Marketing Environment of the Cosmetic Industry in the USA - Essay Example

MARKET ANALYSIS OF THE COSMETIC INDUSTRY IN USA By Date Introduction With the increased influence of generation X and Y, the cosmetic industry in the U.S. and globally has become vibrant because of increased demand for products resulting from the desire by many people to stay young and beautiful in societies that value elegance. The market has experienced significant shifts from previous ideologies when cosmetics was a preserve of the female market. However, today the market is more of heterosexual, with male beauty products gaining popularity in recent years (Dayan and Kromidas, 2011). Consumers tend to shift their taste and preferences according to trends in society with most fashionable products at any given time dominating in market sales. Product differentiation is at its very best as consumers are more knowledgeable about products, thus necessitating suppliers of beauty products to meet market demand in terms of products even though there has been significant shift to green products in the recent past (Dayan and Kromidas, 2011). The multi-billion U.S. cosmetic industry is at its peak with both males and females’ products dominating the market. Product Segmentation The cosmetic industry has developed to become a multi-billion industry over time with massive product differentiation aimed at satisfying particular consumer needs. Thus, unlike in the past when only skin care products dominated the market, currently there exist various products that include skin care and beauty therapy solutions, which are all aimed at satisfying consumer preferences and tastes as shown in table 1.1 below (Salvador and Chisvert, 2007). Product Segmentation Table 1.1 product Market share (%) Hair care 22 Skincare 18 Bath and shower 15 Fragrances 13 Men’s Grooming 9 Oral hygiene 7 Sun care and skin care 6.5 Deodorants 2.5 For this reason, a number of companies have the taken the initiative to supply different products to different consumer market segments, thus enabling them to command certain percentages of market segments (Dayan and Kromidas, 2011). In addition, some firms have specialised in offering products of particular lines to consumers such as skin care products. However, a majority have embraced product specialisation after their brands have been recognised in the market; with consumers being ready to be associated with them. The following table shows the top ten firms in the cosmetics industry in America based on their market share statistics for the year 2012 (Dayan and Kromidas, 2011). Table 1.2 Market Segmentation Company Beauty sales (US billions) Procter and Gamble 26.3 L’Oreal 25.8 Avon 16 Beiersdorf 7.6 Estee Lauder 7.5 Shiseido 7.3 Kao 6.9 Johnson and Johnson 5.9 Henkel 5.6 others 4.4 (Dayan and Kromidas, 2011). Market Structure The cosmetics industry in the United States of America assumes a monopolistic market structure. Some of the companies are foreign owned but because of strong branding they have been able to penetrate the market and are command a significant share despite the existence of locally owned firms that are offering similar products (Dayan and Kromidas, 2011). The key element in this market structure is product differentiation by which, despite the high number of organisations operating in the market, companies have been able to create different products based on technological innovation, creativity and value addition, in a bid to woo customers into purchasing them (Egan, 2008). For instance, it is evident from the sales statistics that at least each firm has a considerable market share that is depicted by large sales. Innovation is a crucial component that differentiates various products companies offer. Usually all these products are meant to serve the same purpose or rather are designed to satisfy a particular consumer needs in the market but the manner in which they are designed and packaged will influence a customer’s perception; hence, their selling power (Frazier, 199). For instance, firms that have already established themselves in this particular market, have a certain degree of control over the prices of products because the influence of the forces of demand and supply are limited because the market structure has some barriers to entry of new firms. Thus, competitive pricing strategies play a little role in shaping the market prices of products. Barriers to entry in this market result from stringent government regulations and policies, which are formulated and implemented by government authorities (Willett, 2010). Conversely, other factors such as economies of scale and control of strategic resources also play a significant role in determining the level of entry of new firms into the industry. Current Market Trends The current generation is putting more emphasis on beauty and elegance and the American market is no exception since consumers from all age brackets at least utilise a cosmetic product on a daily basis. To begin with, the USA is a developed country whose life expectancy is considerably high and thus, its population comprises of majorly aged people of between 45-90 years (Willett, 2010). Aging is a major issue for most of the people and thus, they have turned to anti-aging products to rejuvenate their skins to regain fresh and young looks. Statistics indicate that this product segment is growing steadily over the years as the middle age people have turned to the products to prevent premature aging as a technique of avoiding contingency actions when they grow old (Willett, 