E-commerce Challenges Beauty Brands Face in in 2022
The cosmetics market is estimated to double in the next 10 years, according to the EY consulting firm. It should be ideal to join the bandwagon and start your own cosmetics brand… Or not? What are the main obstacles that beauty brands will have to face in 2021?
- Pandora’s box of competition
With the boom of new cosmetics brands in the last 10 years and the expansion of e-commerce, cosmetics brands do not compete only with local companies. They compete with everyone who ships to the same country. As the customers have access to sites like Amazon, eBay, Allegro, Souq, Alibaba, and others, the options are exponentially growing.
Prices of cosmetics are dropping and it is getting increasingly harder to offer something unique to your customers.
- Omni-channel retail strategy needed
Currently, cosmetics are not sold solely in a drugstore. They are sold everywhere! Starting from drugstores, own-brand cosmetics stores, multiple stores, newspaper shops to online drugstores, pure players, own e-commerce of the manufacturer, Instagram shop-now posts, Facebook shop, and selling directly via live chat…
Do you have to be available everywhere? Certainly not, but the more channels you use to sell and/or to advertise your products, the more you can sell. The rule of thumb is – be where your audience is!
- Price competition (and not only…)
As mentioned before, it is not only that the prices of cosmetics are dropping down: beauty companies are offering many special promotions, discount coupons, in-cart discounts, and loyalty programs. It makes it even harder to stand out with your offer.
Did you know that more than 80% of consumers use coupon codes when shopping online?
What does it mean? Your customers not only want and use coupons, but they are also actively looking for coupons during their entire buying process. If you do not offer them, you are certainly behind the competition, especially as there are more and more websites and blogs that conveniently collect the coupons for the customers, like for example:
- https://www.finder.com.au, https://www.retailmenot.com/coupons/makeup
Moreover, almost 60% of the customers would use more coupons if those were available online. Being listed in your retailer’s offline leaflet is not enough any more.
- Customer loyalty… or rather the lack of it
67% of consumers buy beauty products from at least 4 websites, and loyalty rates for cosmetics are only 42%
The customers are not loyal any more. Especially Generation X, in particular with beauty brands. The choice of cosmetics is abundant nowadays; the choice of channels to buy them as well. The customers are constantly trying something new and the customer retention is even harder than making them to buy in the first place!
Beauty brands try to fight it by offering loyalty programs, with the biggest ones owned by Ulta, Sephora, and Dr. Brandt, but also chain retailers like DM or Rossmann.
It is recommended then to find the best customer loyalty strategy for your brand and stick to it.
Do you want to learn more about customer loyalty? Read our recent article to learn how to measure loyalty and keep your buyers coming back >>>
- Low average shopping basket
For the same reasons as above and because of low shipping costs, customers tend to buy less from one brand than they used to…
- Low customer lifetime value
As points 4) and 5) say, the lack of loyalty and low average spending mean low customer lifetime value.
- High customer acquisition cost
The omni-channel strategy, price wars, abundance of competition that bids for the same keywords, expensive marketplaces – everything adds up to high acquisition costs.
Customers now search online, buy offline (ROPO – Research Online, Purchase Offline) or online (Research Online, Purchase Online). The most important thing is – most of the product research starts online. Almost everyone has access to all ratings and reviews available out there. They trust their peers more than your brand and if you do not have reviews or your reviews are questionable, they will not buy your products. You need to make sure your products have ratings and reviews.
You also need to have control over the content that is out there. Not only your content. All the content. Welcome social media listening, Brandwatch, and all the other tools where you can track mentions and average ratings: they will be your new friend from this year on.
- Influencer collaboration
After 2017-2018 full of fruitful influencer collaborations, now beauty brands are facing an issue. The customers already know the influencers are being paid to advertise your product. They prefer to hear the advice of “ordinary people”. Hence, the boost for micro-influencers and user-generated content. Authenticity is the new buzzword.
- Demand for personalization
It is no longer a trend. It is a clear demand from the market.
As the study from Marketo showed, 79% of consumers say they are only likely to use a brand’s promotion if the promotion is tailored to previous interactions. Personalized discounts, coupon codes, in-cart discounts will have their glory days in 2019.
Case Study: How does KIKO Milano approach those challenges?
A few words on KIKO Milano’s success story:
Founded in 1997, in Bergamo, Italy, KIKO has now over 930 stores in 20 countries (with a broader online presence reaching 32 countries). They have more than 1200 products in their portfolio, including make-up, beauty accessories and skincare products.
Their mid-priced products (the mission of KIKO is to supply women with professional, innovative and luxurious cosmetics, for every budget) are best sellers in Europe, thanks to the good quality of the products, curated content, and great social media and sales strategies.
Until 2016, the brand was known mostly in Europe. They have expanded very quickly in the last 2 years, opening shops all around the world (Florida, New York, Brazil, China, Middle East, India, Europe). Currently they are expanding in India and will open a shop in Israel in 2019.
In 2017, KIKO reported the turnover of 610 € million income.
