GCI Magazine 09 September 2016 by Bel SPA

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CONTENTS

SEPTEMBER 2016 | VOLUME 184, NUMBER 7

22 FEATURES 12 Heritage Beauty Needs to Go Social

What to do when the old standbys of brand reputation and repeat purchases no longer apply. BY HANNAH SYMONS

14 The State of Beauty and Personal Care M&A

Who’s buying, who’s selling and why?

18 Aligning Claims and Brands

What formulators and product development teams need to know about performance and claims testing.

BY KEVIN GALLAGHER

22 K-beauty Won’t Last Forever

Peach & Lily founder Alicia Yoon discusses the retailer’s West Coast expansion, brands that “truly wow” and the evolution of Korean beauty.

26 Tell Me How You Really Feel

Focus groups provide colorful qualitative data that can set up brands for success. BY DENISE HERICH

32 Influencing the Influencers

Sway Group has harnessed 75% of the top beauty bloggers in a bid to increase the effectiveness of influencer marketing.

36 Selling Lipstick to Your Dad The pitfalls of one-size-fits-all marketing. BY MATT SEGAL

40 The Case for Mass Vs. Class

How beauty channels really work and where your brand belongs. BY JEFFREY TEN

46 Beauty Under the Influence

Why trust is at the center of the industry’s influencer marketing revolution. BY SOURABH SHARMA

36 www.GCImagazine.com

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CONTENTS 32

EDITORIAL

Director Editor in Chief Associate Editor Assistant Editor Digital/Social Media Editor

Jo-El M. Grossman Jeb Gleason-Allured | 1-630-344-6069/jallured@allured.com Nicole Urbanowicz | 1-630-344-6053/nurbanowicz@allured.com Jennifer Novoseletsky | 1-630-344-6045/jnovoseletsky@allured.com Mino Zaccaro | 1-630-344-6067/mzaccaro@allured.com

ADVERTISING SALES Business Development Manager Kim Jednachowski | 1-630-344-6054/kjednachowski@allured.com Business Development Manager Paige Crist | 1-630-344-6060/pcrist@allured.com Fragrance Coordinator Kasia Smialkowski | 1-630-344-6025/ksmialkowski@allured.com

AUDIENCE DEVELOPMENT Director Linda Schmitt AD Specialist Marie Galvan | 1-630-344-6027/mgalvan@allured.com Customer Service 1-888-399-0899/customerservice@gcimagazine.com

DESIGN Graphic Design Manager Senior Graphic Designer Production Manager

Lisa Hede Hon Bannapradist Bryan Crowe

CORPORATE

DEPARTMENTS

Partner & President Partner & CEO Controller Group Show Director Digital Products Director Executive Assistant

Janet Ludwig George Fox Linda Getner Sandy Chapin Rose Southard Maria Romero

4 Spark: Will We Still Be Talking About This in 2026?

OTHER ALLURED PRODUCTS

BY JEB GLEASON-ALLURED

6 8 10 50 52

Insights & Breakthroughs Beauty Buzz Brands & Benchmarks Ingredients & Claims Packaging Innovations

RESOURCES 54 Products & Services Showcase 56 Advertiser Index

Allured Business Media 1-630-653-2155 • fax 1-630-653-2192 336 Gundersen Drive, Suite A Carol Stream, IL 60188-2403 USA www.Allured.com

Alluredbooks Cosmetics & Toiletries Bench Reference Cosmetics & Toiletries magazine Cosmetics & Toiletries magazine: Portuguese edition Cosmetics & Toiletries Summit Skin Inc. magazine Face & Body Midwest Spa Conference and Expo Face & Body Northern California Spa Conference and Expo Face & Body Southeast Spa Conference and Expo Perfumer & Flavorist magazine World Perfumery Congress Flavorcon

Subscriptions: Subscribe online: www.GCImagazine.com/subscribe In the US, telephone: 1-888-399-0899, Outside the US, telephone: 1-847-559-7557 (9 AM–5 PM Central, Mon-Fri) | Fax: 1-847-291-4816 E-mail: customerservice@gcimagazine.com Print subscriptions: United States—FREE one year; all other countries—US$89 one year, shipped by air. Single copy (U.S. Only), US$10. Periodicals Postage paid at Carol Stream, Illinois, and additional mailing offices. Change of address: Give both the new and old addresses. Allow two months for a change to become effective. Global Cosmetic Industry (ISSN 1523-9470) is published ten times per year as Jan./Feb., March, April, May, June, July/Aug., Sept., Oct., Nov. and Dec. issues by Allured Business Media, 336 Gundersen Drive, Suite A, Carol Stream IL 60188-2403 USA. Copyright 2016. Free subscriptions to Global Cosmetic Industry are available to qualified individuals. The publisher reserves the right to determine qualification of free subscriptions. Replacement issues are available only through single copy sales. Single copies: $20; GCI Directory Issue: $35 (Add $10 per order shipped to Canada; add $15 per order to all other countries.) Periodicals postage paid at Carol Stream IL 60188 and additional mailing offices. POSTMASTER: Please send address changes to Global Cosmetic Industry, PO Box 3009, Northbrook, IL 60065-3009. Change of address: Give both the new and old addresses. Allow two months for a change to become effective.

Members of the American Business Media. All correspondence regarding business, editorial, advertising and production should be sent to Global Cosmetic Industry, 336 Gundersen Drive, Suite A, Carol Stream, IL 60188-2403 USA.

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Allured Business Media makes all attempts to publish accurate information; however, this publication may contain technical inaccuracies or typographical errors. The reader assumes all risks concerning the suitability and accuracy of the information within this publication. Allured Business Media assumes no responsibility for and disclaims all liability for any such inaccuracies, errors or omissions in this publication and in other documents referred to within or affiliated with this publication. www.GCImagazine.com

2 Contents GCI September 2016

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SPARK

n BY JEB GLEASON-ALLURED

Will We Still Be Talking About This in 2026?

JEB GLEASON-ALLURED Editor in Chief jallured@allured.com @GCI_Magazine

GCI MAGAZINE EDITORIAL ADVISORY BOARD ALISA MARIE BEYER

Coastal Salt & Soul

MARIE ALICE DIBON

Alice Communications, Inc.

ADA POLLA

Alchimie Forever, The Polla Beauty Group

ART RICH, Ph.D.

A. Rich Development

RICK RUFFOLO

R4 Innovations

CRISTINA SAMUELS

Mode Cosmetics

LAURA SETZFAND Epiphany

en years ago, Global Cosmetic Industry’s December issue featured a story on the promise of “online” beauty sales, noting the importance of blogging and page bookmarking, as well as young people’s increasing preference for spending time online rather than watching television. (While the term “millennial” was coined in 1987, in 2006 we were more likely to call these youths “generation Y.”) While the piece has its quaint touches, notably a focus on a computer-centric internet—the iPhone’s existence wouldn’t be unveiled by Steve Jobs until the following month—the story is prescient in its analysis of blogger-brand relationships and the power of authentic endorsements and organic online communities. As an editor working in 2016, I spend a lot of time writing about the implications of those themes, notably the immense buying power and channel disruption of millennials, and the importance of omnichannel strategies and influencer marketing. Why? Because these are the forces that are (re)shaping the beauty care industry. This month we take a closer look at these and other beauty influencers: the brands, companies, market segments and people who are causing changes that Global Cosmetic Industry’s editors will still be talking about in 2026. I hope you enjoy this month’s issue. See you in the future—October.

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4 Spark GCI September 2016

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INSIGHTS & BREAKTHROUGHS Global Beauty by the Numbers A spate of recent market reports highlight where the growth is coming from.

U.S. Mass Beauty Care According to a recent analysis from Research and Marketsa, the U.S. mass beauty care market will expand at a CAGR of 2.59% through 2020, driven by e-commerce and social media marketing, personalized services and other digitalchannel innovations.

Global/U.S. Skin Care The global skin care industry is forecasted to be valued at $121 billion in 2016, according to MarketResearch.com. And, by 2018, the U.S. skin care market will reach nearly $11 billion. Key drivers will include skin care awareness and demand for natural and organic products. www.researchandmarkets.com

Global Organic Beauty According to a new market report published by Transparency Market Researchb, the global demand for organic personal care products was more than $7.6 billion in 2012 and is expected to reach $13.2 billion by 2018, growing at a CAGR of 9.6%. North America accounted for 34.8% of global demand in 2011 and is expected to grow at a CAGR of 9.8% from 2012 to 2018. Asia Pacific is expected to be the fastest-growing region at an estimated CAGR of 9.7% through 2018. At the country level, the U.S. was the largest market for organic personal care products, followed by Japan and Germany.

Global Cosmetic Skin Care The global cosmetic skin care market will expand at a CAGR of 5.1% through 2024, to reach more than $200 billion by

the end of the forecast period, according to Transparency Market Researchb. Expansion will be led by anti-aging products, with sales of more than $44 billion by 2024. During the forecast period, the top five brands (L’Oréal S.A., Unilever Group, Procter & Gamble, Beiersdorf AG and Avon Products) will comprise a bit more than 45% of the market. www.transparencymarketresearch.com

Hair Masks and Licensing Deals Drive Growth A new analysis from Mintel’s Jane Jangc argues that the boom in skin care masks could easily be transferred to overnight hair treatments. While Jang focuses on Asia, her larger point is that consumers already embrace anti-pollution and other hair care concepts, so why no overnight protection and repair? Overnight hair masks on the market include hello hair’s Botanic and Island Escape Masks, Living Proof Perfect Hair Day Night Cap Overnight Perfector, Alterna Haircare Caviar Anti-Aging Overnight Hair Rescue and Rene Furtherer Intense Overnight Nourishing Treatment. In terms of market potential, the Mintel analysis noted that 30% of Brazilians aged 16-24 and about 40% of U.K. females aged 16-plus are interested in overnight hair treatment products, while 61% of Chinese women already use sleeping masks. Meanwhile, Euromonitor d has released an analysis identifying significant untapped licensing opportunities, including the following:

Children: Character franchises and oral care offer licensing opportunities for beauty care companies. Brands that target natural/organic claims and Asia Pacific, which is home to the largest portion of children younger than 14, could see success, particularly in the niche segment. Targeted scent deals: Fragrance, which continues to engage in celebrity perfume licensing, could benefit from further licenses in developing markets, which have a more traditional regard for celebrities.

www.mintel.com d www.euromontior.com

The overnight hair mask trend is well illustrated by hello hair’s Botanic and Island Escape Masks.

Targeted licensing deals, such as Avon’s partnership with American Ballet Theatre dancer, Courtney Lavine, on a new scent, Prima, highlights Euromonitor’s insights into licensing’s potential.

And brands can break into the growing luxury segment via fashion licensing deals, Euromonitor argues. Color cosmetics: Licensing deals are under-leveraged in color cosmetics, Euromonitor notes, meaning there are untapped opportunities in nail polish, lipstick and foundation. GCI’s DAILY NEWSLETTER:

breaking news and insights www.GCImagazine.com/newsletter

6 Insights & Breakthroughs GCI September 2016

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BEAUTY BUZZ Q&A: Employees Have an Edge in the Beauty Jobs Market During a recent CEW (www.cew.org) event in New York, Lisa Marie Ringus, executive vice president, global sales and business development at 24 Seven Inc., discussed beauty industry salary norms, sought-after skill sets and the general state of employment. Recently, Ringus spoke to Global Cosmetic Industry (GCI) about the beauty industry jobs landscape and the trends defining the environment. Global Cosmetic Industry: Employees changing jobs are seeking pay increases, which don’t seem to be materializing in the 11% range. However, employees will give ground on pay in exchange for time. Are employers responding to that with packages that mix modest pay bumps and time off? Lisa Marie Ringus: Candidates have become a lot more savvy in terms of negotiating their fringe benefits. If they know it is a smaller, growing company gaining traction, they will look to off-set lack of base salary with equity to cash-in if the company sells to a larger conglomerate. We have seen a few of these acquisitions happen that have created a lot of buzz around the equity piece. There are also some great beauty startups disrupting the marketplace with their flexible schedules, work-from-home options, fully covered benefits, unlimited vacation days, and pet friendly environments that are also [more] attractive options to candidates than their monetary compensation. GCI: Conversely, is the lack of significant pay bumps causing beauty professionals to stay put? LMR: If the new job offers opportunity to develop and grow professionally, job candidates will consider a modest increase to make a move. However, if the job is a lateral move in terms of responsibility and skill set, a highly qualified candidate is less likely to make the jump if the money isn’t there.

