2023 TRENDS IN THE

COSMETICS INDUSTRY
US and Europe

Statisctics Trends Strategies

www.snipp.com ©2023 Snipp Interactive

 CONTENTS
Introduction

Cosmetics industry statistics

5 key cosmetic industry trends

6 marketing strategies for the cosmetics industry

Conclusion

About Snipp

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 The cosmetics industry is seeing a renaissance, as consumers adjust to a hybrid work-life existence in this post pandemic era, but don’t
expect makeup buying habits to return to what they were. Aligning with the convenience of fast, low-maintenance looks adopted
during the past couple of years, flexible and low-key beauty lifestyles are gaining prominence. Natural and vegan cosmetics also
continue to grow in popularity as the world becomes more conscious of ingredients and their overall environmental impact. And with
inflation surging, consumers are prioritizing fewer products that deliver more effective results, personalized to their preferences and
needs. For brands, this translates into an expanded set of consumer expectations to be met, many of which will shape the landscape
of the cosmetics and beauty industry in 2023 and beyond.

COSMETICS INDUSTRY STATISTICS

Both USA and Europe are seeing bounce-backs in cosmetics sales:

$19.43B 3.74% $22.3B 3.23%

revenue
USA growth forecast revenue growth forecast
EUROPE
2023 CAGR 2023-2027 2023 CAGR 2023-2027

Prestige Cosmetics sales in the US are growing due to

premiumization of ingredients and new buyers:

$2.1B 15% 4.7M

revenue growth prestige cosmetic
Q3 2022 Q3 2022 and beauty shoppers

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 5 KEY COSMETIC INDUSTRY TRENDS
Skinification of Beauty
1
A key factor driving the adoption of premium cosmetics is an increased awareness of premium ingredients and their
potential benefits for skin. Consumers no longer evaluate a cosmetic product on just how it makes them look: they’re looking to heal,
tighten and enhance their skin as well. Nowadays, concealers don’t just improve skin tone -- they work to brighten, soothe, and plump
skin as well. For beauty brands, this has meant large scale investments to create cosmetic products that blur the lines between makeup
and skincare. From vitamin C-enriched tinted serums to the integration of nanotechnology for improved hydration, toxin removal and
enhanced skin metabolism, cosmetic products are being supercharged beyond the usual spheres of color and coverage.

Chanel introduced a multipurpose lip and cheek pigment that melts into skin, powered by the red camellia—a
botanical rich in the antioxidant protocatechuic acid. Thanks to its antioxidant properties, the balm not only
provides vibrant color, but also aids skin barrier functions.

Victoria Beckham Beauty put out a Satin Kajal Liner, enriched with chamomile extract, vitamin E, and
panthenol. The eyeliner became popular for featuring eye-soothing and hydrating properties.

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 A Focus on Clean Ingredients
2
NielsenIQ reported that as of 2022, a growing number of cosmetics and beauty shoppers in the US buy products meeting
the strictest ‘clean’ definitions

USA
15.7% $1.75B 7.06%
shoppers buy products meeting sales in the Natural Cosmetics expected annual growth
the strictest ‘clean’ definitions segment in 2023 (CAGR 2023-2027)

European consumers are particularly responding to brands that claim natural ingredients (especially French consumers)

EUROPE
32% $2.69B 6.27%
of beauty buyers in France revenue in the Natural expected annual growth
purchased ‘clean’ products in 2021 Cosmetics segment in 2023 (CAGR 2023-2027)

Key industry players are paying attention and investing extensively in research to include organic and natural cosmetics into their
portfolios, as retailers like Target, Sephora, and Ulta are making it easier for consumers to shop clean beauty with specially designated
filters for search.

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 Hyper-Personalization of Products
3
From concealers that analyze the weather, to products tailored to consumers’ specific microbiomes, personalization is
helping to drive differentiation in the cosmetics industry and increase loyalty . Brands such as L'Oréal and an explosion of startups are
investing in hyper-personalization solutions with the help of data science and Artificial Intelligence. By testing DNA and the skin’s bac-
terial composition, they’re set to offer custom-blended formulas for each customer’s unique genetic makeup. Cosmetic products with
modified allergens are also being specifically designed to address a user’s underlying skin concerns.

US-based startup OPTE created a makeup-skincare printer which scans a customer’s skin for discolorations by
capturing and analyzing skin images. It then prints a skin-enhancing cosmetic coating with a formulation of pure
ingredients that instantly correct the appearance of spots and prevents the appearance of new ones.

