What makes beauty products unique?
Beauty products are unique in various ways. First, they are very personal. They can help you represent yourself, connect with your values (e.g. using clean ingredients), and identify with a specific community. They are something you frequently put on your face and body for a purpose, permeating into your everyday life.
As a result, these products hold a unique position in the market due to this intimate relationship with consumers. Because of the emotional connection between the consumer and the beauty product, purchasing decisions can become highly subjective.
Furthermore, beauty products and brands are no longer simply owned by big conglomerates. They are more accessible to creators and brand-builders, making the industry even more competitive. Furthermore, this beauty marketplace is known for its trend-driven nature with constant innovations. This means that new ingredients, formulas, and technologies are constantly introduced, creating a continuous stream of new products and brands entering the market.
Finally, more often than not, beauty products are not just products but experiences. They can be moments of self-care, indulgence, and transformation. This aspect adds value to these products beyond their obvious functional benefits, which allow brands to offer them as unique and memorable experiences worth paying for.
Challenges beauty brands face
Due to the unique nature of beauty products, there are many challenges that come with pricing them.
First, there is increasingly more competition as both big brands and new entrants (some funded by institutional investors) fight over many of the same customer segments. So, it is even more difficult to stand out and differentiate your product from the rest of the competition. Brands often face immense pressure to price their products competitively to attract customers while ensuring that they can cover their costs and make a profit simultaneously.
Second, it is more expensive to create awareness and willingness-to-pay. With the challenges that come with product differentiation in such a crowded market, many brands find it difficult to communicate their own unique value proposition to potential consumers. As a result, some brands may find it difficult to justify premium pricing and experience price wars with their competitors.
Third, the margins are thin within the beauty and cosmetic industry, not only due to this high level of competition but also many other costs accrued in order to stand out in such a crowded market. These can range from promotional costs to R&D costs to distribution costs, among many others. All of these costs can make your margins extremely thin and increase pricing complexity.
Fourth, while many beauty brands like to implement promotional pricing campaigns to attract new customers and drive sales, it is a balancing act because excessive discounting can devalue a brand. Furthermore, it can erode margins and make it difficult for some brands to achieve profitability despite gaining new customers.
Finally, consumers in this particular market have a wide range of price sensitivity. Pricing plays a role in defining the brand, and can be a factor in switching. Like any product category, a low or discounted price can not compensate for poor products. Beauty customers have high expectations across price points and channels, so understanding this value exchange – product for a price – is critical for successful beauty brands.
How successful brands use pricing
Facing a wide variety of challenges, we have seen successful beauty and cosmetic brands turn to pricing as a powerful tool to help them achieve their growth objectives. Pricing can play this crucial role by:
1. Building brand image
Pricing can communicate the brand’s positioning in the market. For instance, premium pricing can help create a perception of quality and exclusivity. On the other hand, value pricing can attract budget-conscious consumers. Retains your company’s overall number of accounts or subscriptions.
2. Supporting differentiation
Within such a crowded market, pricing can help brands differentiate their own products from those of their competitors. Unique pricing models, such as personalized offerings, can help brands really stand out. And, with competitive pricing and the right promotions, brands can first acquire new customers and then focus on retaining them through their product quality and customer service
3. Creating pathways to sustainable growth and profitability
Nailing a dynamic and effective pricing strategy can really help brands improve their profit margins, so it is important to spend time and resources on developing one that can lead to sustained growth. Doing so can even allow many brands to then reinvest in other areas such as product development and expansion.
4. Building the right customer base
With the right customer segment in mind, pricing can help your brand attract the right customers who are willing to pay for your products. As you attract more and more of them, you can build up a solid customer base aligned to all facets of your business. Furthermore, using pricing strategies such as loyalty programs or discounts for repeat customers can encourage customers to make repeat purchases, ultimately building brand loyalty.
5. Expanding into new markets
When entering new markets and expanding, brands can adjust their pricing based on local market conditions, competition, and consumer preferences to maximize their chances for success. So, establishing dynamic pricing strategies can help maximize your brand revenue.
Final thoughts
The world of beauty and cosmetics today is a tough one to navigate as challenges emerge daily that can disrupt your growth as a company. With such a competitive market that deals with such unique products, many startups find it difficult to figure out where to start with pricing, sometimes dismissing it altogether as something that requires their time and effort. But, dedicating resources to developing your pricing strategy is priceless as it can be extremely rewarding in the long run. The challenges within the beauty industry that we listed above are only several among many others that exhibit the true complexity of growth within this industry. So, it is important to have a detailed understanding of what challenges you may encounter and how you can counteract them as you grow your brand within this space.
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