Cosmetics Onl-Line: An Industry Survey

Cosmetics On-Line: An Industry Survey

“Sensations, imagery, mood merchandising and the retail buying experience itself are always the primary considerations in a business that lives on illusion, flattery, and the perpetuation of premium pricing.”¹ That these enticements to purchase are virtually impossible to achieve in a virtual environment has led many cosmetics companies to be wary of entering the Internet marketplace. Despite this reticence, on-line sales of personal care products is expected to increase, doubling from 1999 to $200 million in 2000, then again doubling in each of the following years, until it reaches $1.2 billion in 2003.² But contrast this with 1999 figures for the top 100 of the world’s largest cosmetics companies whose combined total beauty sales netted just above $89 Billion.³ The 1996 aromatherapy industry numbers were listed at $230 million,⁴ the most recent numbers that could be ascertained for this survey. Right now, growth drivers include “replenishment of supplies: people ordering products that they already know and like.”⁵ The Internet is able to bring high-fashion brands to areas of the country where they lack brick and mortar outlets, but the high prices for these products that are justified in stores by personal service seem out of sync with Net-shoppers assumptions of discount pricing. To counter this objection retailers point out the convenience of purchasing on-line.

Besides carrying product, various sites try to offer an editorial content similar to that in a fashion magazine. Beautyscene.com features an advisory panel that includes a plastic surgeon, a dermatologist, and dentist, besides the usual collection of fashion advisors. This site also tries to distinguish itself with free gift-wrapping and “slick packaging,”⁶ besides the usual Internet enticements of free shipping and parcel tracking. Like many other cosmetics companies, this one offers generous samples of other products to entice further purchases. Many general (not manufacturer-specific) sites often group products by category, rather than by brand.

But consider this opening from an article in the October 26 San Jose Mercury News:

Mariam Naficy, co-founder of online beauty site Eve.com, was supposed to speak at an Internet World forum called “Digital Fashion & Beauty.” The other co-founder, Varsha Rao, was supposed to appear on a panel called, “The Digital Makeover: How the Cosmetics Industry is Growing Online.” Apparently, it’s not growing fast enough. Naficy and Rao were no-shows because they shuttered their San Francisco-based company last Friday.⁷

One of the stars of the on-line beauty industry, Eve.com folded amid great surprise, the victim of not enough on-line business to keep it going. So, what are the pitfalls and obstacles to selling cosmetics on-line? How can a company that sells a blend of citrus, wood, herbal, incense and floral notes get that fragrance to entice a buyer through a computer connection? What do products with names like “Lavender and Lace” or “Hearts and Roses” smell like, or is the consumer willing to purchase on an educated guess?

No matter what the future holds for the on-line cosmetics industry, many parties are interested. Even the chemicals industry is keeping its eye on the development of the cosmetics industry:

Significant innovation has been occuring in North America’s market for chemicals used for skin-care and cosmetics products. The market is worth an estimated $2.7 billion . . . According to The Freedonia Group, the skin care chemicals market is at $2.5 bil/yr and the market for cosmetics chemicals is at $200 mil/yr. Freedonia expects both will grow at a rate of 5.5%/yr. Freedonia expects the market will generate total sales of $6.3 bil in 2003.⁸

Several observations about the online purchasing experience were culled through a survey taken in late 1999, in a study published in February 2000 by the Gartner Group. The survey was undertaken by Dataquest

to gauge the level of implementation of a number of key technologies and characteristics. These include the adoption of clear and visible postings of privacy and security policies: real-time customer service; advanced visualization and modeling techniques . . . While few online retailers have embraced functionality in a majority of areas, the adoption of such technologies and characteristics has increased significantly over 1998 and will continue to do so in the future.⁹

The sample was taken from the top 100 e-tailing sites, with the omission of sites that were portals only, membership clubs, or non-operational sites. Survey results were collected relating to privacy policy, security policy, real-time online customer service, visual interface, and ECML compliance (adherence to and implementation of the Electronic Commerce Modeling Language standards). If the e-tailers are serious about increasing the ease of consumer access to the sites and the products, how are they demonstrating this goal? (It must be noted that this survey includes a variety of products and types, not just cosmetics and personal care products, but it does bring to light trends and ideals in Internet marketing that can be transferred across many industries. The groceries, drugs, and toiletries segment included 10% of the sites visited.)