“Candidates are growing averse to rigid, KPI-driven environments that do not foster creativity and only focus on the bottom line,” said 24 Seven’s Lisa Marie Ringus.

events 2016 September 7–8—in-Cosmetics North America; New York City, New York; www.in-cosmeticsnorthamerica.com September 7–8—MakeUp In New York; www.makeup-in-newyork.com September 13–14—Aerosol & Dispensing Forum and Packaging of Perfume, Cosmetics & Design (ADF&PCD New York—1st Edition); New York; The Altman Building & Metropolitan Pavilion; www.adf-pcd.com September 21–23—LuxePack Monaco; Grimaldi Forum; www.luxepack.com September 28–29—Cosmetorium; Barcelona, Spain; www.en.cosmetorium.es October 5–6—in-cosmetics Latin America; Sao Paulo; www.in-cosmeticslatinamerica.com October 6—#beauty20 Awards; London; http://beauty20awards.com/

GCI: Generally, is it a buyers (employers) or sellers (employees) market? LMR: It’s definitely an employee’s market—especially in the hard-to-recruit areas of sales, marketing and digital/interactive. The most desired candidates can be picky about job offers, and often have multiple employment choices. In this kind of candidate-driven market, the onus is on companies to make their employment brand a magnet by providing the right balance of compensation, career development and culture that will attract discerning, top talent. GCI: A lack of a meaningful company culture appears to be at the center of the employee satisfaction crisis. What is your advice to companies in terms of building a culture that retains and attracts the best of the best? What are they doing wrong, currently, and what concrete steps can they take to become more attractive? LMR: Job candidates—especially millennials—are looking for authentic/transparent companies that provide exposure to executives, are family-friendly, and progressive in terms of their approaches to motivating and retaining employees. Candidates are growing averse to rigid, KPI-driven environments that do not foster creativity and only focus on the bottom line. They also shy away from companies that do not embrace and support employees as they move through life stages or face life milestones—like starting a family, juggling family, caring for elderly parents or sick partners. Of course every company is bottom-line-driven but the most desirable company cultures are the ones that include their employees in the economic mission—employees want to understand how strategy evolves, and don’t want to work for a company where the culture is that decisions are made behind closed doors. Transparency is something that is simple but makes a huge impact on the culture.

8 Beauty Buzz GCI September 2016

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BRANDS & BENCHMARKS Max Factor has returned to the U.S. market after six years with a “limited-edition capsule” inspired by creative director Pat McGrath, featuring Masterpiece Max Mascara, Masterpiece High Precision Liquid Eyeliner, and two lipsticks in nude or rose.

Kylie Jenner’s recent launch, Kyshadows, sold out in less than one minute. The Kyshadow Bronze Palette kit comprised nine pressed powder eye shadows in shades such as Jasper (matte finish creamy beige), Quartz (satin finish champagne gold), Topaz (matte finish true taupe) and Goldstone (satin finish bronze).

Crowdsource beauty innovator Julep has announced that it will offer 57 of its most popular products, including Love Your Bare Face Cleansing Oil and It’s Whipped Matte Lip Mousse, as well as three Trend in 10 color kits at Ulta Beauty.

pr Fo lim ca Co-washing, “the practice of cleansing one’s hair with conditioner instead of shampoo,” is one of the hottest hair care trends going. So it’s no surprise that Ulta Beauty is teaming up with Unwash, the professional co-wash hair care brand, to bring the craze to consumers in-store and at Ulta.com.

FragranceLock’s perfume booster (2.75 oz. bottle for $34) can enhance the efficacy of fragrances and extend their impact by slowing the natural evaporation cycle. According to the brand, “Testing demonstrated that FragranceLock helps perfume last for up to 12 hours or longer.” The product is sprayed on once a perfume has been applied and dried. It can reportedly be used with all fragrances.

Method’s new biodegradable gel body wash line is powered by avocado extract and vitamin E. Retailing for $5.99 at Target, the washes are available in four fragrances—waterfall (blue), green tea + aloe (green), mandarin mango (orange) and lilac blossom (purple). In addition, Method’s moisturizing body wash is now available in coconut milk.

ORLY has launched its Breathable Treatment + Color, an all-in-one nail formulation containing adhesion promoters and shine additives that eliminate the need for a basecoat and topcoat. The range is available in 18 shades and retails for $8.99 each at Ulta, JC Penney, salons nationwide and at orlybeauty.com.

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10 Brands & Benchmarks GCI September 2016

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BEAUTY INFLUENCERS

What to do when the old standbys of brand reputation and repeat purchases no longer apply.

| BY HANNAH SYMONS, Associate Beauty and Personal Care Analyst, Euromonitor

∑ Beauty blogs and expert reviews are critical for any brand seeking to reach consumers aged 15–29. ∑ Even well-established brands can no longer rely solely on brand reputation or history as consumers focus increasingly on fun and experience. ∑ Legacy brands are responding by folding brand heritage into emerging social and digital platforms.

@GCI_Magazine

ith a wealth of expert beauty knowledge transferred to the fingertips of the masses by a host of bloggers over recent years, consumers are increasingly likely to experiment with color cosmetics. The sense of familiarity and trust attached to blogger reviews is leading audiences to feel they are taking less of a risk when purchasing outside their comfort zone. Heritage cosmetics brands, which have historically relied on their longevity and reputation as repeat-purchase clinchers, need not consider themselves exempt from targeted digital marketing tactics, such as user-generated content and the more transient social platforms. facebook.com/gcimagazine

Blogger Dominance In Euromonitor’s 2015 Online Beauty Survey, almost 20% of consumers said that beauty blogs/expert reviews ranked as a top five influencer in their decision when they last purchased color cosmetics (F-1). The highest response rate regarding beauty bloggers as a purchase influencer was in the 15–29 age group, where more than a quarter of the demographic deemed blog reviews an influencing factor. This was the age group that was least likely to cite previous personal experience as a motivation behind their purchase choice. The 15–29 cohort also represented those who claimed to most commonly purchase new color cosmetics to change their makeup style and to stay up-to-date with the latest trends, and who were least Global Cosmetic Industry (GCI)

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likely to purchase to replace a product which had run out.

F-1. Beauty survey: reasons for purchasing color cosmetics % %

Playfulness Vs. Functionality

Heritage Brands Missing Out Targeted and authentic experiences, as delivered by bloggers, are emerging as priorities to maintain the interest of the increasingly fickle millennial consumers. This is something heritage brands are not fully potentializing. Chanel’s presence on YouTube stems primarily from its official channel featuring generic celebrity advertorials and tutorials by catwalk models. Similarly, Elizabeth Arden’s presence on the platform is mostly built upon in-house narratives and less upon authentic blogger conversation. Interestingly, however, away from YouTube but still within the realms of social media, this is all about to change for Elizabeth Arden with the recently announced launch of its “Liz Arden” digital campaign. The initiative uses a fictional character, Liz, to create a fresh and more personable voice, bringing its customers closer to the true essence of the brand.

% of respondents by age group

The shift in purchasing mentality highlighted in the survey suggests that bloggers are leading their audiences to prioritize variety over a set beauty routine. Beauty bloggers appear to be cultivating a mindset whereby color cosmetics are seen as more playful and less functional. Legacy brands, which have traditionally relied upon repeat customers, might need to consider becoming less complacent and dependent on reputation.

% % % % % % % %

15–19

30–44

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60+

To stay up to date with latest trends or product release To change my make-up style Previous persional experience Need to replace because my current product ran out Source: Euromonitor International Beauty Survey 2015

Advantages of Digital Native Brands Nevertheless, the exposure of heritage brands is eclipsed by the space that younger names like NYX and Anastasia Beverly Hills occupy in beauty conversations on digital media. These newer brands utilize, and integrate with, the audience themselves as a marketing means. Maria Hatzistefanis, founder of the luxury cosmetics brand Rodial, recently spoke of the importance of authenticity online at the WWD Digital Forum in London, with which Euromonitor International was partnered. The Rodial brand is now a cult favorite amongst beauty junkies, and its founder believes this can in large part be attributed to the fact that it learned early that “our force has to be our own voice, it cannot be forced, promotional or boring.”

Heritage Print Goes Social Elizabeth Arden recently launched its “Liz Arden” digital campaign to create a fresh and more personable voice.

45–59

In the media part of the industry, Condé Nast is showing there is space for heritage beauty in the social world. The media conglomerate recently announced the

launch of its first beauty network centred on social media. #TheLookIs is aimed at engaging the millennial beauty cohort through digestible and targeted content in the form of short videos and trend round-ups, alongside some pieces co-created with brands themselves. Without losing any of its authoritative voice and exclusivity, the content will be curated by the group’s esteemed beauty editors, with September’s launch led by Vogue’s beauty director, Celia Ellenberg. Taking cues from Condé Nast by acquiring a fresh digital voice rooted in tradition, cosmetics brands held in similar high regard could avoid the negative effects of not having the key millennial generation, which lacks the brand loyalty of the baby boomers before it, on board. As millennials grow older and become a more significant consumer group armed with the knowledge, confidence and finances to disrupt their predecessors’ buying patterns, embracing digital in all its guises seems necessary for the prestige brands that have spent years resting on their laurels. Beauty Influencers 13

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BEAUTY INFLUENCERS

The State of

Beauty and Personal

Care M&A Who’s buying, who’s selling and why?

∑ Underlying economic conditions and the strength of the beauty care sector have conspired to boost investor dollars. ∑ Acquisitions can deliver new markets, competence in new segments or even digital expertise. ∑ It is critical for both buyers and sellers to assess that both companies have the requisite experience and resources to ensure future growth. @GCI_Magazine

Beauty Influencers

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evlon has purchased Elizabeth Arden, Unilever acquired Dollar Shave Club, L’Oréal has acquired Atelier Cologne and IT Cosmetics, Tengram has purchased Algenist, and Beautycounter has purchased NUDE Skincare, Inc. and NUDE Brands, Ltd., to name just a few recent deals. No doubt about it: Beauty and personal care M&A is experiencing its busiest and most valuable period in recent memory. Why? First, private equity firms and strategic investors are sitting on a “ton of money” ripe for investment, said Anthony Valentino, deputy editor of consumer at Mergermarket, during a recent interview with Global Cosmetic Industry. At the same time, the top beauty and personal care companies’ cash-generating legacy brands have experienced a low growth level in comparison to fastergrowing middle market concepts. And so, to satisfy shareholders and augment organic growth, these giants must acquire dynamic brands that offer new SKUs, provide entrée into new categories, enhance global reach or otherwise offer new opportunities. Finally, interest rates remain low in the United States—for now. And Brexit, though it makes investors nervous, hasn’t yet manifested any tangible economic

T-1. Global M&A deals; data courtesy of Mergermarket*

PERIOD

VALUE (US$M)

DEAL COUNT

H1 2012

1,831

H1 2013

5,505

H1 2014

10,216

H1 2015

3,379

H1 2016

7,411

T-2. US M&A deals; data courtesy of Mergermarket*

PERIOD

VALUE (US$M)

DEAL COUNT

H1 2012

436

H1 2013

726

H1 2014

1,043

H1 2015

H1 2016

5,028

*www.mergermarket.com

effects in non-British markets, and isn’t expected to do so for some time. In addition, while some are concerned about the outcome of the 2016 U.S. presidential election, that uncertainty has an end date: November 8. Overall, there are many reasons to be positive about a relatively stable future.

Escalating Deals and Values

)

Tengram Capital Partners, which has invested in Laura Geller Beauty and DevaCurl, has acquired a majority interest in the Algenist skin care brand from TerraVia, a specialty ingredients firm.

