In light of a robust recovery post the peak of the COVID-19 pandemic, the beauty market is poised for substantial growth, with an anticipated surge of approximately $580 billion by 2027, demonstrating a projected annual growth rate of 6 percent. The resilience in the industry is noteworthy, and key drivers indicate a promising trajectory.
Notably, the E-commerce segment within the beauty market is emerging as the pre eminent sales channel, showcasing a remarkable growth rate of 12 percent per annum from 2022 to 2027. This surge is underpinned by several factors, including the expansive product offerings by online giants such as Amazon.
Our comprehensive analysis, encompassing 8,000 Stock Keeping Units (SKUs) across 10 distinct categories within the beauty industry over a span of six months (July to December 2023) from a prominent and popular online marketplace.
The categories include: Face serum, Face moisturiser, Face Wash, Toners, Lip Balms, Sunscreen, Toners, Shampoo, Hair Oils, Hair Masks.
It has provided valuable insights for brands, business & strategic executives who are looking for a nuanced understanding of market dynamics within the beauty sector. Understanding these trends equips industry stakeholders to fine-tune their pricing strategies and seize market opportunities effectively.
Exhibit 1: Decoding Seasonal Price Fluctuations:
Over a period of six months, price fluctuations, at the SKU level, were closely tracked. This section indexes the prices to realize fluctuations for all 10 categories.
Our analysis of pricing dynamics across ten beauty categories reveals a consistent pattern indexed against July’s base prices
On average, prices exhibit a downward trajectory starting in the month of August, followed by a notable increase in September and October. However, this upward trend is short-lived as prices subsequently decline again in November and December.
This recurring pattern not only showcases the workings of the invisible hand theory within the beauty market but also potential strategic pricing adjustments by beauty brands in response to seasonal demand fluctuations, promotional activities, or other market factors.
The examination of price fluctuations within the ten subcategories of the beauty industry highlights intriguing insights into pricing trends and consumer preferences.
1.1 Categories that have seen price hikes.
This section showcases the Number of Products under each category that have seen price increments over the last 6 months.
Among these subcategories, shampoos emerge as the frontrunner, with 409 products experiencing an increase in price out of a total of 1098, representing a notable 37% of shampoos witnessing price hikes.
Following closely behind are both hair oil and face wash with 33% of products experiencing price increases. Hair oil showcased 268 products with price hikes out of 812 products whereas face wash demonstrated a considerable price rise under 443 products out of a total of 1362.
Conversely, the category of sunscreen with 19% hikes exhibits the lowest number of price hikes, with only 124 products showcasing an increment in price against its total of 658 products. This phenomenon may be attributed to seasonal factors, particularly the reduced demand for sunscreen during the monsoon and winter seasons due to decreased sun exposure.
1.2 An interesting snippet
This section highlights the average price increase across the last 6 months under each category.
Among products experiencing price hikes, face serums stand out, with prices under it rising by a remarkable 7%!
As the winters approached closer, it was observed that consumer preferences steadily gravitated towards anti-aging products, with skin longevity emerging as a pivotal focus area. The prominence of this trend was particularly evident in 2023, as consumers exhibited heightened sensitivity towards ageing concerns and expressed a willingness to invest in premium skincare solutions.
After face serums, notable price increases were observed in the Hair Care category with Shampoos and Hair Masks seeing an overall 6% increase in their prices followed by Hair Serums gaining a lift of 5%.
If you’re interested in this, we invite you to check out some similar insights for the electronics industry.
Exhibit 2: Brand Tier Behaviour in 2023
Mckinsey reveals a pronounced shift in the beauty industry towards “premiumization.” The premium beauty segment is anticipated to experience robust growth, with an estimated annual rate of 8% from 2022 to 2027. This outpaces the growth rate of 5% observed in the mass beauty segment during the same period.
To decipher the beauty market based on premiumness on the SKUs, we classified the brands into three categories three distinct tiers: Mass Brands, Mainstream Brands, and Premium Brands. Under each category 10 prominent and representative brands were picked and an in-depth analysis was conducted at an SKU level.
