Marketing is everything in the consumer products world. While the barriers to launching a startup are low, the competition is fierce. It can be virtually impossible to get shelf space in drug stores or supermarkets for a new item. This makes the flexibility of the internet vital to a new firm. Gross profit margins tend to be very high in consumer products. For example, the cost to manufacture cosmetics or personal care items represents a tiny fraction of the retail price. The greatest expense is typically in marketing. Likewise, packaging can be extremely important, and sometimes quite costly for items that sell at luxury price points.
These high profit margins attract a large number of savvy entrepreneurs who see the opportunity to disrupt various product categories. One of the best stories is that of the Dollar Shave Club. The firm’s founder, Michael Dubin, recognized that razors and blades represented a massive market with recurring revenues. Consumers know how many blades they need each month, and traditionally they paid substantial prices at stores to get their blades on a regular basis. Dubin realized that he could offer quality razors at discount prices on a subscription basis. The concept quickly earned great success, gaining 3.2 million customers in its first four years of operation. Dollar Shave Club was so disruptive that it was acquired by industry giant Unilever for about $1 billion.
Online marketing and social media are enabling more and more consumer products companies to reach their customers using a direct-to-consumer business model. Beauty Pie is a website that offers members steeply discounted beauty products on a monthly buying plan. Members typically pay $10 per month (with a three-month minimum) and have a spending limit of $100 each month. The site claims that products sold at retail are marked up as much as 85%, while it connects its members directly with beauty suppliers at much lower prices. A lipstick may sell in a department or super beauty store for $25 while Beauty Pie offers it for about $3.
Another firm, at-home hair color maker Madison Reed, sells 90% of its products from its website, www.madison-reed.com, with the remaining 10% through super beauty stores and QVC. The company offers a tool, called the Madi Chatbot, that analyzes selfies uploaded by customers and matches their hair color to Madison Reed shades. The hair color market is expected to reach in excess of $29 billion by 2019, according to Technavio, on a global basis. In the U.S., an estimated 56 million women and men dye their hair at home.
Social media has made digital marketing even more powerful for consumer goods. The fact that many consumer products, such as hair and beauty items, are best sold through images means that sites like Instagram can give products a very quick and powerful boost through user-generated photos. Consumers’ posts about new products that they like provide a further boost. Savvy marketers worldwide are making the most of this phenomenon with great success. Sales often soar when the right “influencers,” such as film stars, popular bloggers or music celebrities, are convinced to boost products online, often through generous fees or the offer of a stake in the company that is being boosted.
This new data is now available at Plunkett Research Online, and in a brand-new book: Plunkett’s Consumer Products, Cosmetics, Hair & Personal Services Industry Almanac, 2018 edition.
Printed Almanac ISBN: 978-1-62831-477-9 | E-book ISBN: 978-1-62831-802-9
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