Article by: Perry Romanowski
For the most part I find Euromonitor to be a credible source of cosmetic market information. They do a good job of collecting sales data, monitoring new products and identifying trends. But I found this article about R&D being the key to success in the cosmetic industry to be a bit off. The person who wrote the report doesn’t seem to realize the connection between cosmetic formulations and success in the marketplace. The reality is, there isn’t much.
This might sound blasphemous coming from a cosmetic formulator, but it is reality. Marketing sells cosmetic products much more than the actual products themselves. And R&D is not the key to cosmetic product success…high quality marketing is. Here are three key reasons why.
1. Consumers are bad judges of what works.
The biggest problem that cosmetic formulators face is that consumers are not good at picking out subtle differences in product performance. If you take an identical shampoo formula and simply change the color or fragrance, consumers will report different levels of effectiveness for foaming, viscosity, overall-quality, etc. Even though there is no actual difference in these characteristics, consumers will report differences. Why? Because they are influenced by the Halo Effect. Cosmetic formulators are not able to formulate in a way that overcomes the halo effect. Which means no matter how much better you can make your formula, the success of it will depend on things like fragrance, color, packaging, and marketing story much more than product performance.
2. It’s easy to copy a competitor’s formula
Another reason that R&D is not the key to cosmetic product success is because it is relatively easy to copy your competitor’s formula. You can read exactly how to do that in our free ebook we give away in the box on the right column. But basically, you just need to look at the ingredient list, make educated guesses at the cosmetic ingredient levels, and make prototypes until you get it. As we’ve said before consumers are not a good judge of subtle differences in formulations so you don’t even have to make it an exact match to adequately copy a competitor. So if a competitor can copy your formula so easily, putting more effort into perfecting the formula is not going to ensure more success in the marketplace. In reality, you need to make formulas that people like but you don’t need to make them any better. Spend your money on marketing because in the long run, that will have a greater return than your formulation R&D.
3. It’s difficult to make your product stand out based on performance.
Finally, it really is difficult to make your formula stand out based on performance. Consumers already don’t notice and your competitor’s have access to nearly all the same chemicals that you have. You may be able to select a combination of ingredients that no one has ever thought about but for the most part, cosmetic formulas have been optimized. If you look at the best selling cosmetic in any category you would be hard pressed to make something that performs measurably different. Most products have already been optimized!
So I don’t agree that the key to succeeding in the cosmetic industry is spending more money on R&D. The key is to come up with more clever advertising, better packaging, and better fragrances. The key is to come up with a more interesting story about your product or to identify a niche consumer group that wants to buy from you. Your formulations can all be part of this but if you are a small cosmetic company and only have a limited amount of money to spend on product development, funnel as much of that to marketing as you can. It will have a much greater impact on the success of your company.
Incidentally, the reason P&G is having problems in the marketplace is not because of it’s lack of R&D spending. It’s because of it’s lack of marketing prowess. It’s also because it is a victim of it’s own success. P&G already has excellent formulas that would be difficult to improve upon. They also have the top brand position in many of the beauty categories. This means they only have one way to go…down. It is inevitable that P&G would start to lose market share. The amount they spend on R&D is only a small factor in that trend.