Five must-haves to build a successful beauty brand
Since the beginning of humanity, the quest for beauty has played a major role in people’s lives and this role is not expected to change. The global cosmetics market is now valued at more than $500bn and is expected to grow 7% year on year in the next 5 years.
It is interesting though to see how the market has dramatically evolved over the last few years. Firstly, there has been a massive change in consumer behavior, with a higher demand for transparency, experience, and authenticity. Secondly, the digital revolution has completely upended the way brands can communicate and engage with customers in addition to how they distribute their products. Finally, incumbents have lost legitimacy among young consumers and are underperforming compared to new indie brands who are reshaping the beauty landscape (According to The NPD Group, nontraditional brands like these accounted for half the dollar sales and 55 percent of the 2017 growth in prestige beauty. They grew 6 points faster than traditional brands). Glossier, IT Cosmetics, Kylie Cosmetics, … these brands were born less than 10 years ago and are already each making more than $100m in sales. No doubt many entrepreneurs are inspired by these successes and are striving to become the next beauty disruptor.
However, in a more and more crowded market, the opportunity for differentiation is difficult. Being digital-first is not enough;being natural is not enough either. So, what exactly does it take to succeed when you’re launching a beauty company?
We studied the stories of IT Cosmetics, Drunk Elephant, Glossier, BeautyCounter and Kylie Cosmetics, five of the biggest success stories in the industry over the last decade. Here is what we can learn from them.
1. Always think product first
It might be not the reason why people buy your product in the first place, but it is definitely the reason why they will come back to buy it again and recommend it to their friends.
Having not only a good but a great product is thus your best acquisition channel (through shareable content and word of mouth) and your best repeat channel (and as we know, it is less expensive to make your current customers buy again than to attract new ones).
Very often, what we see is that these brands have a hero product on which they concentrate their communication efforts.
How does Tiffany Masterson, founder of Drunk Elephant, explained her success? “because it works. We have healthy volume because we have a high retention rate”. For all product development, she focuses on what works, using ingredients that serve a sincere and proven purpose.
Jamie Kern Lima, founder of IT Cosmetics, has a similar answer. For her, the idea was not to create a brand about artistry or how many shades of lipstick it could make, but about solving real problems. She gathered a board of plastic surgeons and dermatologists who could help her create effective make up products. The brand’s Bye Bye Under Eye product (eye concealer) was the hero product from the beginning.
BeautyCounter uses a “guilty-until-proven-innocent” approach to ingredients, having banned more than 1,500 from its own products. The company tries to have it all: safe formulation, sleek and minimalist packaging, moderately aspirational prices, without compromising on performance. It took them three years to launch a mascara that fits all these criteria, but it is a rule that they live by.
For Glossier, thinking product first means thinking consumer first. In February 2016, for example, the brand asked followers what they wanted most in a heavy-duty moisturizer. More than 1,000 people responded; the company took that feedback and used it to build a product called Priming Moisturizer Rich, which it released in January.
“You don’t need most beauty products. They’re an emotional purchase. That’s why the conversations are really important. What choice do you have but to ask your customer what they want?” say Weiss.
2. Follow a mission-driven (female) founder
What all these brands have in common is that they are run by charismatic female founders who are driven by a mission that goes beyond “selling beauty product”.
While the beauty industry has long been dominated by the idea of “being more beautiful”, these new brands are promoting empowerment, confidence and self-esteem. Though I don’t like to do gender analysis, I think it is much more powerful to hear these messages from real women who are open and vulnerable about their insecurities and how they manage them and how they overpass them rather than from male-led big beauty conglomerates. (Actually, you could say the same thing about male beauty brands launched by males). Once again, it is always about building authenticity and trust.
To launch IT Cosmetics, Jamie Kern Lima did not hesitate to bring up her personal story and to appear without make-up on TV. Rachel Ungaro, the VP of fashion and beauty merchandising at QVC, explained that it was “her story, passion for the product and overall authenticity that resonate with consumers”.
When Emily Weiss explains how and why she created Glossier, it was all about upending a market that has thrived on making women feel bad and selling them overpriced products. She wanted to “help the mission, which was really about creating your own idea of who you want to be and using beauty as just one way to do that.”
Gregg Renfrew, founder of BeautyCounter, started the company after watching the Al Gore Documentary “An Inconvenient Truth” on climate change. Her mission with BeautyCounter is to push for greater federal regulation for the ingredients used in cosmetics. And her consultants share the same activism: they write letters to local lawmakers and use social media to announce both product sales and new research into the health threats posed by household products. 80% of them are drawn to Beautycounter for its social mission, according to an internal survey the company conducted.