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During a recent Cosmetic Executive Women (U.K.) event, Evan Merali of Financo noted that, since 2010, the beauty sector (skin care, fragrance, hair care and cosmetics) has experienced more than 80 “significant” transactions. These have

included private equity infusions and strategic acquisitions by multinationals. Globally, the beauty and personal care sector has posted 45 deals with a total value of $7,411 million in the first half of 2016, compared to 50 deals with a total value of $3,379 million in the same period, 2015 (T-1). While the consumer sector overall posted a 24.4% decline in Q2 2016 M&A deal value, the U.S. personal care and beauty sector has experienced 18 deals with a total value of $5,028 million in the first half of 2016, compared to 11 deals with a total value of $55 million in the same period 2015 (T-2).* Beauty Influencers 15

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BEAUTY INFLUENCERS

On the heels of its acquisition of Atelier Cologne, L'Oréal has announced that it has purchased IT Cosmetics from TSG Partners for $1.2 billion.

Valentino noted that full-year 2015 deal valuations were heavily skewed by the Coty acquisition of P&G brands, which was unusually large. He explained that the beauty and personal care sector is unlikely to see many deals of that kind, if at all, in the near term. Rather, most acquisitions and investments will take place in the middle market. Looking at the 2016 numbers, Valentino described the first quarter as a bit “slow,” with smaller and fewer deals, including Bertram Capital’s recapitalization of Paula’s Choice. The second quarter witnessed a greater volume and value of deals, including Revlon’s purchase of Elizabeth Arden and Johnson & Johnson’s acquisition of Vogue International. This increased activity, according to Valentino, signals a “scramble for good brands” spurred by pent-up demand for larger assets. Looking ahead, Valentino said he expected to see more deals becoming the norm through the remainder of 2016 and 2017. But why beauty and why now?

professional and targeted skin care beauty segments, as well as fast fashion-style beauty brands that own their own retail stores. Meanwhile, forward-thinking startups and mid-sized brands are changing the game by selling directly to consumers and popularizing products in social media streams—things that the top multinationals don’t intuitively do well or have the structural dexterity to execute.

Valentino explained that top beauty and personal care multinationals likely won’t find it worth their time to purchase a company posting $2 million in sales, but they’re now in a position to seriously consider brands with annual sales in the range of $5 million to $20 million. In some instances, M&A centers on the acquisition of digital expertise. Valentino explained that, in the case of Revlon and Elizabeth Arden, Revlon had an ecommerce advantage that it could bring to Arden’s legacy brands. Other players have acquired digital concepts to enhance their consumer engagement, including in the retail sector, which saw Nordstrom acquire digital expertise via its Trunk Club purchase. This strategy can allow retailers and brands to mitigate challenges in traditional brickand-mortar channels. Merali, meanwhile, noted that digital expertise can attract venture capital because of the potential to leverage consumer data for new revenue streams.

Hyper Competition for Assets Investment banks and private equity firms are vying for beauty and personal

What Makes Beauty Attractive? Consumer demand is driving innovation and growth in the beauty and personal care sector, Valentino noted. At the same time, consumers are willing to pay for that innovation, whether in free-from products or SKUs that offer unique ingredients. Merali, on the other hand, saw opportunities for M&A in the natural,

L Capital is investing $50 million in CLIO Co., a South Korean cosmetics company.

16 Beauty Influencers GCI September 2016

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care assets, creating a seller’s market, said Valentino. The intense competition allows potential sellers to seek out a value add from buyers. As such, M&A prospectors with the right money and track record of growth and success in the segment have an advantage over generalist firms. Solid, fast-growing companies have significant leverage in finding the right partner, Valentino continued. Middle market companies in growth mode will want to know which investors or advisers have the most significant experience in the subsector. In rare cases, Valentino explained, experience can trump a higher payout. One of the biggest challenges for growing brands is identifying the best source of capital; this can be particularly difficult for brands that aren’t yet of the right size to be appropriate for private equity or venture capital investment. Merali believes that crowd funding has been a great success for a number of consumer brands and businesses, and could potentially fill the gap that is traditionally occupied by difficult-to-find angel investors.

SUBSCRIBE TO OUR NEWSLETTER Following its acquisition of Cutex, Revlon has announced that it is acquiring Elizabeth Arden for $14 per share (approximately $870 million) in an allcash transaction.

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INGREDIENTS AND CLAIMS

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Claims and Brands What formulators and product development teams need to know about performance and claims testing. | BY KEVIN GALLAGHER

∑ Performance or claims results must contribute in some way to the business success of the product. ∑ If the ingredient is not well-known, we must be prepared to handle the cost of making that ingredient known, and educating the consumer regarding its positive attributes. ∑ There could be many occasions where we would do some kind of performance testing and not attempt to share it with consumers, particularly if this involved comparison to another brand.

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here are, of course, different kinds of performance and claims testing, and it might be worth taking some time to understand something about these differences. It’s worth asking some questions. The first question that must be asked is not a technical question, but a business one: What kind of performance claims are aligned with your brand? If the performance claim, no matter how good, does not add to the value of the brand, then it has little if any value.

of performance claim testing is to help the product achieve success. Let’s take that as our first “principle.” The performance or claims results must contribute in some way to the business success of the product. While there are a number of ways this can be done, the strongest claim would be one that contributes to the brand equity. If you don’t agree with this first principle, then I’d like to hear from you!

Brand Success is the Goal

So, if we accept the first principle, and we acknowledge the importance of the equity of our brand to our business success (and our continued employment), then it seems rational to conclude that we could either reinforce the “promise of the brand” to the

Of course, there are lots of technical issues that must be considered, but this brand issue needs to come first. Why? Well, the obvious answer is that the idea facebook.com/gcimagazine

Promises and Claims

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consumer, or perhaps extend this “promise” in a way that is still well aligned with the brand identity, and that is related to consumers’ idea of their own identity. This has profound implications for how we need to think about relevant performance claims. Perhaps the simplest version of a “performance claim” is a simple statement of fact. These kinds of statement of fact can include the presence of specific ingredients in the product. Of course, in many, but not all markets, this might also include “free” claims, where rather than the statement of fact that an ingredient is included, the statement relates to the fact that a specific ingredient or ingredient class is not included.

We could choose to add additional performance claims to our product, but let’s first take the situation where we go no further.

Differentiating Ingredients It’s important that we remember that, with mandatory ingredient disclosure, the ingredients can become an important source of differentiation for our personal care product. If we need to distinguish our product (and who doesn’t?), we might choose to differentiate our brand from the one next to ours on the shelf (or, these days, the product next to ours on the computer

It’s important that we remember that with mandatory ingredient disclosure, the ingredients can become an important source of differentiation for our personal care product. While these “free” claims are usually not scientific in their basis, they either relate to the brand promise or the consumer’s idea of his/her own identity. This may not be scientific, but it is very powerful because such claims resonate (or are believed to resonate) with the consumer.

Just the Facts Let’s take as our first example a simple “claim” that is a statement of fact. Our personal care product contains a certain ingredient. Okay, so what does that mean? Well, if our claim is that our product “contains ingredient Z,” it may be the simplest claim to prove, but have we added any value? That depends on our consumer and several factors related to the ingredient, the consumer and our brand. All we need to do to satisfy this claim is to make sure that we include ingredient Z. www.GCImagazine.com

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screen), through the use of a “differentiating ingredient.” What qualities would our ingredient Z need to have to qualify? Well, it seems as though there are a number of qualities that we need from ingredient Z, and it is worth taking time to think through what these may be. The first quality is that the ingredient is known, or can be made known, to the consumer. If the consumer has no idea what this ingredient is, then it is unlikely that the presence of the ingredient will positively influence their buying decision. If the ingredient is known to the consumer, then several other attributes become important. The first is that the consumer has a positive association with the ingredient. For instance, if that ingredient was silk or a silk derivative, then consumers would associate this with a number of positive attributes: soft feel, luxury, etc.

LET’S OPEN A DIALOGUE Have you ever thought about what personal care formulators and their R&D management need to know about performance and claims testing? I have, and I’ve come to the conclusion that the answer will depend on the kinds of products that are being developed, and the nature of the organization in which they work. Maybe the best short answer to this question is that the more formulators and R&D management know, the better prepared they will be. Since preparation is often a good predictor of success, there’s a solid argument for better understanding. This is a big subject and an important one. The only way I know to cover this much ground with a big subject is to start out one step at a time. In this first instalment, I’d like to begin by suggesting some questions that we need to ask ourselves before we start thinking about performance testing. I very much value your opinions about the subject, so please feel free to offer your contributions to this “discussion.” Please feel free to reach out to me at kevin@ kevingallagherconsulting.com.

Then the question becomes whether the consumer would believe that the presence of this ingredient would have a beneficial influence on the performance of the product; next would come the question about whether these attributes are well aligned with the brand, and the “promise of the brand,” as viewed by consumers.

New Doesn’t Guarantee Success If the ingredient is not well-known, we must be prepared to handle to cost of making that ingredient known, and educating the consumer regarding its positive attributes. This additional cost of educating consumers about a new ingredient is the reason that so many “new” ingredients in personal care are actually ingredients known from other industries that consumers might recognize and associate with positive attributes. Have you ever spent time in the health food store, trying to determine if you can guess which magic ingredients will be picked up in personal care products? Ingredients and Claims 19

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INGREDIENTS AND CLAIMS

There are of course questions about whether the positive attributes appeal to the current consumers of the brand or to new users, but these become more and more the province of marketing research, and less about the formulator’s role in understanding new product development and performance claims. Of course, we need to be sensitive to these issues or risk being part of a colossal mistake, like “New Coke.” Just because the new formula performed better in blind taste tests, this did not lead to success!

often asked to act as an arbiter and settle competing claims involving these kinds of comparisons. Likewise, networks can have their own standards involving acceptable comparison claims. A consumer company may not want to subject the product and itself to this kind of challenge, but still want to know, for its own sense of confidence, whether the product can outperform the competition. Even if the formulator wants to have some peace of mind by having some data

If an ingredient is not wellknown by consumers, we must be prepared to handle the cost of making that ingredient known, and educating the consumer regarding its positive attributes.

The Comparison Question There has been an important assumption in our discussion so far that is worth mentioning. We have been assuming that the performance claim will be shared with the consumer. Are there occasions where we would not, and if so what factors would influence our decision? It seems likely that there could be many occasions where we would do some kind of performance testing and not attempt to share it with consumers, particularly if this involved comparison to another brand, and we were not willing to go through the hurdles of that kind of comparative advertising scrutiny and potential for legal challenge. In the United States, for instance, the National Advertising Division (NAD) of the Better Business Bureau (BBB) is

that will be kept in-house regarding the ability of a new product to outperform the competition, it still strongly suggests discussion with the marketing department about the identity of the relevant competitor, which may or may not be the market leader. Of course, the marketing folks may have already communicated these ideas in the brief for the new product when it went to R&D. In that case, there already is a clearly understood benchmark for performance.

the things we need to think about, and the kinds of questions we need to ask ourselves. These include: • Is this a claim that we intend to share with consumers? • How will it help to add value to the brand? Is a simple statement of fact, like “contains ingredient Z,” enough, or do we need more? • Does ingredient Z have the right consumer awareness and attributes that align with our brand? It’s only after we’ve asked ourselves these questions, answered them, and aligned ourselves with our company on the answers, that we can go on to discuss more specific issues around the performance claims. If a simple statement of fact is not enough, what kind of performance do we need to measure? That will help lead us to other questions we need to answer; specifically, how do we measure this performance and how do we communicate the results?

Bring Me Your Feedback I share with the editors of Cosmetics & Toiletries and Global Cosmetic Industry the desire that this be a discussion, and not a monologue. What questions do you have about performance claims testing? What answers can you share? Please join in on the discussion if you can. Your contribution will help make this real twoway communication, and enhance the understanding for all of us.

KEVIN GALLAGHER, founder of Kevin Gallagher Consulting LLC, previously served as president of Croda’s Global Personal Care & Actives business. He has served on the board of the American Cleaning Institute and the Personal Care Product Council. Gallagher also serves as a non-executive director for P2 Science.

Critical Questions There’s a lot to think about with performance claims before we ever get to asking R&D to develop a protocol or calling a testing laboratory. Let’s review some of

GCI’s DAILY NEWSLETTER: breaking news and insights www.GCImagazine.com/newsletter

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K-BEAUTY WON’T LAST FOREVER Peach & Lily founder Alicia Yoon discusses the retailer’s West Coast expansion, brands that “truly wow” and the evolution of Korean beauty.

