In the long break from the blog that I took another topic for which some contacted me was in the old surveys I was doing on the topics that you would like to deepen: “creating a new cosmetic brand”.
– Cosmetic dwarfism
– Marginality and start-up costs of a new cosmetic brand
I don’t think about writing yet another handbook, Bignami format, on how to be successful in cosmetics, get rich, etc. I have always considered the instructions for how to succeed as ridiculous as discussions about efficient or irrational markets. There are no standard formulas to create a successful brand in cosmetics and if they existed and I knew them, now I would be on vacation in the Caribbean or in other pleasant places and not in front of a keyboard to feed a cosmetics blog.
Considering that, before “retiring” to be a blogger, I worked a lot in cosmetics and I have seen not a few cosmetic brands born (and die), I can devote some articles to the subject.
In this I will address the topic by deepening the phenomenon of the pulverization of the cosmetic market in thousands of small brands, from the point of view of those who think of building their own cosmetic brand.
In the pipeline I also have an article on the archetypes of own brands: the pharmacist’s brand, the doctor’s brand, the dreamer’s brand, the large-scale retail brand, etc …
Cosmetic dwarfism
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I have often received messages on the blog like: “what do you think of the Pinco-Pallino brand”. Most of the time they are micro brands, which seem to be talked about a lot on the internet, perhaps also because they are skilled in doing net-marketing, but which actually involve a very limited range of consumers, even if on the internet it seems that millions of consumers and consumers fight to grab it. I do not exclude that some requests to talk about this micro-brand come not from an interested consumer / trice, but from some young rampant who has launched into the adventure of net-marketing, in what the Americans call astroturfing., the technique of sowing and disseminating the image and credentials of a product or brand on the web, in forums and blogs with seemingly independent messages.
For my work, over the course of several years, I have often checked the financial statements of many cosmetic companies (I remember over fifty of them) discovering how often good visibility on the internet, very often does not correspond with sales volumes. In short, there is a lot of talk about it, many say they appreciate this brand, but then actually the consumers who have bought it are few or very few.
I remember an old survey commissioned by Unipro (now Cosmetic Italia), the association of Italian cosmetic industries, which highlighted how Italian cosmetics was pulverized with over 1000 small cosmetic brands. Many are small or very small companies, with annual sales of less than one million euros.
From the sales it is possible to estimate the quantity of cosmetics actually sold: for example, a brand that sells € 1,000,000 in cosmetics with an average price of € 8, sells 125,000 in a year. By calculating the buybacks and the catalog with generally many products, one a brand of this size is unlikely to “catch” more than 5,000 consumers.
The first cosmetic brands, the market leaders, total sales of the order of 50/60% of all cosmetic sales. The remaining 50/40% is divided between medium-large brands and many, many brands that hardly exceed € 1 million in annual sales.
The birth and survival of so many small cosmetic brands is a global phenomenon, it happens a little everywhere from the USA to China, but in Italy it seems that the phenomenon is accentuated. It may be due to our Italian entrepreneurial dwarfism, where the ability and perhaps even the will to do great business is scarce. It may be the widespread presumption that it is enough to have a business and entrepreneurial idea that works to have great success. It may be due to a widespread narcissistic creative flair not supported by good managerial and managerial skills. It may be simply because the entry barriers in cosmetics are relatively low and the fact that, despite an evident regulatory tightening in recent years, the investment required to create one’s own cosmetic brand is relatively low.
Marginality and start-up of a cosmetic brand
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The market is governed by the relationship between supply and demand and if there are so many small cosmetic brands it means that each of them has carved out its own slice or slice of the market anyway.
The siren song with which the cosmetic attracts many investors or entrepreneurs ready to launch a new brand resonates with 3 fundamental themes:
Cosmetics are one of the consumer goods with the highest contribution margins.
Initial investments to start a new cosmetic brand are relatively low.
The cosmetic sells easily.
Cosmetics are one of the consumer goods with the highest contribution margins.
