CT13 WO Strategies to Succeed in the Fast Evolving Premium Beauty Market Копия

STRATEGIES TO SUCCEED IN THE FAST EVOLVING
PREMIUM BEAUTY MARKET

September 2013
INTRODUCTION
PREMIUM BEAUTY PERFORMANCE
COMPETITIVE LANDSCAPE
KEY STRATEGIES AND CASE STUDIES
GLOBAL PROSPECTS
INTRODUCTION
Scope
 All values expressed in this report are in US dollar terms, using a fixed Disclaimer
exchange rate (2012). Much of the information in this
briefing is of a statistical nature and,
 2012 figures are based on part-year estimates. while every attempt has been made
to ensure accuracy and reliability,
 All forecast data are expressed in constant terms; inflationary effects are Euromonitor International cannot be
held responsible for omissions or
discounted. Conversely, all historical data are expressed in current terms; errors.
inflationary effects are taken into account. Figures in tables and analyses are
calculated from unrounded data and
P Baby and Child-specific products may not sum. Analyses found in the
briefings may not totally reflect the
companies‟ opinions, reader
P Bath and Shower discretion is advised.
P Colour Cosmetics Premium cosmetics are

recovering following a difficult
period at the onset of the
P Deodorants economic downturn, as
premium cosmetics player focus
Premium P Fragrances on brand experience through
Cosmetics high tech, targeted and more
customised innovation, while
P Hair Care increasing the scope of
consumer interaction with the
brands, both in store and in the
P Skin Care digital space.
P Sun Care
P Sets/Kits
© Euromonitor International BEAUTY AND PERSONAL CARE: PREMIUM PLAYERS‟ WAY FORWARD PASSPORT 3
INTRODUCTION
Key findings
Premium Global retail sales in premium cosmetics continued to grow but underperformed the
cosmetics mass segment in 2012. Consumer trading down in developed markets impacted the
recovering growth of premium cosmetics.
Shifts towards Value growth in global premium cosmetics has decisively shifted from developed
emerging markets markets to developing markets. Demand in emerging markets is growing strongly on the
back of dynamic economic development and rising disposable incomes.
Consolidated Premium cosmetics is highly consolidated, with the top players commanding large
premium market shares. The financial strengths of these players are crucial in their scientific research
and product development, the key attributes to ensure product quality and price.
Customisation of Personalisation has formed a key part of the premium cosmetics business, particularly in
launches skin care and fragrances, in which innovations have been focused on more targeted and
customised solutions to cater to specific consumer preferences.
Affordable Adapting to consumers‟ more careful spending, premium players are creating offerings
premium at lower prices by means of smaller packaging, broadening distribution channels and
even cutting prices to make premium products more accessible to consumers.
Upmarket Upmarket premium offerings are best for targeting affluent consumers who are less
premium impacted by volatile economic development, bypassing middle-income consumers to
reinforce premium status and build up brand equity.
Digital Expanding their presence in the digital world has now become a given among premium
involvement players. Engaging consumers with easy, fun and convenient activities, and emphasising
premium status with a lavish shopping experience has paid off for many players.
INTRODUCTION
GLOBAL PROSPECTS
Premium players emphasise experience to drive growth
 The 2008-2009 recession was a difficult period for Y-O-Y Growth Top Five Premium Players
the leading premium players, with growth rates 2007-2012
falling sharply in 2009. Shiseido‟s sharp growth in 12
2010 was due largely to the acquisition of Bare
Escentual rather than organic growth. While cash- 10
% Y-O-Y Growth (US$ fixed exchange rate)

strapped consumers limited their purchases,
premium cosmetics also faced competition from 8
the masstige brands that were marketing products

6
on the basis of more sophisticated product
technology, further appealing to consumers
4
seeking to spend less.
 To combat competition from the masstige brands, 2
premium cosmetics players decided to focus on
enhancing the brand experience to help distinguish 0
their premium brands from masstige brands. Brand

-2
experience took the form of offering more
customised solutions, while increasing interaction
-4
with consumers both in store and in the digital 2007-08 2008-09 2009-10 2010-11 2011-12
space. In addition, premium players sought to
L'Oréal Groupe
develop a greater presence across the pricing
Estée Lauder Cos Inc
spectrum, to make their products accessible to a Shiseido Co Ltd
wider range of consumers, with different levels of LVMH Moët Hennessy Louis Vuitton SA
affordability. Procter & Gamble Co, The
Premium cosmetics continues to grow
 An emphasis on developing a Global Beauty and Personal Care Continues to

distinct market position for Grow 2007-2012
premium brands helped to drive 400
growth in the overall premium 350
300
US$ billion
category in 2012. The solid growth 250
posted by the beauty industry in 200
2012, despite economic 150
100
uncertainty, was helped by the
50
premium categories. 0
 Premium cosmetics continued 2007 2008 2009 2010 2011 2012
their upward growth curve in 2012, Mass Cosmetics Premium Cosmetics
posting 5% value growth, but still

underperformed the mass Premium Cosmetics Returns to Growth 2008-2012
segment, which recorded a 6% 7
increase. However, this was still 6
the best performance in the review 5
% growth
period, following the onset of 4

financial crisis and economic 3
recession, which drove consumer 2
down-trading in many mature 1
markets. 0
2007-08 2008-09 2009-10 2010-11 2011-12
Premium Cosmetics Mass Cosmetics Beauty and Personal Care
Premium skin care the core category in total revenue
 Premium skin care remains the largest category in value terms, comprising 35% of global premium
cosmetics sales in 2012. Value growth in premium skin care continued to strengthen in 2012, with a 4%
increase, compared to 3% in 2011. However, it still underperformed the global average in premium
cosmetics. Premium anti-agers continued to be the fastest growing category, achieving double-digit growth
in China, the US and Brazil. Global premium skin care will remain dynamic over the forecast period, as
demand in emerging markets, such as China, is set to increase rapidly.
 Following an exceptional year in 2011, when product development centred on high quality and
craftsmanship to entice consumers through luxury and exclusivity credentials, consumers‟ love for premium
fragrances was toned down in 2012, with value sales increasing by 4%, compared to 6% in 2011. However,
it still contributed strongly to actual value growth in 2012, second only to premium skin care.
 Premium hair care outperformed the largest two categories in 2012, as manufacturers took inspiration from
skin care, encouraging premiumisation and developing multi-step regimes for consumers.
Premium Cosmetics Performance by Category 2012
12
P baby care
% CAGR 2012-2017
10
P bath and shower
8
P deodorants P colour cosmetics P skin care
6 P hair care
4 P sun care
P sets/kits P fragrances
2
0
0 5 10 15 20 25 30 35 40
Market size 2012 (US$ billion)
Note: Bubble size represents the shares of each category within premiums cosmetics, range from 0.4-35.4%
Focal points to provide more personalised brand experience
Innovation Positioning Communication