The survey discovered that 60% of the total number of sites had a clear and visible privacy policy, and 30% had a clear and visible security policy, although all sites professed to have both policies intact. For the cosmetics category, 30% of such sites had a clear and visible policy. Secure payment standards are not in widespread distribution, and this alone is enough to discourage many shoppers from purchasing.

LandsEnd.com is famous for its real-time customer service for the shopper, and they are almost unique in this consideration. Only two other of the 100 sites, both florists, enable the shopper to ask a question and get advice in real time. This feature of web sites is highly desirable for any seller of cosmetics and personal care products. After all, this is the industry that relies on person-to-person, face-to-face selling. Imagine if a woman looking for a skin cream would suddenly find a salesclerk on-line: one of the barriers to purchase online would immediately vanish. 3-D visuals exist on 2% of sites, and real-time modeling exist on 10%. This feature frequently requires a plug-in like Shockwave, but, again, only Eddie Bauer’s “Virtual Dressing Room” can be cited as a way for the consumers to interact with virtual products in near-real time. Duplicating the real-world shopping experience is a goal for many of the sites. There is the common experience for consumers to browse and do research on the Internet, but go to a bricks-and-mortar store to make the actual purchase, most likely because the online experience is not virtually tactile enough. None of the drugs and toiletries sites surveyed had “either real-time customer service or enhanced interactive visuals.”¹⁰

Real-time order tracking appears on only 5% of the surveyed sites. Adoption of this technology will save time for the consumer and make the site seem more service-oriented. A little over half of all sites surveyed visited includes enhanced content, similar to those beauty editorials found on some cosmetics sites. In fact, about 60% of drugs and toiletries sites have enhanced content. Surrounding the product with “content and community” is attractive to the shopper, keeps the shopper on the site longer, and more often leads to sales. None of the sites surveyed had ECML Compliance, even though this standard has been encouraged by the financial industry.

Dataquest’s survey points up that e-tailers must design their sites with consumer-focused attention. For example, if it is clear to all that security and privacy are important, and all sites had policies intact, why did only 30% have both these policies clear and visible to the consumer? Converting shoppers into buyers is crucial for all Internet retailers. An additional GartnerGroup study examined selling health and beauty products online and came up with a strong set of recommendations:

* Online pharmacies and other merchants selling health and beauty products need to demonstrate the greater convenience of online shopping in comparison to conventional brick-and-mortar channels. As a minimum, this requires fast, guaranteed delivery times for online orders to be able to compete.

* Improved convenience can also be offered by stressing the confidentiality that online selling offers in comparison with traditional channels.

* In the medium and long term, the mass customization of health and beauty products will be a key differentiator for online selling. Online retailers need to be enthusiastic partners of manufacturers that are pioneering mass customization.

* Success in the online selling of health and beauty products has been typical of many other products in this price class. The total consumer expenditure on health and beauty products, however, ensures that high levels of investment will be attracted into finding ways to displace conventional channels. Merchants need to plan for a rapid transformation in this industry.¹¹

This report measured activity during the third quarter of 1999, and notes that 13 million adults shopped online for healthcare products, beauty products or prescriptions. This represents 12 percent of the 110 million adult Internet users. For comparison, consider that books attract 28% of shoppers, and music CDs attract 27%. Only in the category of groceries are there fewer shoppers by percentage of the total users. The more serious statistic is the buy-to-browse ratios for goods of comparable price. Charts show that aside from books, music CDs, flowers, and clothes, categories that achieve ratios of 45 - 50%, health and beauty products, at 25% compares with the housewares/kitchen/garden supplies, toys and video games, and groceries for items of similar price.¹²

A comparison with catalog shopping is a more direct measure of shopper interest. The following chart brings up an interesting question: If face-to-face purchasing is important in the sales of health and beauty items, how does this account for the numbers earned through catalogs?¹³

	CATALOG SHOPPERS	ONLINE ORDERS
Number of Adults	88 million	46 million
Health and Beauty Products	15%	7%
Books	35%	33%
Music/CDs	37%	28%

