the lower end of upscale positioning could result in a shorter path to profitability, but also requires a higher volume of manufacturing, warehousing, distribution, and logistics, which can all eat into your ROI. Luxury products generate smaller demand for a higher return, but actually achieving success at the highest end of the market is much more difficult.
Look realistically at your product range, packaging design, and marketing budget and strategy. Could you successfully launch a luxury brand, or would your products look more at home in a traditional retail space with other masstige lines?
2. Choose the right distribution channels
There are three main types of distribution that best suit beauty brands: retail, online, and third party.
Retail distribution will put your products on the shelves at brick-and-mortar stores where they can be seen and purchased by any of the stores’ customers. Online-only brands have to carve out a niche, typically through social media, and attract customers to them. Third-party distribution involves partnering with an intermediary and taking advantage of their industry contacts in order to get your brand positioned to sell.
For many masstige and premium beauty brands, retail distribution is the gold standard. For example, according to Statista, 51 percent of Americans purchased skincare products at Walmart in the past year. Getting your product on those shelves gives it a huge boost without costing you a penny in advertising.
In retail settings, your product is presented directly to consumers who are already committed to making a purchase, rather than competing to attract interested buyers from the millions of people browsing online.
However, just because your product is on a retail shelf, that doesn’t mean it will sell. Data collected by Nielsen showed that just 20 manufacturers had captured 96 percent of the retail beauty market, and getting a shopper to part ways with their favorite brand based on a snap judgment in a store is highly unlikely.
Ipsos reports that over half (56 percent) of beauty fanatics “stick with one product and [are] loyal to it,” and a similar number said they would always choose a trusted brand over an unknown one.
Because of these and other factors, taking a new brand straight to retail can be a big risk. Most retailers expect to pay wholesale rates, which can be less than half the retail price of the products, and if they fail to sell, stock liquidation or buybacks can turn anticipated profits into huge losses for fledgling brands.
Then there’s the problem of actually getting your product onto retail shelves, to begin with. Using a third-party distributor is a solution that can help new brands get their foot in the door, by allowing them to take advantage of a partner’s industry contacts to make connections on their behalf.
The downside to this model is the additional expense of bringing that partner on board. While they may help a new company while they’re starting up, long-term it’s usually more prudent to cultivate your own relationships directly with retail buyers.
The online-only distribution also comes with pros and cons. While cheaper and faster to set up than retail, and much more scalable at your own pace, it can be hard to break into as a new brand.
Data from Nielsen suggests that online beauty is still incredibly competitive — the top 20 cosmetics brands have captured only 14 percent of the market, meaning the remaining 86 percent is split between smaller and independent beauty companies.
However consumers are still nervous about buying cosmetics products online: according to Ipsos, only 28 percent of consumers would have no qualms about purchasing a foundation or moisturizer without testing it in person.
Finding a foothold in the active online cosmetics community can also be a challenge. Social media is proving increasingly influential, with 63 percent of buyers saying a professional Instagram account increases their trust in a beauty brand (something 96 percent of brands already have), and around half of the consumers say they are more interested in brands if they’ve seen ads for them on Facebook.
However the cost of advertising on social media can be prohibitive for new brands, and managing several active online accounts generates more work if kept in-house, and more costs if it’s outsourced. Additionally, keeping to an online-only model also leaves brands with the question of warehousing, shipping, returns, and other logistics to consider. This can add to the brand’s overheads and cost more time and money.
3. Select a product range
When first starting out with the launch of a new beauty brand, the possibilities are endless. It’s easy to get carried away with all the products you can make, and more products = more sales opportunities, right? Well, yes and no.
The larger your product range, the higher your upfront investment needs to be in R&D, manufacturing, distribution, packaging and label design, testing, compliance, advertising, and more. Sticking to a smaller range of SKUs makes it easier to manufacture, warehouse, and ship your inventory, although it may come at a risk to overall sales.
Consider your marketing plan. Depending on the type of beauty products you want to create, you may need several variations of the same product for different complexions and skin types, which automatically increases your range. Then there’s the overall branding position you’ve taken.
Do you want to produce a definitive moisturizer or mascara, or create a line of products that form an entire skincare routine?
At launch, concentrating heavily on just a handful of keystone products is most likely to produce the best ROI for your brand. You can always scale up to include new product lines down the road once your brand takes off.
4. Domestic or international?
Entering international markets can seem like an obvious choice for brands looking to attract the maximum number of customers. However numbers alone don’t always generate profits, as we’ve already discussed with relation to retail sales and extensive product lines.
Taking your brand international comes with a whole host of logistics and compliance nightmares, from import/export taxes and levies to industry regulations that govern ingredients, packaging, and advertising.
The internet has opened up international commerce on a scale never seen before, but at a commercial level it isn’t as simple as creating a website and shipping your products across the world. The wider reach, greater sales potential, and prestige international brands experience, come with a cost that may be prohibitive.
The EU, for example, has banned over 1300 ingredients from cosmetics that are considered safe for use in the USA. That means if your products were designed for an American market, but you’d like to start selling in Europe, there’s a good chance you’ll have to reformulate in order to remain compliant with local laws.
Language barriers are also tricky for small brands to navigate. Hiring a reputable translator to manage your product packaging, inserts, and marketing materials — as well as social media posts, website, and other online articles — can be difficult, and getting it wrong could result in a misstep that harms the reputation of a new business.
