10 Challenges eCommerce Businesses Face in Beauty Industry

According to EY, the cosmetics market is estimated to double in the next 10 years. It is the perfect time to jump on the bandwagon and start your own cosmetics brand…or is it? What are the main obstacles and challenges that beauty brands will face in 2023 and beyond?

What are the main challenges in online shopping for beauty brands?

Online shopping is a challenging field, and it's not easy for beauty e-commerce businesses to build a significant competitive advantage. What are the biggest pain points in the beauty industry nowadays?

1. Pandora’s box of competition

With the boom of new products in the last 10 years and the expansion of e-commerce, cosmetics businesses do not compete only with local companies. They compete with everyone who ships to the same country. As customers have access to online marketplaces and online retailers such as Amazon, eBay, Allegro, Souq, Alibaba, and others, the options are exponentially growing.

Prices of cosmetics are dropping and it is getting increasingly harder to offer something unique to your customers.

2. Missing omnichannel retail strateg

Currently, cosmetics are not sold solely in a drugstore. They are sold everywhere, starting from drugstores and brick-and-mortar stores to almost every form of online shopping, including e-commerce sites, platforms, or social media selling.

If you want to be successful, should you design your strategy to sell goods through as many channels as possible? It depends. However, omnichannel marketing and sales are one of the best commerce sales strategies today. The rule of thumb is to be where your audience is!

3. Price war (and not only…)

It is extremely difficult in e-commerce to compete on price. Beauty companies are offering many special promotions, discount coupons, in-cart discounts, and loyalty programs. It makes it even harder to stand out with your offer.

Did you know that more than 80% of consumers use coupon codes when shopping online?

Customers are actively looking for coupons during their entire buying process. If you do not offer them, you are certainly behind the competition, especially as there are more and more websites and blogs that conveniently collect coupons for customers.

Moreover, almost 60% of the customers would use more coupons if those were available online. Being listed in your retailer’s offline leaflet is not enough anymore.

4. Customer loyalty… or rather the lack of it

67% of consumers buy beauty products from at least 4 websites, and loyalty rates for cosmetics are only 42%.

It's a huge challenge in an online sales environment to build strong customer loyalty. Generation Z, in particular, is very demanding. The choice of cosmetics is abundant nowadays; the choice of channels to buy them is wide as well. Customers are constantly trying something new and customer retention is becoming even harder.

E-commerce companies try to build strong relationships by offering loyalty programs, with the biggest ones owned by Ulta, Sephora, and Dr. Brandt, but also chain retailers like DM or Rossmann.

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5. Low average order volume (AOV) and customer lifetime value (CLV)

For the same reasons as above and because of low shipping costs, customers tend to buy less from one online store than they used to. Even if an online store or e-commerce platform has a wide product offer, it does not always mean that customers will choose a single e-commerce site over higher profitability coming from buying from different vendors.

The lack of loyalty and low average spending means low customer lifetime value. Customer lifetime value is the total worth to a business of a customer over the whole period of their relationship.

6. High customer acquisition cost

The specifics of online purchases impact the cost of customer acquisition. The omnichannel strategy, price wars, abundance of competition that bids for the same keywords, expensive marketplaces – everything adds up to high acquisition costs.

7. Research Online, Purchase Offline (ROPO)

Most product research starts online. Many consumers, before making a final purchase decision, spend some time gaining information about the products and services, comparing features and prices, and once they are fully convinced they go to a brick-and-mortar store and buy it. How to deal with such behavior? You should pay a lot of attention to the reviews published on the internet – if the reviews are favorable to you, an online purchase is more likely.

86% of consumers are significantly influenced by favorable product reviews or ratings.

8. Influencer marketing

After years full of fruitful influencer collaborations, now beauty brands are facing an unexpected issue. The customers already know the influencers are being paid to advertise your product. They prefer to hear the advice of “ordinary people”. Hence, the boost for micro-influencers and user-generated content. Authenticity is the new buzzword.

9. Demand for personalization

Personalization is no longer a trend. It is a clear demand from the market. As the study from Marketo showed, 79% of consumers say they are only likely to use a brand’s promotion if the promotion is tailored to previous interactions. Personalized discounts, coupon codes, and in-cart discounts will have their glory days in 2023 and beyond.

Quick tips for e-commerce companies on how to fix the problems

No doubt people managing marketing and sales departments in the cosmetics industry do not have an easy task today. Brand positioning and acquiring new customers is a complicated process. Apart from the above-mentioned problems, there are other challenges so strongly present in today's e-commerce sector, that beauty companies have to face as well: sustainability, corporate and social responsibility, and community building. The global crisis, recession, and decline in living standards associated with events such as pandemics or war also negatively affect sales figures – cosmetics are relegated to the background, not being a basic necessity.

So how do you deal with the challenges? We have prepared some tips that can be helpful when working on your product and pricing strategy.

1. ROI-based promotions

It's hard to compete without including price discounts and special offers in the strategy, especially in the cosmetics industry. However, being too lavish can make your sales increase, but you won't hit your revenue goals. In order to avoid this, it is good to carefully manage your promotions, monitor the effects, and calculate ROI.