Alicia Yoon, founder of Peach & Lily, says K-beauty is evolving.

∑ K-beauty is a vast, diverse category that will gradually focus on brands that deliver true excitement. ∑ Having a physical store has allowed Peach & Lily to provide personalized service while gathering insights into consumers’ needs. ∑ The retailer will produce its own content to help engage and educate consumers, further establishing it as a go-to resource.

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he Korean market now seems to be attracting global attention as a beacon of inspiration,” author Curt Altmann (Yonwoo/PKG) wrote in Global Cosmetic Industry in 2015.* He added that the Korean beauty consumer is “ravenous for product,” and therefore, has little brand loyalty. At the same time, these consumers employ elaborate beauty care rituals that require numerous products. It’s no surprise, then, that this relatively tiny country has become such a hub of newness and innovation. Often treated as a monolithic category, South Korea churns out more than 100,000 unique products** that span the spectrum of novelty offerings (maple

*www.gcimagazine.com/marketstrends/regions/asiapacific/Lessons-from-the-Korean-SkincareMarket-330290181.html **According to figures gathered by the organizers of CosmoBeauty Seoul; cosmobeautyseoul.com

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GCI September 2016

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FRQQHFWHG ŝ E\ UH GHVLJQ HX[\Op . QRZ EULGJHV WKH JDS EHWZHHQ VFLHQFH DQG QDWXUH schülke announces the relaunch of its euxyl® K 903, now with natural tocopherol. euxyl® K 903 has been redesigned to meet the needs of formulators to have a preservative that is efficient and effective, yet is gentle enough for sensitive product applications. Based on naturally-occurring ingredients, and now stabilized with natural tocopherol, euxyl® K 903 meets the requirements of many certification bodies; including Ecocert, NATRUE and COSMOS. euxyl® K 903 joins euxyl® K 712 in schülke’s range of eco-friendly cosmetic preservatives. euxyl® K 903 bridges the gap between efficacy and nature in modern preservation. Go to schulke-us.com/GCI916 for more.

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K-BEAUTY BRANDS YOU NEED TO KNOW

Alicia Yoon, founder of K-beauty mecca Peach & Lily, provided Global Cosmetic Industry with her curated list of some of the most exciting K-beauty players, spanning both novel and established brands.

5. SHANGPREE

1. KICHO Kicho means “basic,” ( ) in Korean, evoking the brand’s minimalist skin care approach. Focused on the omission of harmful or otherwise unnecessary ingredients, these natural, hypoallergenic products— including the Ultra Moisturizing Sun Cream (pictured)—offers proven efficacy that has sustained the brand for 50 years.

2. BE THE SKIN Be the Skin was developed during a five-year quest by its founder to discover the best herbs and botanicals for the brand’s hydrating and beautifying skin care. A sister brand of legacy K-beauty brand Saengreen, Be the Skin’s top four lines are available via Peach & Lily. The range includes the Botanical Pore Toner (pictured), which offers sebum control for oily and acne-prone skin and contains fermented extracts and witch hazel.

3. AROMATICA aromatica’s Ecocert products are among the few to have earned the Environmental Working Group’s Skindeep Champion Status for its creation of toxin-free products. Comprising naturals from around the world, the brand is focused on responsible sourcing. For example, aromatica’s Sea Daffodil Aqua Gel Cream (pictured) contains aloe, essential oils such as rose hip, citrus peel and cedar wood, and sea daffodil, which helps diminish hyperpigmentation and dark spots.

4. MAY COOP May Coop uses maple tree sap as a base that improves absorption of its skin care because of the small size of its molecules. For instance, the brand’s Raw Sauce (pictured) contains the sap paired with Ecocert fructan powder, and Asian herbal and fruit extracts that hydrate the skin and give it a dewy appearance.

For 25 years Shangpree Spa has served Korea’s spa-going elite. Now, the brand has brought its spa experience to the world with products, such as S-Energy Long Lasting Concentrated Serum, which includes skullcap callus, oxygen and a violet herb complex for cell regeneration, hydrolyzed silk, propolis and pantenol for skin repair and hydration, and S-Energy Resilience Cream, which comprises natural oils, shea butter and betaine to protect the skin against free-radical damage and boost skin turnover. But the real fun is in the masks, including the Fruit Cocktail Mask, which contains blueberry, lemon, papaya and more, the Snail Moisture Mask, featuring snail mucin that hydrates and repairs the skin and encourages growth, and the Gold Premium Modeling “Rubber” Mask (pictured), which features gold and Asian botanicals that offer hydration and antiaging benefits.

6. ROSE BY DR. DREAM This cosmeceutical brand is built upon skin rejuvenating rose stem cells and distilled rose water, which provide antioxidant defense, boost elasticity and moisture, improve skin tone and soothe irritation. The brand’s products include the Dream Age Radiance Facial Mask, Dream Age Radiance Powder Essence (pictured), Luminous Rosegold Cushion and Rose Bubble Clay Pack.

7. TWENTYFOUR SEVEN These multifunctional beauty products were originally designed to meet the busy lives of Korean professionals. TwentyFour Seven’s range includes the Honey Dual Lip Treatment Oil & Color Tint Balm, which moisturizes the lips while imparting a coral tint, and a Touch Up Skin-Perfecting Cream appropriate for all skin types that comprises anti-aging ingredients and adds a shimmer to the skin for a dewy effect that can be applied over or under foundation, and can be blended with foundation or bb cream to boost the glow effect.

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tree sap, fermented extracts, etc.) and proven solutions (quality naturals). “I think K-beauty—and how it’s being defined right now—will fade away,” Alicia Yoon, founder of K-beauty mecca Peach & Lily (www.peachandlily.com), recently explained. “However, the conversation around K-beauty will evolve and focus on the brands that truly wow, and these brands will have staying power, like the beloved brands Stateside (and beyond).” Yoon, who recently opened Peach & Lily’s second brick-and-mortar location in California, gave Global Cosmetic Industry (GCI) an exclusive interview regarding the state of K-beauty and what lies ahead for this hottest of regional trends, as well as a list of some of the most innovative and trusted brands defining K-beauty today (see sidebar). GCI: How does the new California Peach & Lily shop differ from the NY location? Yoon: The New York and California Peach & Lily stores have similarities—such as a highly trained staff to help people understand their skin type and find the right products, and products organized by steps of the Korean skin care regimen, the latest Korean beauty trends, or skin benefits versus brand [name] only. To keep in line with Peach & Lily’s overall brand identity and mission, there are some differences as well to cater to each demographic and region. In the California Peach & Lily store, given the sunny climate, SPF, hyperpigmentation and dehydrated skin are big skin care issues; so we have broader product selection to address these concerns. Also, given that the store is located inside the Macy’s that is attached to the Westfield Mall (and we’re excited that we are located right next to the mall entrance!), we know that there are a lot of folks who come to the mall to browse and see what’s new, especially when it comes to Korean skin care and Korean cosmetics. So we kept the store layout more open and airy to make sure people could see everything at a glance when walking by. Also, the California Peach & Lily store has a more diverse demographic—from an older shopper seeking luxury goods to high schoolers who are swinging by the mall to grab lunch. www.GCImagazine.com

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To cater to a broader set of consumers, we have a different Korean beauty assortment and a more colorful layout with bright Lucite sheet mask stands, but still an overall elevated look and feel to keep in line with our brand identity. GCI: How has the product mix been adjusted for California? Yoon: There is a deeper assortment of sheet masks and those Korean skin care products for all things sun-related.

there are so many nuanced things about each brand—and to say something like “French beauty” or “American beauty” is more a trend that includes high-level generalizations about all brands from that one country. And, definitionally, trends ultimately evolve or fade away. I think K-beauty and how it’s being defined right now will fade away; however, I think the conversation around K-beauty will evolve and focus on the brands that truly wow, and these

I think there’s a big gap in content that explains Korean beauty products, rituals and skin care advice in a more cultural context. GCI: What has the consumer response been to the online and physical stores? Yoon: The consumer response has been overwhelmingly positive to both www. peachandlily.com and our physical Peach & Lily stores. Opening physical stores has been exciting as there is a depth of interaction that isn’t possible online—we can analyze skin better in person, and the consumer can touch, smell and try products before purchasing. And, of course, the kind of back-andforth question and answer is so much more dynamic in person. We have learned so much about our customers’ preferences by having a physical store, which gives us the ability to better serve our customers both online and in-stores. GCI: What do you see ahead for K-beauty? Yoon: Ultimately, whether it’s in one year or five years, the overall K-beauty trend may die down. That’s not to say that K-beauty brands will not remain popular, but a trend that points widely to beauty from one country lumped together in one big way is hard to sustain because

brands will have staying power as beloved brands Stateside (and beyond), whether the K-beauty trend is going strong or fading away. GCI: What’s next for Peach & Lily (future shops, etc.)? Yoon: We’re launching our own branded Peach & Lily products this year (stay tuned), which we’ve been working on for the last 18 months. We’re also launching an independent content platform that will be focused on Korean beauty and, more broadly, lifestyle. There will be a huge emphasis on skin care education. This is a natural outcome of our Peach & Lily blog—seeing the traffic and interest in articles geared toward skin care education … and also Korean lifestyle stories. I think there’s a big gap in content that explains Korean beauty products, rituals and skin care advice in a more cultural context. The content site will be for those wanting a more multifaceted look into Korean beauty, Korean lifestyles and skin care talk in a digestible, expert-driven, fun way.

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Tell Me How You Really Feel Focus groups provide colorful qualitative data that can set up brands for success.

| BY DENISE HERICH, The Benchmarking Company

T ∑ Focus groups give brands unique qualitative data that can set them up for success. ∑ Keeping the number of participants limited and conducting research in the right regions for the brand will maximize results. ∑ To get the most out of your panelists, give them some pre-panel homework and be sure to keep them engaged for the entirety of the panel duration.

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o move toward product launch with confidence, marketing teams need reliable consumer intelligence. Brands are turning back to the basics more and more to get this data—basics such as the time-tested focus group. Small focus groups offer brand managers and executives a chance to literally see consumer reactions to their most burning questions such as, “Do you like the smell of this product? What do you think of the name? Would you purchase this product?” These groups offer a powerful method of capturing colorful, qualitative data from a select group of consumers. This data can be further validated with an accompanying quantitative study in which responses can be captured from thousands of consumers. This double-whammy approach of quantitative and qualitative data provides not only emotional responses, but the detailed, intellectual feedback facebook.com/gcimagazine

that sets brands up for success with their consumers, right out of the gate.

The DNA of a Focus Group Focus groups are tests of your product or brand with targeted consumers. Discussions are often held at specialized testing facilities which are equipped with rooms for participants, as well as private, one-way glass viewing rooms for brand managers and executives. These groups can have anywhere from three to 10 participants. Discussions are facilitated by an impartial moderator who is trained to guide the group through a questionnaire designed by the brand managers to gauge the participants’ emotional reactions to your product or brand. What makes a focus group so unique is the “behind the mirror” viewing room for brands. A one-way glass window allows brand executives to watch participants Global Cosmetic Industry (GCI)

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and see their reactions in both words and body language. This helps brands to more deeply understand what exactly the participants are thinking in a way other tests cannot.

Evolving Focus Groups There is no disputing the basics of a good focus group—personal, intimate conversation with your consumer. But, like all testing methodologies, focus groups are evolving. Today, there are a lot more bells and whistles attached to capturing participant feedback in a focus group setting than there were 10 years ago. For instance, eye movements can be mapped to pinpoint where women first look on a marketing message, and facial expression recognition analysis can analyze actual facial patterns to discern how she really feels about your product or idea—even if she’s saying the opposite!

5 Ways to Maximize Effectiveness To get the most out of your focus group, try blending a mix of established protocols along with newer techniques, and be open to adapting, as necessary. Here I present five important considerations that The Benchmarking Company (TBC) has found make the difference between ho-hum results and outstanding data points.

