The beauty and care industry is evolving

Shifting consumer preferences require critical growth drivers throughout the value chain.

COVID-19 negatively impacted the beauty and care industry, significantly altering consumer behavior and preferences throughout the industry. With this shift in consumer preferences, an age-embracing population, and the rise of digitalization, beauty and care companies are facing increased pressure with respect to higher margins, sustainability, corporate responsibility, and growth. New beauty trends have emerged as consumers regain some amount of normalcy. Prioritization of protection over simply enhancing skincare has launched several beauty brands that mix in science with the basics like alpha-hydroxy acids, niacinamides, vitamins B5 and Q10.

“There are two overarching trends: Consumers are seeking more comprehensive skincare systems and the importance of protection also got a boost. With protection becoming the #1 consumer need, beauty brands need to quickly pivot from previously just enhancing to protecting skincare”.   ­Zeynep Koller, Partner at Porsche Consulting

Shifts in consumer preferences along with a maturing population and the rise of digitalization led to the emergence of eight critical growth drivers throughout the value chain. As beauty and care companies face increased pressure with respect to higher margins and growth, targeted steps and growth interventions must be taken to remain competitive and leverage these opportunities for sustained high performance.

Step1 | Influence and Marketing
COVID-19 increased the popularity of influencer marketing and proved that it is a necessity for many companies. Around 30% of beauty and care consumers make their purchasing decisions based on social media, positioning cosmetics as the second-largest product category for engagement. Companies can maximize each marketing dollar by leveraging both large and micro-influencers, increasing personalization, and optimizing consumer data acquisition.

Step 2 | Corporate Responsibility and Sustainability
Consumers expect more responsibility, action, and accountability from beauty and care companies, with more than half of consumers considering sustainability a key factor when making purchasing decisions. Sustainable packaging, social movement support, and eco-friendly manufacturing are specific actions beauty and care companies can take immediately.

Step 3 | Ingredient Quality and Transparency
Growing concerns over ingredient safety and outdated regulation are driving portfolio growth in natural and organic products. More than half of female consumers check ingredients on beauty products to avoid specific additives, with 40% intending to increase spending in natural beauty products in the future. Beauty and care companies should focus portfolio expansion on natural products, engage in open dialogue regarding sourcing methods, and implement traceability programs.

Step 4 | Time to Market
Shorter product lifecycles and the rise of the digital consumer force beauty and care companies to bring their products to market sooner. A steady stream of savvy new entrants and accelerating trends are pushing the pace of change and the need for operational agility. Companies must ensure their new product development and introduction processes work at the same pace as consumer data insights.

Step 5 | Supply Chain Design
Beauty and care companies must manage an above-average number of individual products to continue to please consumers and meet their needs, increasing supply chain complexity. Global supply chain uncertainties, demand variation, and growing demands for traceability and speed are driving the need for resilient supply chains. Companies should leverage digital SC solutions as they are becoming increasingly critical in designing an optimized supply chain, especially as smaller batch orders are fulfilled through D2C channels.

Step 6 | Sell-In/Sell-Out Management
The pandemic decreased sell-in/sell-out ratios by an average of 5-10% throughout the beauty and care industry. An over-reliance on retailers has driven brands to offer steeper discounts and increase their cash conversion cycle to relieve inventory. Companies must diversify their sales channels to maintain proper inventory levels and profitable sell in/sell out ratios.

Step 7 | Physical Retail Experience
COVID-19’s lasting impact on consumer behavior has accelerated e-commerce, reduced foot traffic and forcing retailers to rethink the in-store experience. Many consumers wish to avoid transactional experiences, creating an opportunity to leverage areas where digital channels fall short: personalized experiences, consultations, and testing. Many brands can begin to enable this experience through alternative retailers, cross-industry partnerships, and promotion of beauty DIY.

Step 8 | Digital Experiences and New Technology
COVID-19 shut down more than 30% of the beauty and care industry and forced consumers to purchase more products online. The online share is expected to exceed 30% by 2025, increasing the need for a seamless omnichannel engagement and experience. Companies should increase their focus on being present across channels and leverage technologies to create greater connection with the consumer, design personalized digital experiences, promote brand loyalty, and mimic in-store experiences (e.g., virtual try-on, e-expertise).

Winning over consumers requires connecting the dots across growth intervention steps to best align investments and reallocate resources and assets. Beauty consumers desire an increasingly stronger connection to products which makes all things digital a table stakes capability. CPGs that recognize and pursue consumers as product innovators will stay ahead of the game. Engaging across the path to purchase, learn habits and sense unmet needs is most critical to respond at pace.