Tonework, a science-led bespoke makeup brand allows customers to find their ideal makeup color
through an AI-driven Authentic Color Master algorithm, which performs precise color analysis in 3,448
areas of the face - and includes emotion recognition. The service uses a fully automated cosmetic
manufacturing device to then rapidly produce various personalized products.

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 360 Degree Sustainability
4
Ethical product development and production has become more important, as simply focusing on recyclable or re-use-
able packaging is not green enough in this era. Gen Z consumers in particular want to ensure that a sustainability focus underscores
every aspect of the manufacture of their favorite products. In response, there has been a push toward sourcing ingredients that respect
the ecosystem and consider their environmental impact, and increased efforts and research by cosmetics and beauty brands to offer
and develop eco-friendly alternatives such as:

Water-free cosmetics: With sustainability and carbon reduction high on the agenda for the cosmetics industry, waterless products are
becoming more and more common. It’s predicted that the global water-free cosmetics market will hit $31 billion by 2031.

Biotech Beauty: With the natural world providing many of the most popular ingredients in beauty products, manufacturers and con-
sumers have become ever more conscious of their limited scalability. With biotechnology, scientists read the genetic makeup of flora
and fauna that hold beneficial properties for skincare and work to replicate them in a lab.

3D Printing to reduce waste: Some startups are creating solutions that allow customers to directly print cosmetics in exact amounts
they require, thereby minimizing waste. In cosmetics packaging, 3D printing also enables new creative and custom solutions.

Plastic-Free Packaging: Plastic-free packaging has seen an annual 18% growth in online search in the US, and plastic-free beauty prod-
ucts logged $25M in-store sales in 2022 -- a 13.4% increase from the previous year.

Maybelline New York introduced a Green Edition, a collection of vegan cosmetics made from a minimum of
70% natural-origin ingredients as part of its Conscious Together global sustainability platform. The makeup
range was certified by the Cradle to Cradle Certified Products Program, which assesses products for
environmental and social performance including all aspects of product design and manufacturing.

Beauty brand Half Magic introduced compostable eyeshadow compacts made from PaperFoam, a sturdy,
lightweight, biodegradable material created with industrial potato starch and molded cellulose.

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 Rise of Social Commerce & Indie Brands
5
E-commerce channels have seen significant elevation during the pandemic, with 65% of US consumers having ordered
beauty products online in 2021 versus 51% pre-pandemic, according to NielsenIQ. But today, consumers scout out cosmetics primarily
on social media and Mintel research shows that social channels can be a seamless avenue for brands and consumers to connect via a
single path to purchase.

65% 52% 48% $1.2T

Millennials Gen Z 5.8B

ordered beauty products are more likely to get inspiration from social commerce people using social
online in 2021 other users or influencers by 2025 media worldwide

A 2021 survey by Accenture found that 52% of millennials said they are more likely to get inspiration from other users or influencers
when shopping through social commerce than when shopping through e-commerce, followed by 48% of Gen Z respondents. The
social commerce industry is expected to expand three times faster than traditional e-commerce to reach $1.2 trillion by 2025.
With the number of people using social media worldwide projected to increase to 5.85 billion by 2027, the social media opportunity for
beauty brands to reach new consumers, create omnichannel shopping experiences and generate higher revenue is growing every year.
This has led to explosive growth of socially-fueled indie brands that have risen to meet changing consumer demands and preferences.

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 6 MARKETING STRATEGIES FOR THE COSMETICS INDUSTRY
Cosmetics buyers today can take their pick from a plethora of offerings from old-guard brands as well as the rising tide of indie entrants
-- all catering to their specific requirements and desires for expression. As a result, consumers are purchasing across an ever wider range
of brand and price categories in order to best suit their needs. 71% of buyers said they tried a beauty or personal care product that was
new to them in 2022, with 54% claiming to have used novel makeup products. As e-commerce and social commerce are making it
easier than ever for consumers to access new cosmetic products and experiment with the latest trends, brands have a unique
opportunity to reach entirely new audiences and demographics.

1 Get Social With Influencers

Social media has established itself as an essential channel for brands looking to launch and grow cult followings with viral reach.
According to the Fashion Network, TikTok is the social media platform with the strongest impact on growth for beauty brands, with
#tiktokmademebuyit having racked up over three billion views, and 89% of TikTok users having purchased beauty products after
seeing them on the app. Beauty brands are using TikTok partnerships as an opportunity to align with, engage and build trust within
their target audiences.