1. There’s no place like home—or is there? As anyone who has ever driven cross country can attest, the United States is a big place. In order to accurately and deeply gauge the American beauty consumer, you have to cover a lot of ground. But is it necessary to conduct focus groups in, say, three parts of the country: East Coast, Midwest and West Coast? Or, will just the two coastal areas suffice? And how about getting all of your focus groups done in one day, in one location? The answer is: It really depends on what you’re testing and where your likely customers live. For example, if you are testing a new sunscreen that is specifically designed to resist wearing off in saltwater (i.e., the ocean), testing in Chicago might not make much sense. Instead, you may want to focus on consumers who live very near to www.GCImagazine.com

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the water, and are more likely to use (and be looking for) a product like yours on a regular basis. Knowing your target consumer before you vet your focus group panel is key to selecting participants who are going to give you the kinds of market intelligence you need now, in order to be successful later on. Plus, you can capture the insights and opinions of outliers during phase two, the quantitative online study.

2. Smaller can be (much) better. Just because you can max out a focus group conference room with 10 panelists doesn’t mean you should—or that you will get a better result. While on the one hand you will be getting feedback from a larger quantity of people, on the other you may not get the kinds of answers and reactions you’re seeking, or that you can use to make big brand decisions. Bigger groups are not without their concerns. For starters, they tend to be easily dominated by an extroverted few who are very vocal with their opinions, and who effectively shush those introverted panelists who tend to naturally be quieter and less vocal. And when that happens, you lose valuable feedback. Also, in a larger group, say eight to 10 panelists, everyone may want to voice their opinion on every single question, and most focus groups simply cannot afford that kind of time, nor can your panelists, many of whom likely took a few hours off from work in order to participate. And then there’s always the risk of “sidechatting,” when one or two panelists get friendly and start talking to each other vs. paying attention to the questions they are being asked. There are even cases of groupthink when a majority of panelists all start answering in a certain way, and generally just become out-of-control for even an experienced moderator. Instead, think small. Consider hosting numerous three-person focus groups, which can provide a richer and much more manageable (not to mention less stressful) experience for everyone involved. Small groups allow the moderator to connect and spend time with each panelist, which yields more detailed reactions and answers. Smaller, more intimate settings create a strong sense of personal empowerment (Continued on Page 30) Beauty Influencers 27

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for the panelists (“my voice is really being heard!”), who are far more likely to loosen up, share and speak their minds.

3. Give them homework. That’s right—I said homework. There is nothing in the marketing rulebook that says you cannot make your potential focus group panelists come to the session prepared and ready. We at TBC have found homework greatly improves interaction and feedback. So by all means, if additional information about each panelist will be helpful to you, but you don’t think you can glean it from the initial focus group screener, assign some homework. Usually, these homework assignments comprise only be a few extra questions that are easy for participants to answer, and that cover details you couldn’t include in your screener. Assigning homework and having panelists bring it with them not only provides you with more information on, say, her shopping habits and purchasing patterns (or whatever you wish to ask about), but psychologically, it also causes her to be more invested in your group. She is participating before she even sets foot in the door, which makes her

more likely to both attend the panel (and not bail at the last minute) and to pay attention and speak up during the session. To help streamline the homework process, have your focus group facility email the homework assignment to participants after they have been screened and accepted for participation. Finally, be cognizant of the fact that your panelists are busy adults, and likely have work and family responsibilities. If you keep the homework simple and quick, you are far more likely to have high completion rates.

4. Keep their hands (and brains) engaged. Like any class, it’s vitally important to keep your panelists engaged and excited for the process. We’ve all had at least one focus group participant who rarely speaks (even when asked for an answer directly), or one who constantly looks at his or her watch, checks his/her phone or otherwise tunes out. Basically, they are the, “I’m just here for the incentive” panelist. Not good! You’re out money and time for their lack-ofparticipation—plus, their inertia can drag down the rest of the panelists, giving you mediocre results at best.

There’s always the risk of “side-chatting,” when one or two panelists get friendly and start talking to each other vs. paying attention to the questions they are being asked.

To help waylay lagging attention, obtain a bit of quantitative information from each participant during the session. For example, after each new concept or product is introduced, hand out ratings sheets and ask participants for their opinions right then and there. Or, as the moderator reads prospective marketing copy, have panelists circle or X-out words or phrases in the messaging that they either like or dislike prior to an overall group discussion. Activities like these not only bind your panelist to the discussion, but they also help you tease out very honest input and feedback from them before any possible instances of groupthink crop up. Plus, you’ll have a bit of quantifiable data to review (and hopefully use) afterwards.

5. Follow up with a quantitative study. After your focus groups conclude, you will have obtained an incredible amount of very important information from your participants on your brand, products, concepts or marketing messages. However, as vital as all of this information is, the truth is that there still is never enough time during a focus group to ask participants every single question you’d like to. Using the results of your robust qualitative focus group as a base, the next step is to compile a larger, more detailed survey instrument that really gets the nook and cranny details you need from potential buyers, and that, pragmatically, you just can’t get from 10 people at once. To accomplish this, field your survey to a targeted list of likely consumers. When the results are in (anywhere between 1,000 and 3,000 completed surveys is fine), you will have 50% of the consumer intel you need to move forward with a product launch plan. What’s the other 50%? That’s consumer in-home usage studies, which we will cover in the October issue; www.gcimagazine.com/subscribe.

DENISE HERICH is co-founder and managing partner at The Benchmarking Company (www.benchmarkingcompany. com), which provides marketing and strategy professionals in the beauty and personal care industries with information about its customers and prospects through custom consumer research studies, focus groups, its annual PinkReport, and consumer beauty product testing for marketing claims.

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BEAUTY INFLUENCERS

Sway Group has harnessed 75% of the top beauty bloggers in a bid to increase the effectiveness of influencer marketing.

∑ As organic reach diminishes on popular social media platforms, brands are increasing their ad spends and partnering with influencers to increase consumer engagement. ∑ The rise of influencer agencies, like Sway and iFabbo, has brought an enhanced level of performance tracking and campaign planning to the social space. ∑ Choosing the right mix of reach and intimate engagement is part art, part science and largely dependent upon the size of the brand and its audience profile.

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acebook and Instagram are generating essentially zero organic brand reach, according to a new analysis from L2*. As a consequence, brands are having to spend to boost audience. The result is a 50% increase in social media ad spending in 2016. Beauty brands are supplementing this exposure by pursuing product placement on influencers’ feeds where, as in the case of Instagram, 87% of consumer-brand interactions occur. This strategy has boosted the engagement of brands, such as Anastasia, Kiehl’s and Valentino, L2 has noted, with influencers sharing images of the companies’ products in their feeds. “Anastasia posts, on average, seven photos per day on the platform, and much of the content is reposts from makeup artists and models with more than 10,000 followers,” the L2 analysis found. “This product placement strategy is paying off for Anastasia in sales, placing it as the fastest-growing beauty brand in the first half of 2015.” But collaborating with influencers doesn’t mean that brands have to give up control of their marketing identity. And, by working with influencer agencies, brands can efficiently leverage social channels to create targeted programs.

Influencer Boom The demand for influencer partnerships has led to the development of professional influencer networks in recent years, with agencies such as The&Collective popping up to connect content creators and brands. Now, Sway Group, a content marketing agency with offices in Dallas, Los Angeles, Sacramento and San Francisco, has acquired fashion and beauty influencer network iFabbo, which boasts 75% of the top beauty bloggers. iFabbo’s stable of 3,000 “highly targeted” influencers will boost Sway’s network to about 90,000. The acquisition will impact expansions of social channels and sampling programs, according to the companies. The move was a “no-branier,” said Sway Group CEO Danielle Wiley during a conversation with Global Cosmetic Industry. She noted that iFabbo had built a sense of trust and community with its influencers, as well as a strong stable of clients that has included brands, such as Dermalogica, Strivectin, T3, Foreo, Becca, Dr. Brandt and Rodan & Fields. “Beauty and fashion trends may be made on the red carpet, but it’s the influencers who bring the runway to their audiences online that drive consumer awareness,” said *www.l2inc.com

From left: Sway Group CEO Danielle Wiley and iFabbo CEO Sinead Norenius-Raniere; combined, the companies boast about 75% of the top beauty bloggers. www.GCImagazine.com

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Sway Group, a content marketing agency with offices in Dallas, Los Angeles, Sacramento and San Francisco, has acquired fashion and beauty influencer network iFabbo, which boasts 75% of the top beauty bloggers.

By using technology and data to track and support campaigns’ progress, agencies like Sway are able to impress upon brands just what kind of results can be achieved. iFabbo CEO Sinead Norenius-Raniere. “With the growth of influencers continuing on an upward trajectory, a collaboration with Sway Group, as an established influencer network, was the logical next step for us to further the power of our niche fashion and beauty online community.”

What Does an Influencer Agency Do? Wiley noted that Sway was conceived to cut down on the time brands were wasting on putting together social media influencer programs. The firm also ensures that influencers stay within brand specifications and handles mundane but critical services such as invoicing. Just as importantly, Sway provides its influencers with education, support and community, according to NoreniusRaniere, along with access to paid opportunities with brands. Sway’s technological edge, meanwhile, offers “true support” for these entrepreneurs.

Because Sway and iFabbo have incorporated influencers with every type of reach, from small, targeted networks to massive audiences, education can be critical. Sway can provide influencers with practical support, such as showing them how to take stunning photography that will attract pins on Pinterest or likes and shares on Instagram. In addition, Sway can educate influencers on working with groups, like Google Plus, provide best practices for emerging media, such as Facebook Live, and teach them how to ensure content goes viral wherever it appears. Brands, too, can learn these lessons from Sway and apply them to their marketing plans.

A Brand Resource As an influencer agency, Sway partners with brands to “scrutinize” influencers and platforms to ensure social media choices make sense depending on the goals of a given marketing plan and confirm they’re where their end consumers are. For instance, millennials may be omnipresent on Instagram, but baby boomers are more likely to spend time with Facebook. By engaging consumers through their preferred influencers, brands can tightly target campaigns and decrease product wastage. By partnering with experts like Sway, beauty brands can push themselves to think of novel ways to reach consumers or even to create unique content. Norenius-Raniere, who once owned a brand, noted that social media and influencers in general have allowed indie brands to play in a space that was once reserved only for the largest companies.

While those interactions have traditionally been handled directly between brands and influencers, larger multinationals require more in-depth strategic input, research platforms and sophisticated metrics tools that can accurately track content engagement and performance across an array of social channels. By using technology and data to track and support campaigns’ progress, agencies like Sway are able to impress upon brands just what kind of results can be achieved. As brands’ comprehension of infleuncer marketing grows, they increasingly incorporate the strategy into their overall omnichannel marketing plan. Indie brands were always more nimble than their multinational counterparts, said Norenius-Raniere, and so were able to easily and organically connect with influencers to boost their exposure. But Sway can help some of these smaller niche brands, too, by latching onto up-and-coming bloggers to obtain the necessary targeted reach.

Engagement and Authenticity Young people’s preferred recommendations come from social media, said Wiley. As such, Norenius-Raniere advocates a mix of product influencer partnerships and targeted product feeding to get organic reviews and feedback. This mix of earned media placements and strategic alliances can build consumer intimacy. When done right, people should feel as if they can touch and feel a brand. This effect is incredibly powerful, Norenius-Raniere said, which is why some indie brands grow so quickly. In developing a marketing mix, Sway can leverage some of its mass-audience influencers, but real engagement tends to take place among the midlevel influencers who have between 200,000 and 600,000 page views per month. “We like to do a mix for different types of products and different sizes of audiences,” said Wiley. Choosing the right mix of influencer audience size is part art, part science, she added, and depends on the specific goals of campaigns. While large-scale influencers can provide valuable reach, consumers can feel more connected to the midlevel influencers. And, as marketers know, intimacy is everything.

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BRAND STRATEGIES

| BY MATT SEGAL, Clutch

SELLING LIPSTICK

TO YOUR DAD The pitfalls of one-size-fits-all marketing.

∑ Shoppers who receive personalized marketing efforts will spend more, shop more frequently and be more loyal to their beauty brands. ∑ Personlizing marketing requires the creation of customer profiles that are regularly updated and evaluated across channels. ∑ Successful marketers should be prepared to evolve along with their customers.