2010). Moreover, for a long time, the industry was a preserve for female clients but recent trends indicate a growing meter-sexual demand as men’s grooming has become an integral part of the industry. The fashion and entertainment scene has contributed much to this since most of the male celebrities need to be groomed to set beauty precedents for their fans follow, thus resulting in a boom that is currently witnessed in this particular sub-sector (Malkan, 2007). Many times beauty products have been known to have adverse side effects on some consumers due to their chemical compositions that do not augur with some users. Thus, this has led to consumers being more knowledgeable about the kind of products that they need and are now insisting for information about the chemical compositions of products they demand to ensure they are safe for use. The increased awareness has led to a shift from chemical based cosmetics to natural based products, produced from pure natural ingredients that have no side-effects when utilised. That notwithstanding, with the high level of product specialisation and differentiation customers have now a sense of value for their money since they are willing to spend as much as possible in order to receive their desired satisfaction (Heiser, McQuitty & Stratemeyer, 2005). Government Regulation The government has engaged in a number of regulatory actions to streamline the operations of the industry since it deals with products that directly affect the health of consumers. Thus, in order to protect customers from getting substandard or harmful products, the Federal government has enacted legislation that has been implemented to monitor the industry practice and activities. The FD & C Act prohibits manufacturing and marketing of misbranded or adulterated products (Betton, 2007). Some scrupulous business organisation may be advertising different products from the ones they are actually offering, thus subjecting consumers to raw deals by which they pay for products that do not achieve the functions that they purport (Betton, 2007). An adulterated product is poisonous in nature and thus, endangers the life of a consumer buying it. In addition, substances that are filthy or do not meet the minimum health requirements are also said to be adulterated. For instance, if a product is produced in unsanitary conditions, its chemical composition can be altered, thus making it unsafe for consumption (Betton, 2007). Moreover, some products may be mixed with hazardous substances to make them more appealing through addition of poisonous colour compounds, thus making them unsafe for use. On the other hand, a superficial good will be regarded misbranded if it contains misleading information as part of its label. It is a common practice for products to be purported to perform certain functions, which the real contents of the packages do not. For instance, a label of a skin care product may claim that it removes wrinkles in two weeks (Betton, 2007). It is a legal requirement for beauty products to contain all required information on their packages so that consumers will be thoroughly knowledgeable about the kind of products they are buying. The required information includes the ingredients, chemical composition of the product, date of manufacture and expiry date as well the directions of use (Betton, 2007). If any aspect of this information is missing then, the product is regarded as misbranded and thus, should not be in the market. That notwithstanding, the government has also implemented the FPLA Act that requires all ingredients used to produce a product to be clearly indicated to enable customers to make informed choices. Some of the components may not be ideal for some customers since they may cause allergies or other imperfections, thus transparency in disclosing ingredients is paramount to enable customers to purchase products that are only safe for use (Betton, 2007). Market Environment In any industry, the market environment can be classified into three broad categories namely; internal, performance and external environment. The internal environment is the factors from within the organisation that influences the manner in which a firm utilises its strengths to create a competitive advantage over its market rivals (Dayan and Kromidas, 2011). These factors are under the control of the business’ management since an organisation can change them to fit its objectives (Frazier, 199). The Performance environment is essentially part of the internal environment but, in this case, focuses on the overall score the company obtains in its operations. The external environment is factors that influence the operations of a company but on which the business has little or no control over. Using Porter’s five technique, an industry’s environment can be analysed to determine the influence environmental factors have on the operations of the market (Dayan and Kromidas, 2011). The Cosmetic industry in the U.S. is the biggest market globally with an estimated $54.89 revenues. However, with the advent of technological innovations and emergence of e-commerce, the revenues are expected to double in the future as well as competition to intensify (Heiser, McQuitty & Stratemeyer, 2005). For instance, in 2010 about $7.2 billion was generated from online e-commerce businesses and mail order home sales (“Statistics and Facts”, n.d.). For this reason, it is anticipated that competition in the industry is likely to intensify with the emergence of small online based businesses. Social-cultural pattern The social-cultural