Online Marketing, Social Media and Ecommerce Enable Startups and Disruption in Consumer Products and Cosmetics

A handful of extremely powerful trends are disrupting the consumer products and services segment. The most noteworthy may be the marketing power of the internet. Digital marketing has been incredibly disruptive, enabling startups to gain rapid popularity and grab market share from incumbents such as Unilever. Small firms can readily set up shop with their own websites and then draw traffic by utilizing a wide variety of digital platforms, such as Pinterest, Facebook, Instagram, health and beauty bloggers, Twitter and similar promotional opportunities—many of which are free-of-charge. Small firms can also reach millions of potential consumers via global sites such as the Amazon Marketplace and China’s Tmall.

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.

Marketing is everything in the consumer products and services 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 product. This makes the flexibility of the internet absolutely vital to a startup. Gross profit margins tend to be very high in many consumer products. That is, the cost to manufacture a beauty product typically 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 gross 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 retail 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. This offered the consumer both convenience and savings. 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 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 choose from annual or monthly payment packages. The site 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 at a discount that might be 66% off.

Another firm, at-home hair color maker Madison Reed, sells most of its products from its website, www.madison-reed.com, with a small portion sold 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.

SPOLIGHT: AI Used to Personalize Consumer Products

Consumers who are shopping for consumer goods online due to the Coronavirus pandemic of 2020-2021 are finding new products that are tailored to personal preferences and needs. For example, L’Oreal’s Makeup Genius app is a virtual mirror that works on smartphones, enabling users to “try on” makeup using selfies. The app had over 20 million downloads in its first year. L’Oreal also offers Yves Saint Laurent Rouge Sur Mesure (powered by Perso technology), a device that uses artificial intelligence (AI) to create personalized cartridges of different shades of lipstick. On-the-fly, it can create bespoke shades tailored specifically to the wearer, from up to 4,000 possible hues in its system. The device has a detachable compact that users can take anywhere for easy application of makeup on-the-go. Estee Lauder worked with Perfect Corp.’s YouCam Makeup virtual makeup tester to develop its iMatch Virtual Shade Expert foundation matcher and iMatch Virtual Skin Analysis for at home skin care planning.

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