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n today’s “show me that you know me” marketing world, it’s imperative that beauty brands understand and engage their shoppers on a personal level. Obviously, that’s easier said than done. Dads still get emails about lipstick. Moms still get offers for men’s shaving cream. These are examples of marketing plans from companies that ignore the diversity of their client base and the behaviors behind purchases. One-sizefits-all marketing is, unfortunately, all too common. Through careful data analysis and the use of a consumer management platform, companies can unearth consumers who facebook.com/gcimagazine

are passionate brand advocates and weed out those who only respond to the discounts. More importantly, consumer management platforms help brands integrate data across a retailer’s systems by matching social media profiles to the point-of-sale system (POS) and e-commerce sites. Integrating these data points helps companies to develop granular insight that improves marketing efforts by personalizing communications. Research shows that 80% of profits come from 20% of a company’s existing customers—the most valuable customers Global Cosmetic Industry (GCI)

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Companies should also consider using unique content, such as tutorials led by industry experts, to thank their most valuable customers. (MVC). These are the ones you should build and strengthen relationships with. To do that, you need to get personal.

Putting Personalization to the Test According to research from Marketo*, nearly four out of five consumers will not engage with an offer unless it is personalized and relevant to them. One of our clients, a luxury personal care brand, deployed a data-driven experiment to test the power of customized communications. In an A/B test, the company sent offers to two groups of consumers via direct mail and email. One group was targeted with personalized content based on established preferences while the other group received the generic campaign. Shoppers who received the personalized offer spent 15% more than those that received the generic offer. The personalized direct mail campaign saw a 20% engagement bump over the generic offer. “We’re looking at it from a whole new perspective and are adapting our processes and approach to interaction with our customers,” said Mary Harrington, senior CRM and loyalty manager for Crabtree & Evelyn, which has adopted a data-driven loyalty program focused on personalization. “We’re developing entirely new ways to provide them an integrated and seamless experience.”

Data That Goes Beyond Stereotypes We all know brands that have tailored their marketing to target customers in a niche, only to see consumer views change around them. Think of companies that see themselves as selling “old lady” perfume. The preconceived notion of their clients can devolve into stereotypes. Relying on incomplete customer profiles is the very opposite of showing the customer that you know them, and ensures that brands will stagnate. Multichannel data contains precise information on ages, genders, locations and buying behaviors that can be compiled to generate customer profiles that go beyond stereotypes. *http://investors.marketo.com/releasedetail.cfm?releaseid=918797 www.GCImagazine.com

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Here are just a few sample customer personas beauty brands can build using the data at their fingertips: • The Familiar Face: She comes in once a month and purchases an array of products. She trusts the staff, follows the brand on Twitter and is all about being pampered. Her average purchase value is approximately $65; lifetime spend is about $1,822. • The Gifter: He shops a few times per year for special occasion gifts for his wife. He might not buy frequently, but when he does he likes to go the extra mile. Average purchase value is about $110; lifetime spend is $776. Last visit was 82 days ago. • The Stock-up Shopper: She’s always on the go and only shops online for larger than average quantities. She’s buys three tubes of her favorite mascara and lipstick without fail every quarter. You can always count on her to share a picture of her shipment over

Instagram. She spends about $90 per visit; lifetime spend is $1,955. Last visit was 23 days ago. • The Periodic Purchaser: She shops sporadically at the outlets, typically buying for herself and her daughters. The purchases tend to vary with each visit. She spends about $75 per visit; lifetime spend is $2,466. Last visit was 400 days ago. “Having a 360-degree view of our customers’ shopping behavior provides us insight into the consumer mindset like never before,” said Harrington. “Not only how they’re shopping and what they’re buying, but why they’re making the decision to buy in a specific channel and what their motivations are.”

Incentivizing Goes Beyond Dollars and Cents Without the ability to tap cross-channel, data-based insights on their shoppers,

many marketers target customers with discounts or coupons that train them to hunt for bargains. A personalized campaign yields better results and protects margins. Instead of discounts, consider exclusive perks. Have a number of customers engaged through social media? By integrating social profiles into a customer management platform, brands can use surprise and delight to thank customers for sharing content with their followers. A direct message back to the customer with a special code for a free gift, or a simple reply to a post can go a long way in building loyalty. During the holiday season, shoppers might be incentivized to make purchases from stores offering free gift wrapping and pick-up or drop-off services. For shoppers, little bonuses can melt gift-giving stress and simplify their lives. Other shoppers might value exclusive invitations to events or “sneak peaks” of upcoming products, which give them access to new merchandise or special edition products that have celebrity ties. Companies should also consider using unique content, such as tutorials led by industry experts, to thank their MVC.

Tapping Data to Create Loyal Customers Using the sample personas and A/B testing above, beauty brands are better able to understand the motivations behind their MVC, who have an outsize influence on their bottom line. Developing a data-driven MVC engagement plan requires four key steps.

1. Identify your goals. Integrate the data captured from the customer profiles (detailed above) during lifetime spend in both e-commerce and in-store, along with social usage, average spend and last visit. The goal is to both increase sales and the number of member transactions, while also decreasing the time between customer purchases.

2. Use all available data. Detailed profiles of your customers can reap dividends. For example, the Stock-Up Shopper: she buys three tubes of her favorite mascara and lipstick without fail every quarter and always shares a picture of her shipment over Instagram.

Merge multichannel customer data to create actionable insights. One brand— relying solely on in-store traffic data— believed that its typical customer was

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Instead of discounts, consider exclusive perks. a middle-aged, upper income woman. Imagine their surprise when they learned that their online customers included millennials who tended to spend three times what their “typical” customer did.

3. Be prepared to go back to square one on marketing materials. Sending targeted offers to consumers is much different than using one-size-fitsall campaigns. The path from generic to

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customized design requires a team that can tap insights from data to develop communications that resonate.

4. Evaluate, measure and prepare to readjust. The ability to measure consumer response should be wired into a consumer management platform. But don’t sit still. MVC will change over time, and businesses need to be able to act accordingly.

Insight from data guarantees smarter marketing decisions and improved customer engagement. By properly identifying and targeting MVCs, brands can reap rewards, turning occasional shoppers into brand evangelists, and bargain hunters into lifelong consumers. It represents one of the true win-wins in marketing.

MATT SEGAL, vice president of health and beauty solutions for Clutch, helps brands identify, understand and motivate their customers to earn genuine loyalty with advanced customer technology and expert marketing strategy. Segal advises leading brands across the industry, including Bluemercury, Crabtree & Evelyn, NARS Cosmetics and The Body Shop, on strategic customer solutions. Prior to Clutch, he served strategic roles with agencies and consulting firms that focused on delivering solutions to an array of industries from sporting goods and video games to mobile and consumer electronics.

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THE CASE FOR MASS VS. CLASS

E a p p R t c

How beauty channels really work, and where your brand belongs.

d r g a p m

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It goes without saying that Ulta had a brave marketing strategy in the United States, creating three unique shopping environments for mass, prestige and salon.

| BY JEFFREY TEN

∑ The lines between mass and prestige have blurred, creating new distribution models for brands. ∑ While both mass and prestige retail launches are complicated, mass requires significant marketing resources. ∑ Determining where your brand belongs requires an assessment of cost of goods sold, logistics and marketing.

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espite the fall-off on sales in department stores, the prestige makeup and fragrance business is finally growing after years of decline, according to NPD.* However, even as the economy has improved over the last seven years, the skin care category is under pressure; it is concerning to think what will happen to the category when we hit another downturn.** Meanwhile, the mass market in makeup and skin care has seen anemic growth over the last five years.*** The last time the makeup category saw growth was during the last recession.

*www.npd.com **I am not prognosticating that a recession is around the corner. I will let the economists and bankers handle that as cosmetics forecasting alone is a difficult arena to manage over the next quarter, let alone the next year. ***According to a recent analysis from Research and Markets, the U.S. mass beauty care market will expand at a CAGR of 2.59% through 2020; www.researchandmarkets.com facebook.com/gcimagazine

Fragrance in mass has always been difficult. And the Cotys of the world realized that gaining traction in the mass fragrance business was tough, since the prestige brands had opened the flood gates to sell their wares at discounted prices. And, when you look at the mass and prestige channels, things become even more muddled. Let’s take a closer look.

What’s Really Going on in Prestige? Save Chanel and Estée Lauder, everyone in prestige fragrance has been selling directly or through third parties to save face. When I use the term “third parties,” I am including international distributors and many big travel retail operators that get huge discounts from the brands and are, at the same time, pushed to buy more by the brands. It is guaranteed that distributors and pseudo travel retailers will divert if pushed too hard. This is why there are the multimillion-dollar, third-party wholesalers like Quality King. Even Global Cosmetic Industry (GCI)

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d p f h n

Elizabeth Arden, a public company, had a lot of its business tied up as a thirdparty distributor, in addition to its own prestige fragrance brands. With its Revlon acquisition, it will be interesting to see if Revlon will continue this style of commerce to the mass trade. I am including, here, international distributors and many pseudo-travel retailers and neo duty-free operators that get huge discounts from the brands and, at the same time, are pushed to increase purchases so the brand salesperson can make their budget. The brand is the one ultimately responsible for controlling where their product is sold. If they do not push the distributor or travel retailer to buy more than they need, the business would essentially be healthier from a channel standpoint but perhaps not as profitable.

Why Mass Beats Prestige Retail The category lines are very blurred these days. Prestige fragrance brands launch in the selective channel and, months later, end up in Target, Walmart and the drug stores. This is by design. The mass market, despite its heavier discounts, makes three to four times the profit as the prestige channel. The reason for this is that the prestige brands spend heavily in department stores to create a need in the consumer to buy the brand.

There was a time when where a brand sold determined its positioning. This strategy no longer holds true. Mass channels, on the other hand, get the product at a lower price than the department store but do not spend one penny in marketing to drive sales, as the product is sold at a 20–40% discount. This is something the industry does not talk about. Having spent three of my five years at P&G as head of diversion control for the prestige fragrance division, I learned a lot about the gray market, which accounts for about 1/3 of the prestige fragrance business. Another interesting retailer is Costco, which generally buys direct from the prestige manufacturer but also buys fragrances from third-party wholesalers. The retailer will buy from wherever the deal is better, which is the same position as Walmart. Walmart buys Elizabeth Arden brands from the company but will also buy its brands through gray market. Walmart wants the goods and does not really care where they are sourced from. This has gotten them

THE BEAUTY STARTUP GUIDE TO RETAIL SURVIVAL Read Jeffrrey Ten’s perspective on the changing landscape of the prestige and selective market at www.gcimagazine.com/marketstrends/channels/ departmentstores

into trouble in the past when they were misled by a third-party distributor into buying some counterfeit goods. It is common practice today in many product categories, from health and beauty care to food, for third parties to comingle real product with counterfeit. Hence, where you buy does matter. So, if a consumer is looking for a prestige brand they may be better off going to a prestige retailer such as Macy’s, Belk, Dillard’s, Sephora or an authorized hybrid retailer like Ulta where there is no doubt of its authenticity.

How Diversion Impacts Professional Products Diversion is a way of life in the prestige category, but it is also omnipresent in the professional salon category. How is this strategy rationalized? Intuitively it sounds counterproductive. There was a time when where a brand sold determined its positioning. This strategy no longer holds true. I was one of the marketers that did this when I sold NYX as a mass priced brand to Sephora in the Pacific Rim. There, it became one of the top 10 lines in the store in India, Singapore and other markets. So, how can one sell mass in a prestige store, and how can brands that claim exclusive distribution sell in mass and still get respect from customers and consumers?

Salon Brands’ Little Secret In the professional channel, Paul Mitchell has spent millions in advertising telling people not to buy their product in mass stores, but somehow every mass drug store and almost every MVR has the brand. The brand’s products don’t just fall off a truck. The reality is that both prestige and salon brands have determined that selling www.GCImagazine.com

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in the mass trade is a necessary evil to fund the legitimate trade, which is slowing in growth but still requires investment to stay viable.

Pure Mass is Toughest As shown here, mass and class are difficult to define for brand distribution today. I congratulate the true mass brands as they have the toughest job. They have only one channel to compete in, unlike prestige and salon, and retail management at mass stores, in general, are much more

difficult and demanding in their sales requirements. And kudos to companies like Dana who are trying to bring back mass-priced older fragrance brands and trying to make them relevant for today’s sophisticated consumer.