The ratio between retail price and industrial cost is on average much higher than in other consumer products.
Many small brands or start-ups then position themselves in the prestige or luxury segments, precisely to reduce initial investments and to be able to produce even small batches with decent economies of scale.
There are not a few cosmetic products on the market where the ratio between price and cost is higher than 50.
This apparently huge profit margin suggests that by launching a new cosmetic line it is easy to get rich.
Relatively low initial investments
Today, relatively small investments are required to create and put into production a new cosmetic brand.
Before the entry into force of the European directives 76/768 / EEC practically anyone, with the help of a minimum laboratory, could produce and market a cosmetic line. The European directives and regulations have raised the barrier to entry to the market and by way of example today only a few pharmacies have the requisites to produce and market their own cosmetic lines and many turn to subcontractors specialized in own-brand production for pharmacies.
Not that multimillion-dollar investments (in €) are needed to set up a cosmetic production laboratory, but procedures, registrations and controls today are in fact more onerous than in the past.
To produce a new cosmetic line, however, you can contact a subcontractor who, having already invested and put the cosmetic production structure in order, can offer the production service and sometimes even the design of the cosmetic line.
In some segments, such as decorative cosmetics (make-up), the vast majority of products on the market are produced in companies operating on behalf of third parties, with a good level of concentration. In other segments, such as detergents, hair care and skin care, the decision to produce internally or with subcontractors depends on various factors and it is also possible to find very small production units, laboratories with a single turbo emulsifier, capable of supporting small or very small productions.
The flexibility and the services rendered by the subcontractors have expanded over the years, some offer new turnkey brands, taking charge, once the business plan has been agreed, also of the design and a sort of pre-marketing and definition of the product concepts. Often the client comes up with a simple, vague cosmetic business idea and finds a portfolio of formulas already made, tested and optimized, packaging and labeling proposals and some good advice on marketing mistakes to avoid. In many cases it is necessary to customize the formulas already developed by the subcontractor, with a new perfume or with the addition of some emotional ingredient, which allow to better characterize the new cosmetic brand and to adapt the products to the “sales record”, that is to the ” story ”that you want to tell to sell them.
Especially thanks to digital printing technologies, flexibility is now at the highest level. While years ago for the launch of a new cosmetic product to have a minimum economy of scale, the economic lots were in the order of 10-20 thousand pieces, today anyone who wants to have even a few hundred pieces of a cosmetic product produced under their own brand can find the third party company that does it to them. The unit cost in small productions is obviously much higher than in large batch productions and this is why, even if positioned in the prestige or luxury segments, these new small brands do not have the high contribution margins I mentioned earlier.
The cosmetic sells easily
Among the tunes sung by the sirens that attract towards the cosmetic business this is the most deceptive. Those who are attracted to the cosmetics business believing that it is easy to sell are easily disillusioned and discover that there are often hidden the rocks against which the entrepreneurial project breaks.
It is true that the sale of the cosmetic is often associated with the sale of a dream. But selling dreams is not for everyone.
The illusion that it is “easy” to sell cosmetics fuels the recruitment of thousands of salespeople in cosmetic brands that operate with direct sales or pyramid systems.
In reality, among the thousands of sellers recruited with the illusion of becoming rich or supplementing their income, almost all manage to sell some cosmetics to a small circle of acquaintances and relatives and then give up. The direct sales giants that exploit pyramid-like systems reach huge sales volumes thanks to the continuous flow of new sellers, tens of thousands of tiny sales in addition to the purchase of the product package that each seller must make to start his business.
The cosmetic market is highly competitive, even if the margins can be very high, the commercial costs are on average very high. In the balance sheets of leading groups, marketing costs can reach 30% of sales, a very high share when compared with the incidence of marketing costs of other consumer products.
The sales commission of a good salesman / agent in small brands can exceed 20%.
In short, selling the cosmetic well is not easy at all and it costs money.
Rodolfo Baraldini
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