3. Develop a community-based marketing approach
Beauty has always been about sharing: from one girl to another, from mother to daughter, etc.
With social media, you can now share your experience, mood,and state of mind beyond your close circle of friends to people who have the same interests as you: your community.
For a brand, building an engaged community is the best way to create brand ambassadors and to benefit not only from high loyalty but also from a positive word of mouth.
Glossier is definitely the best in class on that topic. When Weiss pitched VCs in 2013, she had no products, but she had spent days in conversations with women who had lots to say about what the big beauty brands weren’t doing for them. Every product has been designed with the help of the community to keep the conversation growing. Everything from the product category to the packaging to the price has input from the consumer. And the brand is constantly experimenting with how to harness the power of that community to even greater strength, launching for instance a direct selling program with its most active and influential community members.
“We are always focused on how we can use our customers to bring their other communities into our communities,” Davis, President and CDO of Glossier, said. “We are making our customers into stakeholders. If we make them stakeholders they help us create better products, but they also become our sales channel.”
Kylie Jenner has been leveraging her massive and massively loyal following to support the growth of her make-up line. She has over 110 million followers on Instagram and millions more on Snapchat, 26m on Twitter, without counting the millions who follow her company directly or the occasional social media assists from her siblings and friends. And many of her followers are young women and girls perfectly targeted for a beauty line. When she launched on November 30, 2015, the first 15,000 kits she had in stock were sold in one minute. By the end of 2016 Jenner’s company was selling about 50 products, with revenue of $307 million — for a company less than a year old.
The Drunk Elephant founder also explained that she did not use traditional marketing or paid influencer partnerships. She progressively built an engaged community on social media around real-time feedback and a very transparent approach focused on efficacy and clinical ingredients.
For BeautyCounter, the engine of the company is its network of more than 16,000 at-home salespeople whose activism has become a crucial marketing strategy. Renfrew relies a lot on them: “they are the voice of change for us”.
IT Cosmetics success also relies in the power of its community and the virality of its content. Lima’s story enabled many consumers to open up and to speak about their problems and how using IT Cosmetics was life-changing for them. On Facebook, the brand is shared or commented on an average of 3,600 times a day. On Youtube, products are mentioned in more than 8m videos.
“When women find something that works, they get behind it and spread the word” comments Lima.
4. Build a sharp distribution strategy
There is not a single rule nor a magical recipe for distribution. However, what we can observe is that all these brands have defined one strategy and stuck to it.
IT Cosmetics hit a big success thanks to QVC. For their first intro in 2010, the products sold out in a few minutes and they reached $1M in sales in the same year on that channel. The product was great with a great storyteller behind it. It took them two more years to get a deal with Ulta Beauty and four more years to hit $ 117M in sales.
Drunk Elephant made what could seem a more traditional choice launching on Sephora in 2015. Still, the brand has seen the fastest growth the retail chain has ever known, reaching $30m in sales in 2016 and revenues set to surpass $100m in 2018.
Glossier and Kylie Cosmetics have favored a direct-to-consumer approach, starting 100% online and adopting a teasing strategy on social media, resulting in products being sold out in just a few minutes. When Jenner launched its Holiday Collection in November 2016, she received $ 19m worth of orders in the first 24 hours. Glossier also became famous for its product waiting lists gathering sometimes more than 10,000 people. Pretty soon, they also started to open physical stores, either popups or permanent ones, to enhance the experience and still control the relationships with their customers. Jenner’s popups in NYC, LA and SF attracted more than 25,000 customers in two weeks. The Glossier Flagship was opened to be “the ultimate physical expression of the brand”, allowing visitors to interact with Glossier team members and make friends with fellow flagship goers. Success was immediate: the flagship generates more revenue per square foot than the average Apple store.
BeautyCounter built a business model of its own that its founder calls “direct retail”. Its impressive growth has been driven by a multi-pronged retail strategy that includes its own website, a hand-picked selection of partners (such as J.Crew and Hoop), pop-up shops and above all, a network of more than 16,000 at-home salespeople who account for 35% of its sale.
5. Work on the outside beauty: packaging and image
Although I personally believe that all the criteria mentioned above are the most important ones to make your brand last, I also think that unfortunately, without sharp branding (including packaging, images, and tone of voice), people might never even take a look at your products in the first place.
For Drunk Elephant, the appealing packaging was the first reason why journalists wrote about the products and why Sephora agreed to distribute them. Masterson explains “the look of the line on the shelf is incredibly aesthetically appealing: the white-and-neon packaging, stamped with a minimal elephant logo, holds its own against branding of everyone’s millennial favorites — even without using that pink everywhere”.