 Product development based on  Developing a clear brand  Brand communication has taken
greater personalisation has positioning lies at the heart of more and more centre stage as
been of paramount importance creating a unique brand premium players aim to develop
to create brand differentiation. experience. This encompasses a clear distinction with rival
To this end, there has been a clearly defining the target group, brands in the market. Premium
plethora of launches mainly setting the right price point, players have increased
focusing on targeted benefits, investing in product innovation investment to train beauty
such as ageing, sensitivity, skin and, importantly, communicating consultants to offer better
damage by UV sun light for clearly with the target group. advice to consumers. In
more in depth customisation,  Pricing is of key importance, as addition, premium
while masstige brands this is an important factor in manufacturers have also been
concentrated on motivating purchase. investing in the digital media to
multifunctionality. In premium Manufacturers aim to combine reach out in a more interactive
fragrances, launches involved both accessible premium with way to internet savvy younger
offering a collection to give high-end premium, allowing consumers. Emphasis has been
consumers more of a choice – them to optimise revenue. For placed on improving visual
an example being Tom Ford example, L‟Oréal acquired communication at the point of
Private Blend. These strategies Urban Decay to fill the gap in sale. In addition, premium
have helped premium brands to accessible premium colour colour cosmetic brands and
enhance the brand experience. cosmetics in its portfolio. fragrances sponsor events such
as fashion shows to help raise
brand profile.
Personalising brands in a diverse market
 The focus on personalised experience pursued by premium brands is becoming more of a challenge as the
diversity in the market increases. With the growing influence of emerging markets, premium players have
come under pressure to draw on a wider variety of cultural references when creating unique brand
experiences.
 This has been particularly prominent in fragrances, where, for example, a number of fragrance houses
have launched perfumes based on the “oud” note, to appeal to consumers from the Middle East and Africa.
The region is projected to account for the highest portion of absolute growth in premium fragrances over
2012-2017, motivating manufacturers to tailor fragrances to suit the preferences of Middle Eastern
consumers. Estée Lauder was amongst the pioneers, launching Wood Mystique in the region in 2011. In
2013, this has become more widespread with Dolce & Gabbana, Tom Ford and Giorgio Armani following
suit. Such products are also being sold in Western markets to provide more distinctive scents.
 In skin care, Estée Lauder launched a Premium Fragrances: Absolute Growth by Region
specific skin care range, Osiao, for 2012-2017
consumers in China. Osiao is based on 1,400
traditional Chinese herbal ingredients. 1,200
While some companies have worked on
US$ million
1,000
tailoring products, others have focused 800
on country-specific marketing to create 600
the desired experience. For example, 400
Lancôme targeted the digital media in 200
China to gain deeper market penetration. 0
Middle Latin Asia North Western Eastern Australasia
The brand created forums and made use East and America Pacific America Europe Europe
of opinion leaders in the market. Africa
Regional popularity shifts towards emerging markets
 The developed regions of Western Europe and Emerging Markets Growing Importance
North America are the second and third largest in Premium Cosmetics 2007-2012
markets for premium cosmetics. Consumer trading 100%
Western Europe
90%
down or buying less in these markets has thus 80%
North America
impacted value growth of premium cosmetics,
% value
70%
60% Middle East and
leading to stronger growth in mass cosmetics within 50% Africa
the global beauty and personal care industry. 40% Latin America
30%
 However, value sales generated from the core 20%
Eastern Europe
developed markets still account for the lion‟s share 10%

0%
Australasia
in premium cosmetics. Strong growth in premium 2007 2008 2009 2010 2011 2012
skin care, particularly in anti-agers, suggests that
Absolute Value Growth in Premium Cosmetics
favourable ageing demographic still offer ample Comes from Non-Core Countries 2007-2012
room for continued innovation and growth.
2011-12
 Global value growth in premium cosmetics has
decisively moved elsewhere, with Asia Pacific being 2010-11
the largest growth contributor over the review period,
followed by the other emerging regions of Eastern 2009-10
Europe, Latin America and the Middle East and US$ million
Africa. In China, South Africa, Nigeria and Brazil, 2008-09
value growth of premium cosmetics exceeded