Mass customization seems to be the direction that might be the way cosmetics and personal care manufacturers and distributors will gain customers. If Michael Dell and other computer makers can do it, why not makeup manufacturers? A visit to Reflect.com, a pioneer in this method of marketing, gives a clue to how mass customization might work. Created September 13, 2000, by Proctor and Gamble, one of the world's larger manufacturers of consumer products and a highly respected company, Reflect.com seems to have all its taken to heart that oft-heard (recorded) declataion, "Your call [business] is important to us." (Yeah, right.) The home page is clear and easily navigable, and registering as a member is easy. The privacy statement is prominently displayed on the registration window, and the TRUSTe logo is prominently featured, but the home page does not have a link to the security information. The emphasis of Reflect.com is to create an individual cosmetic item, and the choices fan out like a fecund decision tree. The home page links to an FAQ page that is headed by "Here are answers to frequently asked questions. If you need further assistance, please contact our Concierge Service at service@reflect.com or 800.243.2288." A link to a beauty advisor is on every page, further enhancing the virtual experience of buying cosmetics. The navigation bar is arranged into menus and, in some cases, sub-menus. The titles are self-explanatory and indicate the desire of Reflect.com to serve you, the shopper:

Create and Shop	Beauty Advisor	My Organizer	About Us	Service	Reorder	Shopping Cart
Personal info	Reflect beauty experts	Personal info	The Reflect.com story	Shopping info	Saved products
Site preferences	Tips	Site preferences	Privacy and security	Gift certificates
Saved products	What's new	Saved products	Guarantee	Contact us
My tips	The Buzz	My tips	Affiliate program	Comments
	Create and shop		In the press
			Reflect.com LLC

Advantages to the site's design include the ability to collect information on individual shopper preferences and to build a one-to-one relationship with the shopper. Prices have been set at levels equivalent to department store brands like Clinique, Lancôme, or Estée Lauder, or $17 for a lipstick and $28.50 for foundation. Purchasing cosmetics is, for many women, akin to visiting a fairy godmother who will make one more beautiful, younger, more alluring. It's a sybaritic experience at best, full of exotic perfumes and healing unguents. Add to this the promise that some wizard will create a unique blend of ingredients that will bear one's genetic code, and shoppers will part with cash faster than a gambler in Las Vegas. True, a delicate hand will not reach out of the screen to stroke a perfumed cream on one's skin, but Reflect.com has recreated the virtual experience of shopping for cosmetics as closely as possible.

Compare this to Avon.com, the online version of the company that once made sales solely though private and discreet visits to clients' homes. This company has a history of truly individualized and personalized selling, albeit the saleswoman was pushing a mass manufactured line of products. Their web site displays the current month and year next to the Avon logo that is subheaded "the company for women." Links include a very large "Shop Online" under which is a link to "Weekly Specials." Next comes a link that says "Get the personal touch . . .The beauty asstance you need is just one click away." Then there is a link "Find an Avon eRepresentative." Clicking on this link gets one to a registration site that asks for quite a bit of information (much more specific personal information than at Reflect.com), including, "What name do you prefer to be called by?" and asks for the phone number or zip code of a local representative. (One assumes that this consumer profile will lead to a home visit from a real, live consultant.) On the home page are also links to getting a career as an Avon representative, and a link to the privacy and security information. If one clicks on product links one is offered a chance to sign up for an elite membership on the site that guarantees the shoppers preferences will be remembered. Prices are equivalent to upper-level drugstore items, $7 for a lipstick (but for the holidays, a special 2 for $7.99). The upshot of a visit to this site? There are a lot of choice and lists of products to click on individually to examine; it is difficult to compare two products in the same category (there are 19 lipsticks, all in a variety of two dozen colors, helpfully included as color swatches on the screen). Prices are reasonable and inviting. Avon's reputation and customer image has to be modified over a period of time. Research indicates that people think of Avon as suitable for their mothers or grandmothers, and certainly not a luxury item. Would this site entice browsers to become Avon shoppers and loyalists? Possibly, but there's not the sensation of luxury and personal care embedded in this site.

RESOURCES

¹Women’s Wear Daily, February 2000, Vol. VII, No. 2, p. 1.
²Ibid.
³WWD, September 2000, p. 8.
⁴Responsive Database Services, Inc., Vol. 71, No. 42, p. 30.
⁵Evie Black Dykema, Forrester Research, quoted in WWD, February 2000.
⁶Op.cit, September 2000.
⁷Chris O’Brien, “Internet World Trade Show Convenes in New York Amid Industry Gloom,” San Jose Mercury News, October 26, 2000.
⁸Chemical Week Associates, Chemical Specialties, March 2000, p. 53.
⁹Blaine Mathieu, B2C Internet Retailing Models: North America, GartnerGroup, February 28, 2000.
¹⁰Mathieu, p. 12.
¹¹Mark Smolenski, "Increasing the Effectiveness of Selling Health and Beauty Products Online," GartnerGroup, February 21, 2000.
¹²Ibid.
¹³Ibid.