Ranked in 2018 as the 5th best cosmetics brand in France; according to Kantar Worldpanel, French 15-24-year-olds now buy as much from KIKO (volume) as they do from Sephora (chain drugstore).
KIKO is definitely having a great success worldwide but the beauty brands challenges also impact them. They closed 27 shops last year in the USA (as they were not profitable).
How do they approach their marketing strategy and try to grow despite the market saturation, high competition, and low brand awareness in the countries they expand to?
Their main marketing strategy is a copy of ZARA’s. They open stores in centric locations (KIKO has opened their shops in the Champs-Élysées, Times Square, and other main locations around the world), they have a strong online presence and online-exclusive deals, they are changing their portfolio constantly, they work a lot on their limited editions. They also run a huge outlet online shop with old limited edition products (-70%).
10 marketing strategy pillars of KIKO
(and how do they face the challenges in the beauty industry that are coming in 2021?)
1. Loyalty program
KIKO Rewards(it was ongoing from 2017 until 20/07/2018, currently they are revamping the loyalty program and they are launching a new one - KIKO KISSES – already available in the UK. We will update the post once there is more information available about the new loyalty program & whether they open it in all their countries.).
You can register to the KIKO Rewards program either offline (in the shop) or online (on the website or by downloading their app).
The program has 2 main benefits:
- Special discounts sent to all registered users by email/app, sometimes free gifts, sometimes free shipping, sometimes a dedicated in-cart discount (usually they last 1-3 days maximum). Those special offers ARE NOT the same as sent to the users who subscribe to the newsletter. I would say the KIKO Rewards program has more frequent/better discounts than just a newsletter subscription.
- Points collection: they can be later redeemed as vouchers (and combined with other promotions)
You can use your points collected on a real KIKO Card (which can be used in the offline shops) or an online KIKO profile (which can be used for the online shop or as a card in the phone app, which you can show instead of the physical card in the offline shop).
- Joining KIKO Rewards (500 points).
- Points collected from the orders (for example for Poland 5 PLN = 10 points).
- Points collected from different actions on the website (for example, filling in your “beauty profile”; the company can then provide you with personalized offers – 200 points).
- Social media following (Instagram, Twitter, Google +, Facebook, YouTube, Pinterest; 10 points per each).
- Social media engagement (retweets, pins, likes; 5 points each, max. once per month per platform).
- Incentivized reviewing and rating their products (10 points each review, once per month).
- Downloading KIKO app (100 points).
KIKO sends special offers to the loyal customers clusters , like this one:
Points could be redeemed as vouchers:
- Voucher KIKO 25 PLN (approx. 6 EUR) – Points: 800
- Voucher KIKO 50 PLN (approx. 12 EUR) – Points: 1500
- Voucher KIKO 100 PLN (approx. 24 EUR) – Points: 3000
You could use the points in your cart, to reduce the costs. No minimal order sum was required to use the points. Points could be used also for discounted products shopping.
KIKO has approached the problem with customer retention and lifetime value by offering a very competitive rewards program, with gamification elements, that brings the customer over and over to their shop. Having been their customer for the last 2 years, I have to admit that each shopping seems less and less expensive due to the rewards in points, special sales, personalized discounts I have received, etc. They have converted me to a loyal customer (and an avid reader of their newsletter) from the day 1.
The new loyalty program preview (UK version) seems to have an amazing design and gamification of the whole program included:
2. Newsletter sign-up incentive (discount)
Usually around 5 € off the next purchase, advertised by a fancy pop-up message every time you enter the website not logged in.
3. Influencer collaboration
They have collaborated greatly with influencers, which has given them the opportunity to establish themselves in social media, especially on Instagram and Pinterest (where their focus is). Nowadays, they have moved from this strategy to:
4. User-generated content
They have their own hashtag – #kikotrendsetters (in some countries – #kikoyes), if you use it in your picture, it means you agree that Kiko will use your picture on their website/social media (and they do use it, very often):
5. Limited edition products (currently 10 different ones are available as of 23/10/2018)
What is special about the limited editions? They are always season-specific (summer makeup for summer, winter for winter), they use different models (thinner, bigger, with a different skin color, with a different personality). The amount of the limited edition and of the cosmetics shades ensures that you will find something for yourself and you can identify with the company.
6. Personalized products (make-up palettes, engraved lipsticks) as well as promotions (discount coupons) and personalized tips sent via email and/or available on your profile:
7. Discount coupons and in-cart discounts available for a short period of time:
Currently – fall promotion gives -20% if you spend over 30 EUR, -30% if over 50 EUR (in Germany).
Some promotions are valid in the online channel or only in the offline channels, depending on the promotion.
How KIKO distributes discount codes:
- Social media profiles (in their posts).
- Influencer marketing (in the sponsored posts).
- Google ads, display ads.
- Paid partnerships with local websites (for example: El País in Spain).
- Banners on other websites (magazines).
- Websites that collect coupons (RetailMeNot, coupons.com, Groupon, CouponFollow, Goodshop, Vales y Cupones etc.).