2007-08
double digits in 2012, as consumer demand is
growing strongly, on the back of dynamic economic -1,000 -500 0 500 1,000 1,500 2,000 2,500
development and rising disposable incomes. Others UK China France Japan US
Consumer preferences for premium differ as markets vary
Skin care in Asia Pacific Fragrance in Saudi Arabia Colour cosmetics in the US
 A strong tradition of belief in  Saudi Arabia is predicted to see  The US is forecast the largest
good skin quality amongst Asian the largest absolute growth in absolute growth in premium
women provides a platform for premium fragrances, due to colour cosmetics, as consumers
skin care products, particularly much higher unit prices than there have had a tradition of
in China, which is projected to substantial volumes. Saudis rely using colour cosmetics ever
contribute 57% of absolute on local brands based on oil since women started joining the
growth in global premium skin extracted from the rare oud tree, work force in the mid-century.
care over 2012-2017. which drives up the unit price. The benefit brought by colour
 Anti-ageing products play a key  Saudis nevertheless have a cosmetics includes not only
role in the skin care market. strong preference for fragrances looking good but also boosting
Women‟s awareness of anti- as they adapt to the more self-confidence.
ageing products increases Western style format. To this  The high consumer
sharply among those in their end, most of the key fragrances consciousness of personal
30s and remains strong in their houses have made launches appearance among baby
40s and 50s. High sensitivity to catering to the Saudi/Middle boomers has helped drive
the differences between their Eastern taste for heavier and growth of premium colour
actual and apparent ages more exotic notes. This trend cosmetics in the US, thanks to
means women in Asia Pacific has become more widespread, their high level of affordability
are more willing to spend on with such products being sold in and demand for more
skin care than other beauty developed markets too. sophisticated and quality
products. products.
INTRODUCTION
GLOBAL PROSPECTS
Premium cosmetics a consolidated market
Top 10 Premium Players‟ Value Shares  The premium cosmetics market is highly
2012 consolidated with the top 10 players accounting for
62% of the total premium beauty market in 2012,
compared to 62% in 2007. While some
manufacturers market both premium and mass
cosmetics, half of the top 10 players are dedicated
premium players. These players, led by Estée
Lauder, accounted for a third of global premium
market value in 2012.
 The top 10 players‟ rankings remained fairly stable
over the review period. Most companies retained
their positions, with the exception to L‟Oréal, which
replaced Estée Lauer to become the market leader
in 2008. and Amway overtaking Clarins to take
ninth place in 2009.
 The reason for little movement in industry
consolidation is because competitiveness has
become more and more resource consuming,
particularly after the emergence of masstige
L'Oréal Groupe Estée Lauder Shiseido brands. Manufacturers of premium beauty are
LVMH Procter & Gamble Kao Corp required to add considerable value in terms of
Coty Inc Chanel SA Amway Corp innovation and marketing to distinguish themselves
Clarins SA Others in the market.
Premium business with a focus
 International manufacturers‟ premium cosmetics business tend to be mostly concentrated on a limited

number of key categories, such as skin care and fragrances, in which manufacturers are more likely to
attract and retain consumers through dedicated product innovation.
 Premium players are committed to building up limited but strong brands to cater to consumers‟ various
needs, achieving economies of scale in leveraging brand equity across multiple categories. Premium colour
cosmetics, for example, has benefited from key innovations in skin care, with manufacturers leveraging
attributes and brand awareness across the categories.
 Premium sets/kits is a small but important category that manufacturers use to attract new customers, and
reward, or introduce new products to existing customers. Manufacturers offering sets/kits also benefit
during the gift seasons.
Top 10 Premium Players: Sales Concentrated in Key Categories 2012
100%
Baby and Child-specific
90% Products
80% Bath and Shower
% value share
70%
60% Colour Cosmetics
50%
Deodorants
40%
30% Fragrances
20%
10% Hair Care
0%
Skin Care
Amway Chanel SA Clarins SA Coty Inc Estée Kao Corp L'Oréal LVMH Procter & Shiseido
Corp Lauder Groupe Moët Gamble Co Ltd
Sun Care
Cos Inc Hennessy Co, The
Louis Sets/Kits
Vuitton SA
Better growth with wide geographic presence
 Leading premium cosmetics players are benefiting from a wide geographic presence, which enables them
to take advantage of rising demand in dynamic emerging markets, as well as value generation in high-
margin developed markets.
 The share of sales generated by emerging markets has been on the rise for many companies. LVMH has
created a broad geographic presence both through targeted acquisition and the expansion of its retail chain
Sephora, which has been making strong inroads in markets such as Asia Pacific and Latin America.
 Beauty and personal care giants L‟Oréal and Procter & Gamble have also significantly reduced their
reliance on developed North America and Western Europe in recent years, thanks to their multi-brand
strategies offering a number of brands across the pricing tier. For example, L‟Oréal‟s premium offerings in
China range from Lancôme to Vichy.
 Companies with a narrow geographic presence, such as Shiseido and Kao Corp, which focus heavily on
their mature domestic Japanese market, have seen only lacklustre growth, indicating that more effort is
needed to reduce their reliance on developed markets to enhance their growth prospects.
Top 10 Premium Players: Sales Concentrated in Mature Markets 2012
100% Western Europe
% value share
80%
North America
60%
40% Middle East and Africa
20% Latin America
0%
Amway Chanel SA Clarins SA Coty Inc Estée Kao Corp L'Oréal LVMH Procter & Shiseido Eastern Europe
Corp Lauder Groupe Moët Gamble Co Ltd
Cos Inc Hennessy Co, The Australasia
Louis Asia Pacific
Vuitton SA
Leading brands are high-profile international labels
 Global branding is key for international players in the beauty and personal care industry, particularly so in
the premium segment. Premium cosmetics labels carry associations with product quality and efficacy, and
benefit from significant consumer trust in the markets in which they are present. Brand awareness has been
leveraged across markets, achieving cost synergies at the global level.
 Many companies‟ eponymous brands are used as umbrella brands for several sub-brands, allowing
companies to offer brand and product variety to different consumers. Companies also market several
premium brands for various consumer groups. For example, L‟Oréal and Estée Lauder carry a number of
brands, including Lancôme and Vichy for L‟Oréal, and Clinique and La Mer for Estée Lauder. While the cost
of brand management is higher, each brand maintains an individual identity and can target a defined
consumer base, building up stronger consumer loyalty, which is crucial within the premium category.
Leading Premium Cosmetics Brands by Value 2012
Vichy
Clarins
Artistry
Kanebo
Christian Dior
Chanel
Estée Lauder
Clinique
Lancôme
Shiseido
0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000
US$ million
INTRODUCTION
GLOBAL PROSPECTS
Top-line strategies by premium players
 While most companies have shifted their business focus to emerging markets, overall value sales
generated from North America and Western Europe should not be discounted, despite the slowdown in
value growth in these regions due to higher product penetration and economic uncertainty. In 2012, value
sales generated from these two regions still accounted for more than half of global value sales of premium
cosmetics. Strong growth in premium skin care, particularly in anti-agers, suggests that a favourable ageing
demographic still offers ample room for continued growth and innovation.
 Manufacturers follow a broad global strategy in building up their premium cosmetics business, but still
customise their products to various degrees to cater to different consumer needs in developed and
developing markets. Key strategies observed in 2011-2012 include:
Product innovation the core of organic growth
Diversification in affordable premium to expand middle-income consumer base
Upmarket premium to retain profit from affluent consumer segment
Digital involvement to enhance experience
Key trends in product innovation
 Product innovation has been the centre of many players‟ business strategy in driving value growth. For
premium players, this is particularly important in order to satisfy consumer demand and justify the premium
price points these products carry.
 At a time of uncertain economic development, major players have competed on product innovation to
expand and sustain their customer base. Major trends in product innovation include:
Exclusivity
High-tech Targeted Category
and
Efficacy Innovation Crossover
Sophistication
High-tech innovation prominent in both premium and mass brands
 As consumer concern for personal appearance Top Five Premium Skin Care Brands vs
grows, demand for more sophisticated ingredient Mass Brands by Performance 2012
formulations and more efficacious solutions is
increasing. This is particularly noticeable in skin Shiseido (Shiseido Co Ltd)
care – the category in which consumers are most