(Brands under each tier are selected based on market research and price bands)
Mass Brands: Brands that target the broadest segment of consumers with affordable pricing and widely accessible distribution channels.
Representatives: Parachute, Himalaya, Biotique, Aroma Magic, Jovees, Nature’s Essence, Lotus herbals, VLCC, Avene, Everteen.
Mainstream Brands: Brands that appeal to a broad audience without necessarily being positioned as either mass-market or premium, usually striking a balance between affordability and quality.
Representatives: Mamaearth, Mcaffeine, Dot & Key, Maybelline New York, L’oreal Paris, Revlon, Nivea, Olay, Minimalist, Plum, WOW
Premium Brands: Brands that offer high-quality products at a premium price point, often associated with exclusivity & luxury.
Representatives: L’occitane, Charlotte Tilbury, Ester Lauder, Dior, M.A.C, Lancome, Mario Badescu, Murad, Givenchy
By selecting 10 representative brands from each of the above categories, we conducted an exhaustive examination of their performance across all ten product categories.
The results of our analysis were in alignment with Mckinsey’s report on premiumization of brands. We analysed the representative brands across all their relevant categories and found an intriguing trend.
Premium brands have hiked their prices across the last 6 months with an average increase of 1.73%. The trend is split between 3 giving discounts and the other 3 keeping their price unchanged. However, this marginal discount couldn’t offset the premium added by the majority 4 in the set. This trend towards premiumization is driven by evolving consumer behaviour, characterised by a willingness to trade up and increase spending.
As consumers seek higher-quality products, premium beauty brands are also capitalising on this growing demand to capture a larger share of the market.
Mainstream brands have actually rolled out discounts with an average of 1.84%. This segment is a highly competitive one. Pricing one’s products optimally is crucial to ensure your customer doesn’t move to your competitor. If one brand starts a discount, other brands have to follow otherwise they incur a loss.
Lastly the brands which are crucial for the masses have also seen discounts with an average of 2.85%. Since brands that appeal to the masses focus on affordability they tend to price their products at a range where it’s accessible for the consumer. With festive seasons blooming in the second half of 2023, these brands have showered consumers with prominent discounts.
2.1 Insightful Snippet: Analysing Product Assortments Across Brand Tiers
Our examination of product assortments across premium, mainstream, and mass brands unveils compelling insights. Notably, mainstream brands boast the highest total assortment count, reaching 986 products across 6 months, while mass brands exhibit the lowest count at 335.
Intriguingly, within premium and mainstream brands, a surge in new product introductions occurs in October. This trend aligns with consumers’ propensity to explore and introduce new products during festive periods, reflecting a strategic response from brands to capitalize on heightened seasonal demand.
This dynamic interplay highlights the importance of aligning brand strategies with market dynamics to maximise competitiveness and cater to evolving consumer preferences effectively.
Exhibit 3: Consumer’s response to price hikes
To assess the repercussions of these price hikes, we conducted an analysis to understand how products fared in terms of their ranking after implementing the price increases. Ranking is a very crucial aspect for any product listed online as it bags on its visibility on the catalogue page to guarantee a sale.
The graph below shows the number of products under each category who have responded positively to price hikes in the last 6 months.
It seems the overall consumer response was positive with a favourable outcome inducing from price hikes. On average 50% of beauty products across all 10 categories saw an improvement in their ranking after price increments.
The hair serum and hair mask category have exhibited significant improvement, with 87% of hair serums and 80% of hair masks experiencing a boost in their rankings after the price hikes. In contrast, only 12.31% of hair oils have seen an uptick in their rankings following price increases.
We further examined the degree of improvement in rankings for these products by calculating the average rank improvement within each category.
Across the 10 categories comprising the 1000 SKUs that experienced ranking improvements, the average extent of enhancement was approximately 13%. Notably, lip balms exhibited the highest average improvement at 5%
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