Diversified Retail Strategies that Work It goes without saying that Ulta had a brave marketing strategy in the United States, creating three unique shopping environments for mass, prestige and

The TJX Companies and, to a lesser extent, Ross and Nordstrom Rack, are some of the most successful beauty retailers as they attract sophisticated customers with affordable products that are merchandised in an impulse environment.

salon. This has been one of the most successful initiatives in beauty retail. Shoppers Drug started this strategy in Canada with its Murale stores, which are adjacent to their mass pharmacies. CVS had tried something similar with its Beauty 360, which failed. Following its Duane Reade acquisition, Walgreens has experimented in New York, Chicago and Los Angeles with its Look Boutique. Walgreens is continuing to develop this concept in its mainstream stores by adding beauty advisors to create more of a prestige environment, similar to its partner in the United Kingdom, Boots. This strategy is already successful on the prestige side of Ulta and at Murale in Canada, so time will tell if Walgreens can interpret this for itself. It is clear that mass in the drug store channel is looking to emulate a lot of elements of prestige to capture some of that market's customers. If this works, it will put further pressure on prestige channels, mainly department stores, to come up with new and improved strategies. Another new strategy gaining traction is the move of prestige department stores to carry select mass-priced brands. For example, Dillard’s has opened up Edge Beauty departments within select stores, in which NYX is being sold. This initiative is extremely successful to the point that Dillard's is looking to incorporate other brands. I witnessed this trend personally when, at the 2016 Cosmoprof North America in Las Vegas, many prestige retailers came to the Note Cosmetics stand. They liked the brand's prestige look and image and were amazed that its pricing was at the upper end of mass (L’Oréal/Revlon). From the 1940s to the 1980s, department stores embraced mass and prestige brands, so you could say that the traditional prestige channel is coming full circle. Beginning in the 1980s, mass brands were exited as more prestige brands developed. Now it is clear that, although mass retailer growth is under pressure, there is a hybrid strategy underway, championed by successful retailers like Ulta. And it looks like some version of this strategy may be entering the department store channel. As mentioned in my last article, "The Beauty Startup Guide to Retail Survival"

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(see sidebar, page 41), Sephora did this successfully by adding NYX in Singapore without damaging their image as NYX was exclusive in the market and was not available in mass distribution. This is a similar strategy I am considering in the Americas with Note Cosmetics, which looks and performs like a prestige brand but is priced at premium mass, giving us many options for its positioning. Further evidence of the change in prestige retail complexion is Nordstrom. The retailer just reported record earnings. However, the growth in sales did not come from their 100 fullpriced stores but rather from the 200-plus Nordstrom Rack stores, which are soon to grow to number 1,000. Perhaps, then, prestige is developing into its own hybrid of prestige product at a value price. The TJX and Ross model seems to be the future.

Where Does Your Brand Belong? How can new brands make sense of the tumult of change in beauty retail? Mass retailers are looking to create prestige environments and prestige is looking for more exclusive brands that they can be sure will not end up discounted. So, is it better now to be a mass or a prestige brand? Both channels are costly and getting riskier. There are very few new mass brands launching as the category is an expensive business for new startups. Prestige presents fewer doors and higher price points, so in some respects it can limit your brand’s financial exposure. When I advise my CEW Mentornet mentees about channels, I tell them that the least risky is e-commerce, of course, followed by home shopping, for which there is inventory risk but almost no investment. However, there comes a time, unless a brand is a pure e-commerce play, that brick and mortar is analyzed as the next step for distribution.

Price Point Matters If the brand’s price point is very high, more than $30 per SKU, your only option may be to go to the prestige channel. However, if you have not yet defined your price positioning and the COGS (cost of goods sold) are low, you may be in the enviable position to do a price-sensitivity analysis to find the best option. The brand I am launching in the United States, Note Professional Cosmetics, is a good example. The packaging and bulk can easily compete with the top prestige brands as they are all made in our own factories in Europe. However, the owners believed there was too much competition in the prestige channel and, instead, saw an opportunity in the mass channel as there is no makeup brand in the $10 range with this quality. If you are lucky like I was to have a brand with this flexibility, you may be in a position to look at many channels.

Assessing Mass Vs. Prestige What does mass offer that prestige does not? Both channels are consolidating. Both are demanding investment in building retail offtake. The makeup and skin care business is a lot bigger in mass. The U.S. makeup business in mass is about $7 billion, without e-commerce or direct sales, while prestige is about $3.5 billion www.GCImagazine.com

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The prestige channel, as mentioned in my last article, also comprises a short list of chains, so it is also hypercompetitive.

Financial Considerations

When launching Note Professional Cosmetics in the United States, the owners had the enviable price flexibility to assess opportunities in the mass and prestige channels.

at retail. On a unit basis, mass is more than five times larger than prestige. The average price point for prestige makeup is about $26, compared to $6 for mass. Prestige skin care’s price point is about $50, compared to $12 for mass. Prestige skin care is about the same size as makeup; the mass skin care business in dollars is bigger than prestige, and significantly larger when compared to units. It may sound, then, that mass is the way to go. Who wants prestige if the business is comparatively smaller and flat to declining? But while the mass market is bigger, it is tougher as well. The cost of going to the mass category is where the business may sound less attractive compared to prestige. There are roughly 50,000 mass stores in the United States, compared to about 3,500 prestige stores. This is where strategy gets a bit tricky. As with prestige, there are only a handful of retailers to deal with. If you look at the two pharmacy chains, Target and Walmart you have the true mass business. Ulta, meanwhile, is a hybrid, with each side of its stores having their own benchmarks and key performance indicators, so it behaves in some ways like both mass and prestige. I prefer to call Ulta a treasure hunt of beauty as it has no limits on the price spectrum. The retailer is looking just for strong points of difference and unique products to offer the customer. The other limited hybrid is The TJX Companies and, to a lesser extent, Ross and Nordstrom Rack. These retailers, along with Ulta, are some of the most successful beauty retailers as they attract sophisticated customers with affordable products that are merchandised in an impulse environment.

Given the short list of retailers, would prestige, mass or hybrid channels be more financially attractive? It comes down to investment. More stores means bigger orders and business but it also means bigger returns. The mass channel, like prestige, will put your product back on your doorstep if it performs poorly. The mass channel trade uses planograms that are usually reset twice a year, so your new brand has six months to either perform or get delisted. In the prestige channel, there can be benchmarks other than productivity. For startup brands that are willing to sacrifice lower volume for a bit less risk, it could be the solution—especially if the brand is partnered with home shopping, which brings incremental volume and free advertising for prestige brands.

Positioning Your Brand For most startup companies there is not a lot of money left over after building inventory to mount a sizable marketing campaign. As a result, the main financial issue with mass lies in finding a good marketing program or concept that is unique and breakthrough. One great example of a small company that gained traction quickly is Yes to Carrots, which was a unique concept that rode on the crest of the natural skin care trend. If you do not have a breakthrough brand, what are the other options? The most effective, in my view, is using social media and digital and grass roots marketing to build awareness quickly for a lower cost. The challenge is that everyone is jumping on the social media bandwagon, so it is not as cost-effective as it used to be. Vloggers now charge money and the big cosmetic titans like L’Oréal spend millions to woo them. I am still a big believer in this marketing strategy but it is no longer a cheap option.

Get Your Logistics in Order Providing logistics and supply chain for mass retailers is a very expensive and risky proposition. Today, Target and other chains

will charge you penalties if you either short ship or miss the shipping window. If you are a startup and successfully launch in mass, you could be financially penalized if you cannot not keep up with supply. In prestige retail your volumes are a lot lower, so it is easier to catch up with volume surges. Startups do not usually want to do their own warehousing and fulfillment because this takes a lot of cash. As a result, their distribution will be at the mercy of a third party logistics service. Finding a good partner that will make your brand a priority is hard to find. Third party logistics groups’ fees are high when you are shipping lowpriced product due to labor costs. If your product is about $5 wholesale, your total cost for supply chain could be around $0.75 or more—roughly 15%— which is high. Conversely, a prestige offering may be $15 average at wholesale but its logistics cost is still $0.75—or an affordable 5%. The bottom line is you need to do your homework and be aware, if you are supplying the mass trade through a third party logistics group, that you could be exposed to penalties and even delisting if you are having supply chain problems.

Next: The Good, Bad and Ugly of Direct Sales I hope this has given you some food for thought on the pros and cons of the mass channel. The reality is that there are as many examples of successful startup brands in mass as there are in prestige. In prestige, many recent startup launches owe their success to home shopping or e-commerce, where there is usually less investment and risk. In my next article I will talk about the good, the bad and the ugly regarding of these direct sales channels. Stay tuned.

JEFFREY RONALD TEN (jefften@att.net) brings more than 35 years of international senior management marketing and sales experience from the prestige, mass, direct sales, travel retail cosmetic industry. Ten has held roles with Nature’s Sunshine, NYX, Calvin Klein Beauty, Procter & Gamble (Prestige Division), Giorgio Beverly Hills, Estee Lauder, Elizabeth Arden and others. Currently, he is CEO/ general manager of Note Professional Cosmetics, a start-up/ independent makeup brand that launched in the professional channel at Cosmoprof Las Vegas in 2016.

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BEAUTY INFLUENCERS

Why trust is at the center of the industry’s influencer marketing revolution.

| BY SOURABH SHARMA, FIG or out

∑ Influencer marketing can provide a highly targeted, cost-efficient alternative to traditional advertising methods. ∑ To succeed, beauty brands must select influencer partners with the right audience to maximize trust and engagement. ∑ Failure to choose wisely can lead to alienation of consumers or even sanctions from the FTC.

@GCI_Magazine

here is always a popular kid in school that everyone wants to be friends with, one who often commands the attention of a growing fan base. In the age of social media, the metaphor of the popular kid has intersected with marketing. Any individual on social media with a focused vision and specific niche can become a celebrity with a community of followers. This community enables them to acquire a level of trust, the very foothold of any marketing strategy. To avoid narcissistic tendencies, advertisers have called this “influencer marketing,” which combines the evergreen success of word-of-mouth marketing and native advertising. Today, 60% of beauty and fashion brands are employing influencer marketinga; there are several https://econsultancy.com/reports/the-rise-ofinfluencers/

reasons for its popularity, including cost, authenticity, trust and reach.

More Reach for Less The beauty industry relies on one facet above all others: trust. Shoppers trust their friends and relatives, or even celebrities or socialites, when shopping for personal care or beauty products. Over time, they have also come to realize that ballooning hair or surreal eyelashes are likely the case of studio makeup and Photoshop, not product claims. A lower tolerance for this artifice explains why ad blocking has been growing by almost 50% per yearb, triggering high-profile initiatives from social platforms, such as Facebook. At the same time, Google Adwords and Facebook advertising fees have been escalating, with

facebook.com/gcimagazine

https://pagefair.com⁄blog/2015/ad-blocking-report/

Global Cosmetic Industry (GCI)

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frequent algorithm changes that mandate brands to pay for views. Influencer marketing, on the other hand, embeds brand messages into content in a way that resonates more authentically. As a result, an influencer post reaches its target market quicker than a paid 30-second media spot that will be seen by a general audience. In addition, well-crafted influencer content can be stretched across marketing efforts, including social and print campaigns. Therefore, relying on the community of an influencer is sometimes more cost-effective than traditional marketing, especially if the community already represents the brand’s target market.

Influencer 101 Having worked on multiple aspects of influencer marketing campaigns, I want to share four basic rules that showcase how brands can achieve measurable success.

1. Do not simply sell the product. A brand has to fit into the lifestyle of the influencer, which is the basis on which his or her community has grown. As such, selling the product becomes a secondary goal. Brands like TREssemé understood this when creating a video ad with Chrissy Teigenc. The ad was shot candidly, with Teigen being herself. Audiences felt they were just watching their trusted influencer, and ended up learning about the product via embedded messaging. This represents a shift from traditional sales and call-toaction based marketing.

Consumers enjoy hearing that someone they trust is connected to the product creation process, which speaks of transparency and authenticity. through a relatable issue and captured 6 million YouTube views.