Artistry
willing to spend their money. The category
generates the most value sales within the broad Clinique
beauty and personal care industry.
Lancôme
 Consumers‟ increasing demand for more
sophisticated ingredient formulations and Estée Lauder
efficacious skin care products is prompting
companies to invest heavily in formulations, and Avon
product names are used which reflect the function
Olay
to reinforce the use of more powerful ingredients
and the strong research backing. Premium brands Nivea
set the standard in terms of scientific innovation
and are continuing to raise the bar for the industry. L'Oréal Paris
This dynamic has not just been seen in the
Mary Kay
premium domain but is increasingly replicated by
mass/masstige alternatives, bringing innovation to -4 -2 0 2 4 6 8 10
consumers in an affordable manner. % Y-o-Y Growth
High tech innovation extend to skin care devices
 The arena for high tech innovation has also been extended Clarisonic: Global Volume Sales
to skin care devices. Skin cleansing systems and light based 2007-2012
anti-ageing devices are the two key forms of skin care 1,800
devices.
 Clarisonic, recently acquired by L‟Oréal, is a skin cleansing
1,600
system. It has been a pioneer in aligning beauty more closely
with devices, boosting the brand‟s global volume growth.
1,400
Clarisonic claims greater efficacy on the back of sonic
technology, with 300 movements per second to clean, soften
and smooth skin. According to the brand‟s website, the 1,200
„000 units
system allows for six times more thorough removal of make-
up, which in turn allows better absorption of vitamin C, better 1,000
preparing the skin for other products. Clarisonic has

developed a more targeted offering with Opal Sonic Fusion, 800
designed for better absorption of eye serum with the use of
the device. 600
 Within anti-ageing skin care devices, Tria Beauty launched
Skin Rejuvenating laser device, which is said to use light 400
energy to help stimulate collagen, helping to plump up skin
and reduce the appearance of wrinkles. 200
 The products sells for £450, while the skin cleansing devices
range from US$50-700. Premium brands have performed 0
better due to greater consumer confidence in the technology. 2007 2008 2009 2010 2011 2012
Targeted innovation to address beauty concerns
 With rising concern among consumers regarding skin issues, such as ageing,
sensitivity, pigmentation and skin damage by UV sun light, manufacturers are
pursuing targeted specialisation in their product innovation.
 Estée Lauder launched Perfectionist [CP+R] wrinkle lifting/firming serum in 2012,
which the company claims to be a breakthrough, doubling the skin‟s natural
collagen building power and instantly plumping lines and wrinkles, making the
skin look smoother.
 Clarins launched Double Serum in 2012, consisting of 20 plant extracts claimed
to boost vital functions, including smoother and firm skin, while giving the skin a
more even tone.
 L‟Oréal‟s premium line YSL launched Forever Youth Liberator, which is the first
product to use the science of glycans, which in the area of anti-ageing are now
believed to increase the rate of production of the skin hydrating hyaluronic acid,
as well as regenerate the junction between the dermis and the epidermis. The
launch was backed by L‟Oréal Research, using its patented trio of synthetic
glycans used in the formulation.
 Swiss luxury brand La Prairie, owned by Beiersdorf, introduced its “most brilliant
scientific achievement to date” in June 2011, with the launch of La Prairie Cellular
Power Infusion. The innovative formula is said to be a “three dimensional energy
surge” for the skin.
Multi-functionality across categories
 Beauty brands have increasingly shifted towards a  L‟Oréal‟s Lancôme introduced Visionaire
more holistic approach, driven by consumer foundation and serum in one, following its launch of
demand becoming more complex in what the Visionaire Recovery Serum in 2011, which was
expectation of products are. Anti-ageing, for marketed as a replacement for cosmetic surgery,
example, has been increasingly associated with a lasers, fillers and peels. The launch of Visionaire
wider portfolio of benefits, with moisturisation and foundation and serum in one further illustrates the
sun protection now expected in every product. company‟s strategy of leveraging value added
 Estée Lauder has been among the fastest growing benefits and multi-functionality to attract
premium brands, with its latest release of a new consumers.
Advanced Time Zone Age Reversing Line/Wrinkle
Collection – a range which is said to address a
broader range of concerns, including lines,
wrinkles, slacking skin structure and overall
radiance.
 BB creams were a huge hit in the latter part of the
review period, thanks to their multi-tasking
properties. Manufacturers of both mass and
premium brands have launched BB creams. On the
back of the success of BB cream has come the CC
cream, which continues to introduce additional
multi-tasking and push the concept further. Chanel
was one of the first prestige brands to launch a CC
cream, in 2012 in China.
Innovation across categories
Anti-agers inspire other premium categories Cross category development – opportunities