- Their own app (Kiko Rewards previously, soon Kiko Kisses – working only on Android and in chosen countries as of October 2018) – the codes are delivered in messages and as push notifications (if the user enables them).
They use fixed codes for discounts.
Sometimes they launch a personalized discount (for instance, for a birthday). On the example below, they use a fixed code (SPECIALDAY) but the code works only during the day of the birthday of that specific user (they have a set of rules for that). The date of birthday is set up on your KIKO Rewards profile. Here is the email I got for my birthday:
Do you want to try the personalized coupons strategy?
8. Non-monetary in-cart promotions
KIKO often does in-cart promotions based on the amount spent – here’s a current example (23/10/2018): orders with a product total equal to or greater than EUR 49 receive a EUR 4.90 discount on shipping costs.
They also often offer free shipping to all KIKO Rewards registered users. The promotion is announced by email, on the profile of the user, and as a push notification from the mobile app.
They also often add a free gift – a cheaper makeup product or accessory with the orders.
Here you can see an email I got (they offered me a free gift that depends on the value I spend in their shop on that specific day and is a surprise):
9. Gift cards
Kiko offers online gift cards, offline gift cards (physical ones) that can be used also online (with the barcode and security code entered at the checkout), and seasonal (Christmas) gift cards.
The gift cards can be charged with anything from 20 to 999 €, must be used within 2 years from the date of purchase, and can be used only in the country of purchase.
They are not rechargeable. We cannot use the gift cards to purchase other gift cards (and therefore to prolong the value)
10. How does KIKO…
They offer different discounts in different countries.
Some offers are country-specific (holiday-specific). Like Columbus Day in the USA:
Some offers are running longer in some countries (currently -30% on makeup brushes, which used to be a central promotion, has mostly expired but is still available in selected countries, like Belgium):
There are some promotions that are very rare, this one I’ve found only in Russia:
Another one that I’ve found currently only in Italy – buy 2, get a third one free:
Another one that is available only in selected countries:
Buy 2 lip products, a third one free of charge.
Some offers are similar, but have different promotional mechanisms:
Some offers are “better” in some countries.
For example in the USA:
Same promotions have a different discount %% in different countries:
Newsletter discount code: 30 PLN for 150 PLN minimum spent in Poland (20% discount), 5$ for every 20$ spent in the USA (25%). Free shipping minimal amount spent to qualify varies by country. In Poland it is approx. 40 €, while in the USA it is 15$... clearly, the US clients get better deals.
How does KIKO fight coupon fraud?
They offer coupons only for a limited time.
In some cases, the time is extremely limited. For example, on the French website, where I was yesterday, there was no discount. Today I went there, and there was a pop-up discount (the right red corner – it says “only for this visit – 10% of discount – use it now”). I refreshed the page and it disappeared. Awesome.
In the case of an occasion-specific coupon (like the birthday of a user), they have special rules set up that let you use your coupon only on that day (which is the date of your birthday set up in the CRM).
They activate different coupons in different countries. Even if the same coupon is valid in different countries, it can have a different duration or varying availability dates. For example, the HALLOWEEN coupon is valid currently in various countries, but not all of them.
You cannot validate the coupon available in another country. When you place an order, you need to be on your country’s website. You can change the website on the top bar of the website. If you want to order to Hungary from Poland, you cannot.
If you click on the “I” sign, you will be informed that if you want to order to another country, you have to open that country’s website. Then the discount code will not work any more.
Gift cards have specific bar codes and can be used only in the country where they have been purchased. The bar codes are specific and set up by country.
How do they control their promotions budget?
They regularly A/B test promotions, in the same country and in other countries. That is why they have established different promotions in different countries as well as different promotion durations.
Some countries have more discount codes, some have more free gifts, some have more free shipping. All is continuously tested and optimized, also based on the ROI of the campaigns.
Some countries get discounts up to 70% of the product price, some only up to 50%.
Everything is tracked and optimized to bring profits. That is why for example in the USA, they offer bigger shipping discounts (shipping is cheaper) than in Poland (where they have to ship the products from the warehouse in Italy, because they do not have one in Poland). In Poland, most common promotions are discounts based on the amount spent (which makes sense, as the shipping is costly and they need to promote high average baskets to save on the shipping and bulk the orders).
In short, KIKO has designed an omni-channel strategy focused on low-cost customer acquisition (placing shops in popular places, a wide online presence, a newsletter optimized for conversion, working with influencers, and user-generated content to bring brand awareness – which are, indeed, cost-effective methods). They are constantly optimizing and updating their portfolio and bringing in a mid-priced innovation. What really helps them to survive in those competitive times is a great pricing strategy (discount coupons, personalized promotions, in-cart discounts) and a gamified rewards (loyalty) program (which helps them to retain the customers and convert them in free brand ambassadors). I would easily call this case study a customer loyalty building best practice.
This strategy would be impossible to implement without a technically advanced system and a good collaboration between the tech and marketing teams. The development of such a program is a long and costly process, unless you go for a ready-to-implement solution like Voucherify, for example.
Ready to build your promotion system like KIKO?