Half Magic, a brand started by Doniella Davy, a make-up artist for the actresses on the hit US television teen drama
Euphoria, used TikTok and the hashtag #EuphoriaMakeUp to encourage people to post videos of themselves put-
ting on makeup inspired by the show. With 2.1bn views, Half Magic is emblematic of how new brands and trends
now flourish on social media.

Gen Z oriented brand E.l.f. created a #eyeslipsface challenge on TikTok tying into the E.l.f. acronym. As part of the
program, users could upload a video of themselves dancing to an original song and post using the hashtag for the
chance to win $250 worth of E.l.f. products. The campaign earned over 9.7 billion views, in great part due to organic
participation by celebrities who got in on the trend.

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 Benefit Cosmetics started a Game Face program as an influencer-oriented push to connect gaming and beauty
through streamers sharing their “game face” looks on Twitch, as well as their pre-streaming makeup routines. Now,
the brand is expanding its commitment to gaming with tournament series designed to amplify emerging female
streamers.

Influencer-oriented Live Commerce: During the pandemic, live commerce experienced a dramatic boom and an
explosion in livestream shopping options offered by social platforms, brands and retailers alike, with viewers able
to see ‘before and after’ results. In China, where livestreaming is more widely embraced, two influencers, Austin Li
and Viya, reportedly sold $3.1 billion worth of products during one night of a shopping festival.

2 Augment Digital Offerings for Personalized Experiences

Beauty brands are increasingly adopting immersive technologies such as Artificial Intelligence (AI) and Augmented/Virtual Reality
(AR/VR) to provide personalized experiences and increase customer engagement. Cultural happenings have also had a big impact on
the use of AI and AR technology, as the pandemic has been a catalyst for brands adopting these digital experiences. Store closures due
to COVID-19 meant that shoppers were unable to browse and purchase beauty items in physical stores, and AI tools that allowed
people to ‘virtually try on’ cosmetics became more widely used. 50% of UK female consumers now say they would be interested in
using an app to receive personalized makeup tips . Gen Z is a large driving force in this development, with 68.3% of Gen Z in Europe
keen to get personalized, AI-based recommendations.

Estée Lauder Virtual Try-on: Estée Lauder has utilized AI and AR technology to launch personalized virtual try-on
makeup solutions. Data has shown that Estée Lauder saw a 2.5 times higher conversion rate using its Lip Virtual
Try-on, and that its iMatch Virtual Shade Expert increased the brand’s customer loyalty.

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 3 Build Transparency into Processes
Cosmetics consumers are looking for more information on the products they purchase than ever before. They’re concerned not just
with the overall health benefits of the ingredients being utilized, but also the ethical nature in which those ingredients are sourced. As
beauty consumers become more selective than ever, they’re interested in purchasing from brands who share their ingredient lists in an
upfront and open manner. As a reflection, 81% of beauty product searches on Amazon are unbranded, as shoppers are looking for
attributes rather than brand names. To compete in such a space, transparency is becoming the marketing watch-word.

Swedish startup Skinfo is helping consumers take control of their choices by creating ingredient transparency
widgets for beauty products sold on e-commerce sites. The widgets explain every ingredient function, skin
effects, allergens, vitamin highlights, botanical names, and origin information.

German startup AFTS developed a blockchain-based cosmetics tracking platform that measures sustainability
of cosmetics production. By fostering transparency and traceability within the cosmetics supply chain, it is work-
ing to increase trust among customers.

4 Promote Makeup in the Metaverse

There’s been lots of hype about the advent of the metaverse over the last couple of years, and the potential of virtual spaces to enhance
consumer experiences and sell products is huge. Up to 60% of Millenials will consider making purchases in virtual worlds. Many beauty
brands have entered the metaverse and have been experimenting with these platforms. Brands can use Web3 features such as
non-fungible tokens (NFTs) to deliver exclusive experiences for their customers. Issuing an NFT can, for example, help a small company
kickstart a community, and for a larger brand, an NFT could replace a membership card.

Bakeup, a “digital-first” brand is using the metaverse to highlight makeup’s potential as a means to express one’s
individuality. The brand created a gemstone-embellished eye veil, as part of a “wearable” digital makeup NFT collection
that can be worn, traded and sold in the metaverse.

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 MAC Cosmetics unveiled a limited-edition Keith Haring lipcolor collection, complete with a related NFT collection.
The collection features three illustrations of MAC Viva Glam lipsticks decorated with Haring’s most famous artwork,
with proceeds going to support organizations fighting for healthy futures and equal rights for all.