and threats
 Anti-ageing properties have always been a hit in  There is further scope for cross benefits and
skin care, and many brands in other categories are functions for companies to explore, such as more
increasingly seeking inspiration from skin care to effective sun protection in hair styling products,
diversify their product offering, targeting as many combinations of sun protection for acne prone skin,
consumer groups as possible. and after-sun with whitening benefits.
 Premium brand Clarins unveiled its new Rouge  Cross category innovation presents both
Eclat lipstick collection in late 2012, which is opportunities and threats. This could potentially
claimed to protect lips against dehydration, while blur the lines between categories, making it
also boosting collagen. This is the first age-defying increasingly hard for consumers to differentiate
lipstick from the brand. Anti-ageing skin care between these products, thus diminishing the
properties have also been adopted in hair care, credentials of the products, as well presenting the
with Procter & Gamble enhancing its Pantene danger of cannibalising sales. On the other hand,
portfolio with the launch of Age-Defy Hair this could also be an opportunity for brands to
Thickening Treatment. diversify to categories where they have a relatively
 There is also a greater alignment with sun care, limited presence. While cross benefits offer time-
with many skin care products offering high SPFs, starved consumers more convenient products,
as there is increased awareness of the ageing such products can also be used in combination.
associated with sun exposure. Dermatology For example, Clarins BB Cream could be used in
laboratory La Roche Posay introduced a new anti- conjunction with Clarins Double Serum, thus
ageing primer with SPF50, the highest protection providing companies the opportunity to boost
factor in the skin care portfolio. revenue further.
Product sophistication boost hair care and nail care
 Hair care and nail care have received a boost on

the back of increased sophistication. Hair care has
drawn on skin care trends, adding multiple steps to
hair care, including cleansing, exfoliating, masks
and specialised treatments, developing more in- Hair Care
depth specialisation. Moreover, some anti-ageing Deep Treatments
ingredients are now being included in hair care. In
2013, Kérastase launched an 11 item styling range
More specialisation
inspired by skin care. Formulas feature skin care
ingredients like collagen and micronised polymer to
provide lightweight hold. At-home kits
 Nail polish manufacturers are competing on high-
tech development in terms of formulations and/or Nail Polish
formats to offer consumers salon-like results. Formulation
Notable examples include Nails Inc‟s latest
magnetic polish and Sally Hansen‟s nail polish
Format
strips. New application methods, such as fan-
shaped brushes or pens, are also employed to
enhance the nail polish results. Application
 High technology development has played a key
part in driving development in nail polish, and will
continue to offer more salon features in products
for home use.
Case study: Affordable premium to boost consumer base
The global economy continues to look gloomy,

with consumers becoming increasingly careful
with their spending. Premium beauty players
are creating offerings at lower prices by means
of smaller packaging, price reductions and
broadening distribution channels to make
products more accessible to consumers.
Increasing consumer demand for accessible premium
 Premium beauty and personal care is largely biased towards the developed world, in particular North
America, Western Europe and Japan. While tentative economic recovery in North America is encouraging
consumers to resume their purchasing of premium cosmetics, consumers in the troubled Eurozone and
Japan are becoming increasingly careful with spending their money, buying only what they really need. The
consumer preference is shifting towards more rational purchasing patterns, meaning consumers are not
purely pursing cheap products in the face of tightened budgets, but rather are paying more attention to
what they are buying and cost versus performance.
 At the other end of the spectrum, the continued strong economic performance in the emerging markets is
increasing consumers‟ appetite for more luxury and indulgence. However, the spending power of the
majority of consumers in emerging markets is still limited, calling for companies to make their premium
products more accessible.
Prospects of Premium Cosmetics vs Mass Cosmetics by Region 2012-2017
20 8
18
Absolute value growth
% CAGR 2012-2017
16
6
(US$ billion)
14
12 5
10 4
8 3
6
2
4
2 1
0 0
Asia Pacific Australasia Eastern Europe Latin America Middle East and North America Western Europe
Africa
P Cosmetics Value Growth M Cosmetics Value Growth P Cosmetics % CAGR M Cosmetics % CAGR
Channel diversification to make premium accessible
 Elizabeth Arden‟s premium cosmetics business is  Elizabeth Arden increasingly views the internet
strongly biased towards fragrances, which retail channel to be of growing significance in
accounted for nearly half of its retail sales of today‟s digital era. The company enhanced its
premium cosmetics in 2011. Competing closely website to offer a better shopping experience for
with renowned premium players Chanel and Estée consumers, as well as to provide an interactive
Lauder in its core US market, Elizabeth Arden has platform for consumer engagement. This website
endeavoured to expand its consumer base to revamp started from the US and will be rolled out
include a younger demographic. internationally over 2012-2013.
 Examples include its brand extension of Mariah
Selected Distribution Channel
Carey Lollipop Bling in 2010 to attract teenagers in
Performance in Fragrances in the US
the market. The recent additions of Justin Bieber
2007/2012
and Nick Minaj also helped to broaden its 50
consumer targets. In 2011, Elizabeth Arden‟s
40
launch of its Visible Difference skin care range was
% value share
also intended to attract a younger consumer group. 30
 In addition to enriching its product portfolio to 20
expand the consumer base, Elizabeth Arden has
also sought to expand its distribution beyond 10
upmarket department stores to establish a 0

presence in mass retail channels, some of which 2007 2012
Hypermarkets Supermarkets
have started moving upscale to offer more Beauty specialist retailers Department stores
premium brands and products, such as Wal-Mart. Internet retailing
Case study: Upmarket premium to retain price and profits
Affluent consumers are less impacted by