aspect is one of the external factors that influence the manner in which a business firm operates in a particular market. These factors are beyond an enterprise’s control and thus, a firm needs to adjust its operations to be in line with the dynamics of the social and cultural trends in the market. In America, men’s grooming is increasingly becoming a trend that is shifting attention in a market that has been dominated by female centred products. It is not a sexist remark but for a considerable amount of time, businesses have focused a lot on female beauty products with only a few complementary products being provided to the male generation (Malkan, 2007). Slowly the trend has changed and now businesses have started offering specific products that are designed and customised for male consumers. Thus, beauty is no longer a preserve for the female generation because there are male models that are showcasing not only their body building muscles but also the beauty aspect of men. For this reason, with so much attention shifting unto the male generation in the U.S., competition is emerging in the cosmetic industry for the manufacture of male products. For instance, it is common nowadays to find companies producing deodorants or fragrances clearly indicating if the products are for men or women such as Nivea deodorant for men (Malkan, 2007). In the past, it was perceived that all beauty products were intended for women since manufacturing was done from a feminist perspective, that is, the aroma and packaging. Today you will find similar products, for instance, from L’Oreal but with different fragrances for male and female with those meant for males being indicated as ‘for men’ unlike those for females to distinguish the two product lines (Salvador and Chisvert, 2007). The sense of identity for male consumers has, therefore, significantly increased with recent research indicating that on average in every household, there are five different cosmetic products for men. For this reason, it is evident men are paying more attention to personal grooming than before and today it is common to find men applying a before shave cream when shave their beard, use an after shave cream, take a bath with a shower gel for men, apply skin care products for men and finally, apply some fragrance for men. Therefore, personal grooming and fashion is no longer a preserve for fashion icons or celebrities anymore. The media industry has also influenced the men grooming culture and today, men centred fashion programmes are airing on television, magazines and blogs advocating and selling male products (Salvador and Chisvert, 2007). Grooming on the part of the female generation is more of a tradition as conventionally women were supposed to look good especially in the American society. However, the act of female grooming has gone a notch higher as it is not only limited to beauty products but advanced to therapy (Malkan, 2007). Cosmetic companies have come up with services and products that can change skin complexion of women and make them more beautiful. There is a high contrast if you observe a woman before utilising beauty products and after using them because the products have a capability to transform the skin by enhancing it with artificial beauty. However, it is imperative to note the perspective from which the two sexes use cosmetic products is different (Malkan, 2007). For instance, male consumers will use cosmetic products to maintain their skin and look more presentable. On the other hand, females will use cosmetics to retain their skin and enhance their beauty to portray a more appealing personality. Conclusion Ultimately, it is evident the two genders are competing on the same lane as far as beauty products are concerned. For this reason, future projections indicate that the demand for these products will double future as the society will be more sensitive to matters dealing with beauty and skin care technologies. For this reason, the cosmetic marketing environment is likely to boom in the future as the demand for both male and female products increase. However, with the emergence of online businesses, competition is also likely to intensify as companies compete for this lucrative market that is changing with generation. Bibliography Betton, C. I., 2007. Global regulatory issues for the cosmetics industry. Volume 1. Norwich, NY, W. Andrew Pub. Dayan, N., & Kromidas, L., 2011. Formulating, packaging and marketing of natural cosmetic products. Hoboken, N.J., Wiley. Egan, J., 2008. A century of marketing. The marketing review, 8(1), 3-23. Frazier, G. L., 1999. Organizing and managing channels of distribution. Journal of the Academy of marketing Science, 27(2), 226-240. Heiser, R. S., McQuitty, S., & Stratemeyer, A. W., 2005. Broadening the Competitive Environment: The Customer’s Perspective. Mexico: Academy of Marketing Science, 9(12), 1-11. Available: http://www.amsreview.org/articles/heiser12-2005.pdf [Accessed 9 Feb. 2015]. Malkan, S., 2007. Not just a pretty face the ugly side of the beauty industry. Gabriola, B.C., New Society Publishers. Peiss, K. L., 2012. Hope in a jar the making of Americas beauty culture. Philadelphia, PA, University of Pennsylvania Press. Salvador, A., & Chisvert, A., 2007. Analysis of cosmetic products. Amsterdam, Elsevier. Willett, J. A., 2010. The American beauty industry encyclopedia. Santa Barbara, Calif, Greenwood. Statistics and Facts on the Cosmetic Industry. (n.d.). Available at: www.statista.com/topics/1008/cosmetics-industry/ [Accessed 3 February 2015]. Read More