While walking away from massive international markets can be a painful decision, it’s generally wiser for new businesses to concentrate on local markets first, until they understand their branding position, streamline logistics, and generate enough capital for a large scale investment in taking their products global.
5. Niche down
We’ve already seen that limiting a product range to a manageable number of SKUs is typically a smart move for new beauty businesses, but deciding what products to focus on can be a headache in itself. There are hundreds of thousands of products already on the marketplace, so it’s unlikely a brand new business will prosper when they go head-to-head with household name products.
Instead, look for niches that are underrepresented (or even brand new!) where your brand can still gain a foothold with relative ease.
There has never been a better time to find a new niche in the beauty industry. Demand for socially responsible products is at an all-time high, with the natural and organic beauty market predicted to reach $54 billion by 2027.
Vegan, cruelty-free, Fair Trade and minority-owned or targeted beauty companies are all experiencing phenomenal growth as more and more consumers vote with their wallets for brands that support ethical causes. Yours won’t be the first skincare product of its type on the market, but it could be the first renewable, carbon-neutral version. Consider how causes you believe in can influence your brand and make it stand for something bigger than itself.
A word of caution: don’t simply follow the latest hot trend. Consider how long R&D and manufacturing will realistically take, and explore who else is currently working on the same idea. Today’s hottest new trend will be old news before you can bring a product to market, so choose a niche that has yet to be explored, or throw the weight of your brand behind a movement you really believe in.
For Qyral, that movement is empowerment through education and entrepreneurship, providing people not only with truly effective skincare products but with a means of making a better life for themselves. It’s a cause I strongly believe in, and it’s what keeps me going through the long, hard work of building a brand from nothing.
6. Outsourcing vs. in-house fulfillment
When running a business, you don’t have to do it all yourself. In fact, as you’re starting up it’s probably a good idea to outsource more rather than less. The major downside to outsourcing is, of course, the cost, but money spent on getting things right from the outset will repay the business with savings down the road.
Whether it’s R&D, manufacturing, warehousing, shipping and logistics, marketing, or designing your product packaging, it’s important to consider every facet of your business and be realistic with yourself about what you can and can’t do, and what it’s worth your time to do.
Is the CEO’s time better spent packing shipments, or closing deals with retailers? Is the cost of hiring a third party more or less valuable than your time directing operations?
Finding a reliable partner to outsource some of your business can be nerve-wracking. What if they’re not as good as they say they are? What if something goes wrong, and you end up losing money?
Outsourcing requires you to take a step back from having complete control over your business operations, and there’s always a risk that a bad decision could harm your brand through no fault of your own, for instance, if the fulfillment center you choose ships everything late or damaged.
Between cost-cutting and uncertainty, many new businesses avoid outsourcing, even when it objectively makes the most sense. Keeping everything in-house creates significantly more work for everybody involved with the brand, and may require you to hire additional staff, invest in new equipment or technology, and even move premises to find room to get everything done.
This generates large upfront costs that aren’t always recouped — if you hire a warehouse before a product launch and it doesn’t go as expected, you could end up with large overheads for a bigger logistics operation than you really need. As you’re learning your own business and trying to develop and grow your brand, correctly anticipating every need at every point is unlikely, and mistakes can cost money.
Experienced outsourcing partners will be better able to assess your business’s needs, and can more easily pivot to adjust for unexpected changes.
Darius Banasik, Co-founder of ecomBLVD, an e-commerce operations company that partners with online sellers to support their growing businesses, says entrepreneurs should consider the complexities of their product lines when they’re deciding how to handle fulfillment.
“We’ve seen both sides of outsourcing vs. doing it yourself, and it really comes down to product complexity. If you’re selling five colors of the same product, please outsource! If you’re building a personalized brand, such as Qyral.com, the operation itself becomes a core competency and an integral part of the business model… no one can do it better than you.”
7. Marketing and messaging
Whether you’re selling your beauty products in retail stores or through social media (or anything in between!), marketing is a must. How will people buy your brand if they don’t know it’s out there?
When developing a marketing budget, consider how to most effectively reach your target audience. If you intend to sell through social sites, there’s no sense in spending thousands on a print or TV ad campaign. Equally if your product will be available in retail stores, you need to consider an offline approach that might include magazine and newspaper ads, billboards, and more.
Marketing can quickly become a prohibitive expense, but it’s a necessary one if you want to make your beauty business a success. Social media campaigns, profiles, and viral posts are all powerfully effective tools that many skincare companies are using to generate interest in their products. We’ve already seen that consumers expect to see Facebook and other social ads for brands they consider reputable.
That’s great news for startups because online advertising is typically cheaper than traditional ad distribution methods.
When considering how best to market Qyral, I considered all kinds of advertising approaches before realizing that my goal of wanting to empower others through my business could help me resolve my marketing dilemma. I established Qyral as a network marketing company in part to create virality — encouraging customers who have already experienced and love the products to help spread the word, and in turn, earn a share of the sales they generate.
However you decide to brand and market your beauty business, the most important thing is to reach the consumers who you are most directly targeting.
That might produce unexpected results — did you know that beauty buyers aged 50-64 are “50 percent more likely than millennials to use Instagram for research and comparing prices”? — so don’t assume you know where your marketing dollars will be best spent before really examining the market (and your assumptions!) to find out if you’re right.
Founding a beauty brand can be a challenging endeavor, but it is also incredibly rewarding. Watching a business you’ve built from scratch begin to take shape is a thrill I’ll never forget.