unfavourable economic development and are
less likely to change their preferences in
product purchasing. Companies target these
consumers by reinforcing the premium status
of products and brands to secure sales and
profits, by-passing middle-income consumers
who are more susceptible to the effects of
volatile economic conditions.
Super-premium status to by-pass middle-income consumers
 While affordable premium products help  Beiersdorf‟s ultra-premium La Prairie brand has consistently
companies to increase their consumer outperformed the rest of the company‟s skin care portfolio,
base during the economic difficulties, with a mixture of high tech, anti-ageing innovation and very
upmarket premium products help high prices. The product's perceived efficacy means
companies to secure revenue and profit, consumers keep returning, despite the cost.
as very affluent consumers are less  Both La Prairie and Clé de Peau Beauté target the ultra-
likely to change their preferences, affluent consumers who are not affected by erratic economic
regardless of economic development. development to ensure revenue and profitability, by-passing
 Shiseido, the Japanese beauty giant, the middle-income consumers who previously bought
has repositioned its premium skin care premium skin care but traded down to masstige products
brand Clé de Peau Beauté to super- during the recession.
premium in order to appeal to ultra-
affluent consumers. The company aims Super-premium Brands Sales Unaffected by
to target wealthy women over the age of Economic Development 2007-2012
600
30 with this move. China is a particular
500
focus of this brand because of the
US$ million
rapidly rising disposable incomes among 400
female city dwellers. The range will also 300
launch in the booming emerging Asian 200

economies of Vietnam, South Korea and 100
Thailand, which have a similar base of 0
newly affluent consumers, and Japan, 2007 2008 2009 2010 2011 2012
Shiseido‟s home market. Clé de Peau Beauté La Prairie
Upmarket for dedicated consumer groups
Estée Lauder targets upmarket Chinese consumers Prospects for Osiao
 Estée Lauder launched the brand Osiao, exclusively  The success of Osiao remains to be seen, but
available to Chinese consumers, in 2012. Targeted at the brand‟s development is not without potential
the ultra-affluent consumers in the Chinese market, drawbacks. Estée Lauder is not the first
the brand is marketed as made from local traditional company to introduce a brand specific to
Chinese ingredients to appeal to Chinese consumers‟ Chinese skin types. Shiseido launched the
belief in Traditional Chinese Medicine‟s health premium brand Aupres for Chinese women in
benefits. Designed specifically for Asian skin types, 1994, which has now slipped into the mass
the product is enhanced by Western dermatology, category. While Estée Lauder may be able to
giving it a competitive edge over rival brands. avoid the weakness of Aupres – a lack of
product innovation – the more confined market
focus means that economies of scale are small,
making R&D a proportionately more costly
venture.
 In addition, Chinese consumers often regard
locally produced goods as inferior to imported
foreign brands. Despite the backing of Estée
Lauder, which has a large resource base and is
savvy marketer, it could be difficult to translate
weak consumer confidence into repeated
consumption.
Adding value through super-premium status
Tactics used by super-premium brands to add value
 Sales of super-premium products typically account for only a small part of many key players‟ turnover, but
many leading brand operators still offer such ranges. The benefits of upmarket premium offerings include
adding to brand equity, allowing a far greater degree of price and image control, and allowing for consumer
education. By targeting consumers less prone to volatile economic development, upmarket premium brands
are able to retain a stable performance over the years. Manufacturers of these brands are therefore looking
for more ways to add value to their brands. One of the most visible of these methods has been the addition
of a more service-based offer, in particular spas.
 Premium player Elizabeth Arden opened its first Red Door beauty salon in the 1930s to offer consumers a
holistic beauty experience. The Red Door beauty salon inspires Elizabeth Arden in its product development,
while also playing a key role in establishing connections with consumers and developing customer loyalty.
Elizabeth Arden increased its stake in the Red Door Spa business during the 2011-2012 period in order to
take more control and enhance its brand revamp.
 Brand operators are also trying to align themselves with premium “destination” locations as an additional
marketing tool, for example by opening spas in boutique hotels or upmarket shopping centres. Examples of
this include the Jo Malone outlet in London's Westfield centre, and LVMH‟s 2008 opening of its first hotel-
affiliated Dior Institute in Paris, offering treatments using the brand's skin care products. Exclusivity remains
a core marketing position for premium products.
 Launching limited editions also helps to add value. This has been particularly evident in the fragrances
category, but other premium brands are also adopting various forms of limited edition collections. For
example, Lancôme launched limited edition make-up in collaboration with Alber Elbaz and Nars, inspired by
Pierre Hardy‟s latest shoe collection.
Case study: Expansion of digital involvement
Expanding their presence in the digital world

has now become a given among industry
players, particularly among premium players
which are trying to engage consumers with
activities such as online competitions and
virtual make-up simulators.
Technological advances help retailers increase sales
 Department stores have traditionally been the key distribution channel for premium beauty and personal
care products. However, their market share in overall beauty and personal care declined over the review
period, despite a rebound in value growth in 2011, due to the rise of novel channels such as beauty
specialists and the expansion of internet retailing.
 Internet retailing was the strongest performing channel for beauty and personal care products over the
review period. The way consumers shop is gradually shifting towards the internet, as it enables consumers
to find the best price for an item online.
 The speed of broadband continues to increase, allowing consumers to save more time when shopping
online and enjoy the convenience of their purchase being delivered to their doorsteps. This evolving trend
in general consumer purchasing patterns is also apparent in premium beauty products, particularly among
returning consumers.
Value Growth in Selected Channels in Beauty and Personal Care 2007-2012

25.0
20.0
Internet
15.0
% growth
Beauty Specialist
10.0
Parapharmacies/Drugstores
5.0 Department Stores
0.0 Direct Selling
-5.0
2007-08 2008-09 2009-10 2010-11 2011-12
The convenience of the internet fuels digital involvement
 The penetration of internet