3. Make influencers the enablers. Consumers enjoy hearing that someone they trust is connected to the product creation process, which speaks to transparency and authenticity. L’Oréal collaborated with YouTube beauty expert Michelle Phan and launched a makeup line, em cosmetics, which it has since divestedd. BH Cosmetics roped d Editor’s note: Late last year, wwd.com reported that the em cosmetics line, which may have suffered from pricing that was misaligned with its audience, had been sold back to Phan’s own company, Ipsy. The news showed that, even as the marketing rules are being rewritten, basic product development principles continue to hold true.

in YouTube influencer Carli Bybel and co-created an affordable eyeshadow palette. Not only was the palette out of stock within hours, but the site crashed, heightening the buzz. Both examples show how making the influencer an enabler can be a mutually beneficial strategy.

4. Launch a new product or line. Shoppers in a densely saturated cosmetics market are often faced with product overwhelm. In order to stand out, new entrants or brand extensions have often relied on influencer outreach, and for good reason. When a shopper sees their favorite icon or trustworthy source with a hot new product, their awareness and recall levels are higher compared to seeing an ad, which induces trial or purchase.

2. Make the brand relatable. Any form of marketing works best when the brand, its message or its core emotion resonates with a given community. When CoverGirl had women like Ellen DeGeneres, Pink and Queen Latifah, among others, talk about their setbacks in male-dominated industries with the #GirlsCan campaign, the sentiment struck a chord with women— even those who were not previously CoverGirl shoppers. The campaign connected consumers and influencers c

www.youtube.com/user/TRESEMME

www.GCImagazine.com

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Over time, consumers have come to realize that ballooning hair or surreal eyelashes in ads are likely the case of studio makeup and Photoshop, not product claims. Beauty Influencers 47

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BEAUTY INFLUENCERS

When people saw bright blue bearshaped hair vitamin supplements popping up on the Instagram accounts of several models and beauty influencers, both shoppers and media sought out Sugar Bear Hair. Brighter White took a similar route with its teeth whitening kit, targeting influencers because their communities guaranteed relevant awareness and trial.

Influencer Caveats Despite its popularity, there are some reasons to be cautious with influencer marketing.

1. The saturation of influencers. Before social platforms began ballooning with paid ads and analytics, influencers were easier to find due to sheer reach and follower ratios. Now there are industries that sell followers and likes, and while there are ways to spot red flags, brands needs to be careful in identifying influencers who epitomize their target user. To balance findings, Malcolm Gladwell’s “Tipping Point” (Back Bay Books, 2002) has the following formula for brands to consider e: Influence = Audience Reach (# of followers) x Brand Affinity (expertise and credibility) x Strength of Relationship with Followers www.forbes.com/sites/kylewong/2014/09/10/ the-explosive-growth-of-influencer-marketing-andwhat-it-means-for-you/#1784e965595f e

L’Oréal collaborated with YouTube beauty expert Michelle Phan and launched a makeup line, em cosmetics, which it has since sold back to Phan’s company, Ipsy.

Other ways that brands can move beyond follower counts is by giving influencers unique clickable links or customized coupon codes. These custom codes allow for an accurate measure of conversion per influencer.

2. Questionable product loyalty. Many influencers in a given niche tend to have many brands vying for them. Consequently, 59% of marketers say that engaging with influencers is a challengef. Nonetheless, many influencers endorse competing brands over a longer time period. While brands can negotiate such terms, it becomes difficult to promise loyalty, which puts an industry based on trust and authenticity in a tricky position.

3. Beware the FTC.

When CoverGirl had women like Ellen DeGeneres, Pink and Queen Latifah, among others, talk about their setbacks in male dominated industries with the #GirlsCan campaign, the sentiment struck a chord with women; Source: CoverGirl.

The Federal Trade Commission (FTC) has been monitoring cases in which promotional arrangements are not disclosed appropriately. Per a 2013 update in the FTC’s guidelines on digital advertising, people must disclose when they are paid for posts in a “clear and conspicuous” way. For its Design Lab launch, Lord & Taylor employed influencers, who posted images https://econsultancy.com/reports/the-rise-ofinfluencers/

wearing identical dresses on the same day. While the dress sold out within hours, many had to edit their Instagram posts by placing “#ad” in them. Nonetheless, the success of the campaign exemplified that audience engagement can still be strong, even with litigation in placeg.

In Relevance We Trust The explosive growth of social media celebrities has made it aspirational to become an influencer. Brands must always identify influencers whose personalities and beliefs are relevant to the brand. Relevance fortifies trust, and ignoring it for metrics like reach and follower counts puts the brand’s identity at risk. Only with relevance and trust will brand loyalty and sales follow suit. Ultimately, brands need to realize that, by understanding influencers and their respective communities, they are acquiring a deeper understanding of themselves. g Lord & Taylor eventually settled with the FTC on this matter; https://www.mwe.com/en/thoughtleadership/publications/2013/04/ftc-updatesguidelines-for-making-proper-disclos__

SOURABH SHARMA is the founder of FIG or out (@FIGorout on Twitter); he can be reached at talktome@ figorout.com.

48 Beauty Influencers GCI September 2016

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INGREDIENTS & CLAIMS

Clariant’s Plantasens Metamorphosis collection for face, body and hair care, provides transforming textures for the consumer—for example, a balm to a powder, an oil to a lotion, a lotion to a thick emulsion and a gel to a clear veil.

Amyris and Givaudan have reached an agreement regarding the research, development and production areas of active cosmetic ingredients that they expect to demonstrate performance, cost and sustainability advantages. Givaudan will exclusively commercialize ingredients designed and scaled up by Amyris under the terms of the deal.

Schülke has introduced euxyl K 903 (INCI: Benzyl Alcohol (and) Benzoic Acid (and) Dehydroacetic Acid), which now contains natural tocopherol. With the stabilization of natural tocopherol alongside other natural occurring ingredients, the material meets various certific ations including Ecocert, NATRUE and COSMOS and can be used in sensitive formats such as eye-area products, baby wipes and sensitive skin products.

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Evonik is working with biosurfactants to produce industrial-scale quantities of biodegraddable material for use in shampoos, shower gels and household cleansers. The company also plans to develop and market another class of biosurfactants known as rhamnolipids, which can be used for foaming properties.

AmorePacific Corp. obtained NET (new excellent technology) certification during the 2016 NET Certification Awards for its Kazinol F-mimicking skin brightening ingredient derived from paper mulberry. The amide-based ingredient will be introduced soon in the medical beauty cosmetics brand Aestura. The material reportedly has greater stability and a stronger brightening effect compared to Kazinol F. The material’s safety was reportedly confirmed through cell, artificial skin testing and clinical demonstration.

ChemSpec, Ltd. has announced its distribution of French seaweed extract actives—specifically, Invincity (INCI: Ascophyllum Nodosum Extract), which protects skin from pollution and fights damage—via a partnership with Algues & Mer. The ingredient also helps repair skin with anti-dark spot and anti-redness activity, in addition to boosting firmness.

50 Ingredients & Claims GCI September 2016

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PACKAGING INNOVATIONS Topline Products by Texen has introduced the Make Up Art Collection Gamme Liners and Gamme Stylos applicator pens for the eye and lip segments. The line offers a variety of applicator pens, with their felt-tip, brush, ball or cushion tips, which can create a new gesture for a diversity of make up looks and a trendy attitude.

Qosmedix has introduced the Matte Black Lipstick Tube with Silver Band (Part #29997) and a Black Lipstick Tube with Clear Cap (Part #29998).

Mibelle AG has won the technology category of the Swiss Packaging Award 2016 with its “smartSlide” closure which helps prevent spillage. The closure provides an easy, intuitive way to open the product, dripless dispensing, and safe, simple, one-handed closure. The bottle can also be placed upside down when open without spillage, practical for shower or facial cleansing products.

RPC Bramlage Velky Meder has introduced the 30 ml CD Exclusive top-filled dispenser, which was used for the anti-aging facial care product DNA Intensive Age Control Serum from postQuam Cosmetics.

VariBlend has acquired HUTT automatic fill- and final assembly equipment for its 20 mm MiniMix, which will streamline its supply chain efficiencies. The new equipment is part of VariBlend’s recent strategic partnership with Cosmax.

British Columbia-based Taslie Skin Care has found an innovative way to begin an eco-friendly conversation with young children: by using frogs. The brand will donate a portion of its sales to the Canadian Sea Turtle Network.

Taylor Box Company’s Custom-designed Base and Lidbox, seen here in a version for subscription box company Mostess, is geared toward high-end party hostesses. The Mostess box is wrapped in black Multicolor by Fibermark, now a Neenah product. The Buckram embossed texture of the paper is accented with a large rose gold foil stamp. By using a simple foil stamp decoration on uncoated paper, the box is also 100% recyclable.

M&H Plastics has introduced the 300 mL flat-based Boston round (ref: 4240) bottle and 50 mL flat based Boston round (ref: 4131) bottle, which has been used for Abhati Suisse’s latest range of nourishing shampoos, strengthening conditioners and botanical body cleansers, called Kanva, Yamuna, Mahakali and Periya.

SUBSCRIBE TO GCI’s NEWSLETTER for innovation and breaking news daily. www.GCImagazine.com/newsletter

52 Packaging Innovations GCI September 2016

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At first sight, Alpha’s jars turn heads. But a closer look at our wide range of options reveals even more reasons to trust Alpha for your personal care packaging needs. With seven North American manufacturing locations to choose from, we can help you get jars faster and with lower shipping costs from our plant to your filler. Alpha is currently stocking more sizes and colors of PET plastic jars than ever before, from 2 ounces to 32 ounces; and, if you desire a custom color to reinforce your brand, we can create a color for you with very low minimums. Alpha can also create a custom mold or enhance your finished package with high quality silk screening, labeling or spray frosting to take your brand to the next level. At Alpha Packaging, we don’t just make beautiful things; we make beauty that works for you. For free samples of our stock bottles and jars, visit www.alphap.com and click “Request a Sample.”

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PRODUCTS and SERVICES

showcase

CONTRACT MANUFACTURING

To reserve space in this section, contact

Kim Jednachowski kjednachowski@allured.com

1-630-344-6054

PACKAGING

54 Products and Services Showcase GCI September 2016

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PACKAGING

PRIVATE LABEL

SERVICES

www.GCImagazine.com

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AD INDEX The Advertiser Index is provided as an additional service for readers to obtain information on companies and their products. The publisher assumes no liability for omissions or errors.

PAGE

ADVERTISER

PHONE

WEB SITE

Alpha Packaging

1-314-427-4300

www.alphap.com

Anisa International, Inc.

1-404-869-6475

www.anisa.com

Baralan USA

1-718-849-1600

www.baralanusa.com

BASF

1-973-245-6000

www.carecreations.basf.com

Berjé, Inc.

1-973-748-8980

www.berjeinc.com

Bioscreen Testing Services

1-310-214-0043

www.bioscreen.com

Campo Research Pte Ltd.

11-656-383-3203

www.campo-research.com

Carrubba, Inc.

1-203-803-0706

www.carrubba.com

Centerchem, Inc.

1-203-822-9800

www.centerchem.com

Classic Cosmetics, Inc

1-818-773-9042

www.classiccosmetics.com

CoValence, Inc.

1-480-897-0551

www.covalence.com

Evonik

1-804-452-5616

www.elements-of-care.com

Extracts & Ingredients

1-908-688-9009

www.morretec.com

Fenchem Biotek Ltd.

86-2584-572-922

www.fenchem.com

Fusion Packaging

1-214-747-2004

www.fusionpkg.com

Inoac Packaging Group, Inc.

1-502-348-5159

www.inoacusa.com

Mane USA

1-973-633-5533

www.mane.com

schülke, Inc.

1-973-770-7300

www.schuelke.com

Spectra Colors Corp.

1-201-997-0606

www.spectracolors.com

Sun Deep Cosmetics, Inc.

1-800-985-2228

www.sundeepinc.com

U.S. Nonwovens Corp.

1-631-952-0100

www.usnonwovens.com

YonWoo/PKG

1-631-981-8701

www.pkggroup.com

9 11 28–29

5 35

56 Ad Index GCI September 2016

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