Glossier, on the other hand, completely assumed the so-called “millennial pink” choice. More generally, it developed a very personal and playful marketing voice, was one of the first to use images of diverse women with minimal makeup and utilized their community again by promoting user generated content. The packaging was also designed to be Instagram-worthy, with a lot of white space to let people personalize them with the stickers they got with their purchase
“Brand is really, really important. It’s kind of everything” Weiss said to Business Insider back in 2016.
For Kylie Cosmetics, the brand is Jenner herself and it was actually established before she launched a single product. With more than 100m followers, she is the 7th most followed person on Instagram and the ultimate influencer, using her own face to exhibit her make up range.
IT Cosmetics and BeautyCounter might be a bit different on this matter and do not really stand out for their packaging or their image: the power of their brand mostly come from the mission they are pursuing. It is quite consistent with their distribution strategy which enables them to tell their stories but it would be much more difficult if their only way to engage with customers was through an Instagram feed or a department store shelf.
6. Bring cash-in?
Actually, it is a questionable point, but to be fair, most of these brands have indeed raised big amounts at some point.
Masterson got $300k from her brother-in-law at the while founding f Drunk Elephant. Her brother also invested an undisclosed amount a year later. She’s brought on some other minority investors including blogger Leandra Medine and VMG Partners in February 2017. It was estimated to be worth $ 1bn while sales were estimated to be $ 150m in 2018.
Jenner invested $250k from her personal savings to finance the first batch of production for Kylie Cosmetics. It has sold more than $630m worth of make up since 2016, including. $330M in revenue in 2017 alone.
IT Cosmetics, launched in 2008, only got funding in 2012 from TSG Capital (after it launched on QVC and signed a deal with Ulta Beauty). The amount was never disclosed. In 2016, but it was sold to l’Oreal for $ 1.2bn while sales hit $ 180m.
BeautyCounter raised $ 65m in 2018 from Mousse Partners and earlier investor TPG Growth, which valued the company at about $ 400m. Prior to this transaction, the company had raised a total of nearly $42m. In 2017, the company was generating $ 225m in revenue.
Glossier secured a $ 100m Series D in March 2019 led by Sequoia Capital which valued the company at $1.2billion (while the company is said to have generated more than $ 100m in revenue last year). Prior to this round, Glossier last year had raised $86 million and was valued at $390 million.
Those are huge amounts which definitely helped to launchthe businesses and create brand awareness. However, one must keep it mind that it is very unlikely they would have managed to raise so much money without the assets mentioned before.
In the beauty industry, barriers to entry have never been so low and valuations have never been so high. Thousands of new indie brands are striving to take their share and be the next acquisition target of an industry leader. One must not forget that it takes more than a nice Instagram feed to get there. Having great products, being driven by a charismatic founder with a focused mission, thinking carefully about distribution (and what strategy fits best with your product), engaging with your community, and don’t forget working on your branding are to us the five must-haves a beauty brand should have if it wants to have a chance in this crowded industry.
However, founders must remember that it is just the very first step of a long process and a “necessary but not sufficient” rule. Environment considerations, micro-influencers strategy, ultra-focused positioning, holistic approaches or new communication channels are new powerful levers too and we’re really excited to see what the next generation of indie brands will bring to the industry and how they will continue to innovate.
To all founders launching a beauty brand and thinking they have what it takes to success, please drop us a line at: hello@eutopia.vc
Sources:
https://www.entrepreneur.com/article/298014
https://qz.com/work/1176081/glossier-ceo-emily-weiss-doesnt-have-time-for-excuses-just-do-your-job/
https://www.nytimes.com/2018/11/21/business/gregg-renfrew-beautycounter-corner-office.html
https://www.fastcompany.com/40540039/how-a-beauty-brand-raised-an-army-of-30000-political-activists
https://econsultancy.com/behind-kylie-jenner-s-success-in-a-saturated-cosmetics-industry/
https://www.businessoffashion.com/articles/beauty/who-will-buy-drunk-elephant
https://www.linkedin.com/pulse/small-powerful-how-indie-brands-shape-future-beauty-hana-ben-shabat/
https://www.allure.com/story/it-cosmetics-story-jamie-kern-lima?verso=true
https://fashionista.com/2018/03/tiffany-masterson-drunk-elephant-skincare-sephora
https://www.thecut.com/2017/01/why-drunk-elephant-is-the-best-natural-skincare-line.html