access grew at double-digit
rates over 2007-2012,
E- increasing the number of
commerce internet users to 2.4 billion
worldwide by 2012, with 35% of
the population using the internet
for shopping.
 The convenience of the internet
M- Social has encouraged industry
Commerce Media players to explore digital
involvement in many ways, from
Digital e-commerce to mobile apps.
 It has become a norm for
industry players to expand their
presence online, utilising
advanced technology to revamp
the appearance of products
In-store Services displays, raise consumer
Digital Experience awareness of products and
brands, and increase consumer
engagement with brands.
Digital involvement: Increase awareness
Greater interactivity Campaigns to create a buzz
 Premium beauty players have used the digital  Social media are increasingly being explored by
environment to convey story and style vividly via digital marketers to capture and drive consumer
websites adorned with captivating imagery and rich interest in brands by replacing campaign-specific
media. This has led to the growing popularity of micro-sites with social media communication.
beauty websites that offer consumers immediate  Coty Prestige‟s Roberto Cavalli used a Facebook
access to product information, user opinions and competition, entitled “Don‟t Go Unnoticed”, to raise
recommendations. Some companies go further in awareness. Participants needed to answer
offer online counselling services. correctly two questions about the fragrance
 Online virtual stores are growing in popularity, campaign. Prizes included a weekend trip to Milan
particularly amongst the new generation of to attend the spring/summer 2013 fashion shows, a
consumers, as the virtual make-up simulators help handbag and necklace, as well as the brand‟s new
consumers to choose the most suitable products fragrance.
without having to be physically present in stores.  LVMH‟s Christian Dior used a mobile phone app to
The beauty giant Shiseido‟s beauty websites create a buzz around its Dior Addict fragrance.
Beauty & Co and watashi+ are typical examples of Videos, photos and quotes used by Christian Dior
how industry players are using websites to himself are easy to access by shaking the phone.
increase consumer awareness and drive This fun and innovative campaign aimed to
purchasing. Estée Lauder‟s Clinique also partners educate the younger demographic on the brand‟s
with a virtual makeover website – TAAZ.com – to values and to increase the connection between the
give consumers the option to simulate skin care fashion brand and its fragrances.
product usage over time.
Digital involvement: Increase purchasing
More advanced and evolving use of digital media Exploring e-commerce enabled smartphones
 Digital advancement has helped many players to  Many companies have explored the creation of
revamp their websites and establish online stores to mobile sites and smartphone apps which are e-
reach consumers directly. This helps manufacturers commerce enabled to target consumers on-the-
to take control of the supply chain and closely go, maximising the scale of convenience offered
monitor changing consumer preferences without to consumers and enticing purchase at any time.
having to go through third party retailers.  In early 2011, LVMH-owned beauty specialist
Manufacturers can thus acquire the same data Sephora launched the SEPHORAtoGO iPhone
about consumers that retailers have been using to app, which enables consumers to buy their
drive better targeted marketing campaigns. products directly from their phone. This is now
 The perception of using digital media technology is being developed further with an iPad version. The
also evolving, with increasing use in product company has introduced iPads in 20 of its stores
development. Through social media sites, in the US to provide extra product details that can
manufacturers are able to obtain insights into what only be offered online.
consumers want. Different manufacturers resort to
different types of social media. For example,
Clinique has the best Facebook interaction rate,
while Avon has a stronger Twitter reach. In addition,
manufacturers rely on their own community/blog
space, such as Clinique‟s “Insider Club”, which hosts
reviews from users and aims to build an online
community.
Digital involvement: Improve experience
Digital media to help add value Estée Lauder explore options in the digital media
 Premium players have endeavoured to reinforce  Estée Lauder has been one of the pioneers in
super-premium status with added value in their creating a new shopping experience with
brands and products, in order to target the more integrated digital technologies. Its iPad Skin
affluent consumers who are less impacted by the Diagnostic Tool has been installed at Clinique
current economic circumstances. counters to help consumers identify their skin care
 Such consumers are increasingly searching for needs and receive personalised recommendations
products that stress their individuality, backed by using a 90-second computer-guided skin care
unique services offered by brand manufacturers. analysis. The diagnostic tool processes over
180,000 product combinations that precisely match
 Digital technology has been explored to tap into
each consumer‟s personal requirements.
this consumer demand by enhancing their
shopping experience, so as to attract new  The company also opened its Clinique Smart Bar
consumers while retaining existing ones. at Bloomingdale‟s 59th Street store in New York in
2011. The Smart Bar utilises a large touch screen
counter that can detect objects and gestures using
the embedded Microsoft Surface unit to offer
consumers an immersive, collaborative and fun
shopping experience.
 The bar also features a proprietary Apple iPad
application that provides information on products
and offers Clinique‟s self-guided skin diagnostic
tool.
INTRODUCTION
GLOBAL PROSPECTS
GLOBAL PROSPECTS
Steady growth ahead
 The market for premium cosmetics is projected to Continued Expansion in Beauty and
flourish, driven by emerging markets. In terms of % Personal Care 2012-2017
year-on-year growth rate, premium cosmetics is
3.5
projected to surpass mass cosmetics by 2017 as
consumers in Asia Pacific and Latin America upgrade to
3.0
premium cosmetics, driven by rising disposable
incomes.
 High-tech product innovation will continue to spur 2.5
growth in premium cosmetics, where consumer loyalty
% Y-o-Y growth
tends to stay high. This is, however, not without its 2.0
disadvantages. In order to cling to their favourite brands,
consumers are buying less frequently or buying smaller 1.5
packages of products to fit their tightened budgets,
resulting in reduced value growth for premium products.
1.0
 Absolute value growth in mass cosmetics will be three
times that of premium cosmetics over the forecast
0.5
period, driven by the expansion of middle-income
consumers in emerging markets. Increased consumer
awareness of personal appearance due to more job 0.0
2012/13 2013/14 2014/15 2015/16 2016/17
opportunities in lower-tier cities and towns will also
contribute to demand for beauty and personal care Premium Cosmetics
products, particularly in the mass ranges, which are Mass Cosmetics
more affordable. Beauty and Personal Care
GLOBAL PROSPECTS
Skin care remain the most prosperous category
 For premium players, skin care remains the most Growth by Category in Premium Cosmetics
valuable category in terms of growth potential. 2012-2017
Strong demand from Asia, Latin America and North
America is expected to add over US$5 billion in P Sets/Kits
new sales between 2012 and 2017. The continuing P Sun Care
economic uncertainty in Europe is, however,
leading to bleak prospects in the region as P Skin Care
consumers continue to remain austere with their