Beauty brand Buxom created a gamified experience in the virtual world of Decentraland, wherein users can unlock
rewards by completing specific tasks and games every month. By collecting limited-edition proof of attendance
protocols from each event, users also have the chance to win a year’s worth of Buxom products.

5 Foster Diversity & Inclusivity

Nowadays, brands are reacting to society’s voice in their marketing campaigns, with issues surrounding transparency, diversity and
inclusion becoming key factors shaping brands’ strategic and business decisions. 41% of UK consumers now value beauty brands
committed to ethical working practices, with 36% also willing to pay more for brands that respect human rights. For Gen Z, “2D identity”
is a thing of the past, and brands catering to this generation’s vision of radical inclusion are designing neurodivergent-conscious
products and experiences, with the goal of increased accessibility.

41% 36%
are willing to pay more for brands
of UK consumers value beauty brands UK that respect human rights.
committed to ethical working practices

The Estée Lauder Companies created an AI-powered Voice-Enabled Makeup Assistant (VMA) application, to help
visually impaired users more easily and confidently apply makeup. The move follows recent beauty accessibility
launches, including L'Oréal's HAPTA handheld computerized makeup applicator for users with limited hand and
arm mobility. VMA uses AI and voice instruction technologies to assist the user in makeup application by assessing
their face and giving audio feedback and tips on whether their lipstick, eyeshadow, or foundation is evenly applied.

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 6
3 Nurture Loyalty Via Deals and Promotions
The U.S. inflation rate reached 6% in 2023, with color cosmetics and nails facing average unit price increases of 19% year-over-year,
according to NielsenIQ data. In addition, department stores and mass channels are both experiencing 20% increases in pricing in the
beauty sector. These price increases are notable because 36% of beauty consumers are financially constrained, which could lead to
cutbacks in purchases of color cosmetics as non-essential expenses. As of May 2022, NielsenIQ research indicated that many beauty
consumers were already using the following money-saving strategies:

51% stock up when a product is on sale

41% use coupons

36%
38% seek out stores with lower prices

27% only buy items on sale

36% of beauty consumers are 25% buy less expensive alternatives
financially constrained
25% shop with retailers that offer loyalty points

This is not limited to the US. With looming economic pressures in Europe, 76% of UK female consumers shop around to find the best
prices when buying makeup. Brands can boost loyalty by offering promotions, discounts, and gamified deals to attract a broader swath
of shoppers. Additionally, loyalty programs that collect first-party consumer behavioral data to create insight-driven promotional
strategies are growing increasingly important to brands as cookies fade out.

E.l.f. Cosmetics invests strongly in its loyalty program, Beauty Squad, which currently has over three million
members. The brand is seeing double-digit retention rates through its loyalty program initiatives to better
understand the needs of its primarily younger customers. Examples include the use of quizzes to create an online
skincare analysis that collects information like skin type and number of products used, along with more basic
details like birth dates, names and email addresses. E.l.f. has also invested in a mobile app to keep traffic localized,
offering features like a virtual makeup tool and shoppable stories. Today, 95% of its loyalty members report that they
prefer shopping on the app over the web.

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 3
Conclusion
The cosmetics industry is seeing an increased consumer focus on product usability and overall sustainability, driven by a desire for
ethically-manufactured products that also straddle the line with skincare. Despite economically challenging times, it’s becoming
evident that consumers will still spend on cosmetics that make their life simpler and that address their values. For brands, connecting
with today’s beauty buyer will involve keeping pace with growing consumer needs for open sourcing, transparency, and greater
inclusivity -- and with consumers prioritizing attributes over brand names, agile brands will tap into data-driven promotional strategies
to increase their visibility in a crowded marketplace.

Snipp provides promotions and loyalty programs designed to engage

customers across the entire path to purchase - in-store, at home and
online. Clients can run one-off promotions to evergreen loyalty programs
that meet objectives at a brand, shopper, category, and portfolio level and
customizable by region, language, channel, retailer and more.

SnippCARE, our modular Customer Acquisition, Retention & Engagement

platform, powered by our market-leading receipt processing platform for
purchase and nonpurchase validation, enables implementation of
ROI-driven, omni-channel programs, globally. We capture zero-party data
in real time and build proprietary data sets, driving engagement, person-
alization and brand loyalty and enabling intelligent decision-making. It’s
tailor-made for brands to build deeper relationships with their customers.

For over a decade, we have worked with the world’s leading organizations
in both B2C and B2B spaces, across industry verticals including CPG,
retail, pharma, utility, home and outdoor, alcohol, tobacco, lifestyle and
more.

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©2023 Snipp Interactive
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