P Hair Care
spending. Skin care will remain the battleground
going forward, as players remain active in product P Fragrances
innovation to add value to their products and justify
P Deodorants
premium prices to secure healthy profits.
 Fragrances and colour cosmetics will also remain P Colour Cosmetics
attractive to premium players, with many brands P Bath and Shower

deriving their status from their luxury fashion
P Baby and Child-specific
heritage. Rising demand in emerging markets in Products
Asia Pacific, Latin America and Middle East and -1 0 1 2 3 4 5
Africa will be the key growth drivers, while demand
Absolute growth (US$ billion)
in developed markets will remain healthy. Premium
players‟ active product development and strategy
of making premium products more accessible to Asia Pacific Australasia Eastern Europe
consumers will continue to drive sales growth. Latin America Middle East and Africa North America
Western Europe
GLOBAL PROSPECTS
Asia Pacific lead growth among emerging markets
 Asia Pacific is predicted to generate US$6 billion new sales in premium cosmetics over the next five years,
due primarily to the strong demand for luxury products and service in China. Expanding disposable income
in the country helped serve towards the cultural pursuit for status and indulgence, which is expected to
boost consumption in premium cosmetics. Consumer perception of higher prices means better product
quality will continue to help premium cosmetics to thrive in this market.
 North America will continue to generate strong value growth in premium cosmetics, as tentative economic
recovery in the US is encouraging consumers to return to premium products. Many high-income consumers
who were less affected by the economic recession than their lower income counterparts feel comfortable
spending money again. Consumers in the region are expected to increase their purchasing of beauty
products as the US economy gradually recovers and manufacturers launch new value-added features.
Asia Pacific to Lead Growth in Premium Cosmetics 2012-2017
7 P Sets/Kits
Absolute growth (US$ billion)
6 P Sun Care
5 P Skin Care
4 P Hair Care
3 P Fragrances
2
P Deodorants
1
P Colour Cosmetics
0
P Bath and Shower
-1
P Baby and Child-
Asia Pacific Australasia Eastern Europe Latin America Middle East and North America Western Europe specific Products
Africa
GLOBAL PROSPECTS
Key trends to continue
•Product innovation has been core for premium players‟ business  Premium players will remain
strategies for organic development. active in diversifying their
•Innovation focus has been placed on improving product performance
Value-added while saving time and providing more convenience, reinforcing the product offerings to target as
Innovation products‟ premium status. wide a group of consumers as
possible, as consumer demand
in both developed markets and
•Economic recession in developed countries is putting a strain on
consumer spending, although high per capita spending and strong
emerging markets is becoming
brand loyalty means demand for premium cosmetics is still healthy. increasingly fragmented.
Affordable •Affordable premium helps retain consumers buying smaller packages Diversity is key going forward.
premium or less frequently, without leading to trading down.
 The digital world is constantly
evolving, inspiring
•Affluent consumers are less likely to be impacted by economic manufacturers in many ways,
recession and remain keen to purchase premium products. The from product development to
number of these consumers is rising, and they are seeking products
Upmarket that offer individuality and a luxurious purchasing experience. marketing and advertising.
premium •Super-premium ranges remain attractive and secure healthy profits. Consumers are shifting away
from traditional media as new
technology brings more fun and
•Expanding in the technological advanced digital world has now interactivity, which in turn feeds
become a given among industry players, particularly premium players.
•Digital involvement is being explored in many ways by premium back to companies with
Digital players to increase consumer awareness and enhance the customer information regarding
involvement experience through more interactivity with consumers. consumer preferences and
purchasing patterns, inspiring
further product development.
Experience more...
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STRATEGIES TO SUCCEED IN THE FAST EVOLVING

PREMIUM BEAUTY MARKET

P Colour Cosmetics Premium cosmetics are

Premium players emphasise experience to drive growth

% Y-O-Y Growth (US$ fixed exchange rate)

the masstige brands that were marketing products

their premium brands from masstige brands. Brand

Premium cosmetics continues to grow

 An emphasis on developing a Global Beauty and Personal Care Continues to

their upward growth curve in 2012, Mass Cosmetics Premium Cosmetics

posting 5% value growth, but still

period, following the onset of 4

Premium Cosmetics Mass Cosmetics Beauty and Personal Care

Premium skin care the core category in total revenue

Focal points to provide more personalised brand experience

Innovation Positioning Communication

Personalising brands in a diverse market

Regional popularity shifts towards emerging markets

developed markets still account for the lion‟s share 10%

value growth of premium cosmetics exceeded

Consumer preferences for premium differ as markets vary

Premium cosmetics a consolidated market

Premium business with a focus

 International manufacturers‟ premium cosmetics business tend to be mostly concentrated on a limited

Better growth with wide geographic presence

Leading brands are high-profile international labels

Top-line strategies by premium players

Product innovation the core of organic growth

Diversification in affordable premium to expand middle-income consumer base

Upmarket premium to retain profit from affluent consumer segment

Digital involvement to enhance experience

Key trends in product innovation

High-tech innovation prominent in both premium and mass brands

care – the category in which consumers are most

High tech innovation extend to skin care devices

preparing the skin for other products. Clarisonic has

Targeted innovation to address beauty concerns

Multi-functionality across categories

Innovation across categories

Anti-agers inspire other premium categories Cross category development – opportunities

Product sophistication boost hair care and nail care

 Hair care and nail care have received a boost on

Case study: Affordable premium to boost consumer base

The global economy continues to look gloomy,

Increasing consumer demand for accessible premium

Channel diversification to make premium accessible

upmarket department stores to establish a 0

Case study: Upmarket premium to retain price and profits

Affluent consumers are less impacted by

Super-premium status to by-pass middle-income consumers

rapidly rising disposable incomes among 400

female city dwellers. The range will also 300

launch in the booming emerging Asian 200

Upmarket for dedicated consumer groups

Estée Lauder targets upmarket Chinese consumers Prospects for Osiao

Adding value through super-premium status

Tactics used by super-premium brands to add value

Case study: Expansion of digital involvement

Expanding their presence in the digital world

Technological advances help retailers increase sales

Value Growth in Selected Channels in Beauty and Personal Care 2007-2012

0.0 Direct Selling

The convenience of the internet fuels digital involvement

 The penetration of internet