2. Attractive up-selling

If you notice a decrease in the number of customers, the value of their average basket or you notice that customers after visiting your website buy from competitors (because, for example, it is cheaper there), it is worth considering promotional strategies based on discounts or additional benefits that will encourage buyers to make an immediate decision. Encourage customers to buy more by selling dynamic product bundles simply too good to overlook.

3. Personalized customer experience

By observing your customer behavior, you may discover some patterns, and group them into segments. Knowing their expectations, you may design an ideal, personalized offer, that will make them super happy: free product, expected discount, free delivery. If the coupon pattern is constructed based on the name or other personal attribute, it will make an even greater impression on the recipient.

4. Multi-dimensional channel integration

Once your company implements an omnichannel strategy, you will face another challenge with integrating other marketing and sales activities across all the channels. It means that such events as collecting points in loyalty programs, the possibility to redeem them or use gift cards, discounts, and promotions should be synchronized and present no matter which channel your consumer chooses.

5. Loyalty in the spotlight

It is worth appreciating the effectiveness of loyalty programs, they really can hold the customer for longer. Provided, of course, that they are designed in a thoughtful way, bringing benefits to both sides. You can find more about loyalty programs in our article Loyalty Programs UX and UI Best Practices.

6. Good arguments to become a customer

...and later on the ambassador of the brand. How to help yourself in attracting new customers? Think of special welcome promotions that leave no choice to potential consumers. With really solid products and services, once you convince a customer, there is a good chance that they will stay faithful to the brand for longer. A cool loyalty program will make it even more likely.

Case Study from a top beauty brand: How does KIKO Milano approach today's challenges?

Founded in 1997, in Bergamo, Italy, KIKO has over 900 stores in 23 countries (with a broader online presence reaching more than 30 countries). They have more than 1200 products in their portfolio, including make-up, beauty accessories, and skincare products.

Their mid-priced products are bestsellers in Europe, thanks to the good quality of the products, curated content, and great social media and sales strategies.

Until 2016, the brand was known mostly in Europe. They have expanded very quickly in the next couple of years, opening shops all around the world. Kiko Milano has an estimated web sales of $50M-$100M.

How do they approach their marketing strategy and try to grow despite the market saturation, high competition, and low brand awareness in the countries they expand to?

Their main marketing strategy is a copy of ZARA’s. They open stores in centric locations (KIKO has opened their shops in the Champs-Élysées, Times Square, and other main locations around the world), they have a strong online presence and online-exclusive deals, they are changing their portfolio constantly, they work a lot on their limited editions. They also run a huge outlet online shop with old limited edition products (-70%).  

Marketing strategy pillars of KIKO

1. Loyalty program – Kiko Kisses

You can register for the KIKO rewards program either offline (in the shop) or online (on the website or by downloading their app). They have launched two levels LOVE and ADORE. All customers start off with a LOVE status.

As a LOVE member, customers get the following benefits:

• 10 Kisses Points for every £1 spent.
• Welcome bonus of 50 points when you register.
• Birthday gift entailing a £5 discount (minimum spend: £25), valid for 2 months from the day of your birthday.
• Promotions and special events, which are announced throughout the program.

As an ADORE customer, the points and benefits are increased and are broken down like this:

• 15 Kisses Points for every £1 spent.
• £10 discount coupon on your birthday (minimum spend: £40).

Points can also be redeemed for vouchers:

• £4 discount for 800 Kisses Points.
• £0,5 discount for 100 Kisses Points.

No minimum order total is required to use the discount codes. Points could be used also for discounted product shopping.

2. Newsletter sign-up incentive (discount)

To capture user data for further email marketing and communications, KIKO offers an incentive to motivate customers to sign up for their newsletter. Usually, the brand offers around 5 € off the next purchase with minimum order total requirement, advertised by a pop-up message every time you enter the website not logged in.

3. Influencer collaboration

KIKO has collaborated extensively with influencers, which has given them the opportunity to establish themselves in social media, especially on Instagram and Pinterest (where their focus is). Nowadays, they have moved from this strategy to user-generated content.

4. User-generated content

KIKO has their own hashtag – #kikotrendsetters (in some countries – #kikoyes), if you use it in your post, it means you agree that Kiko will use your picture on their website/social media (and they do use it, very often):

5. Personalized products

KIKO runs plenty of campaigns targeted at personalization. For instance, customers can personalize their lipstick colow for just £1. All it takes is choosing the shade and cap and writing a custom message that will be engraved on the packaging. It is an excellent idea for a gift. 

6. Automatic promotions

KIKO often does in-cart promotions based on the amount spent – like for example orders with a product total equal to or greater than EUR 49 receive a EUR 4.90 discount on shipping costs.

They also offer free shipping to all KIKO Kisses registered users. The promotion is announced by email, on the profile of the user, and as a push notification from the mobile app. 

7. Gift cards

Kiko offers online gift cards, offline gift cards (physical ones) that can be used also online (with the barcode and security code entered at the checkout), and seasonal (Christmas) gift cards.

How KIKO distributes promo campaigns?

In the spirits of omnichannel shopping experience, KIKO build its presence in places where their customers already are:

• Email newsletter.
• Social media
• Influencer marketing (via sponsored posts).
• Ads (Google, Meta).
• Paid partnerships with local stores (for example: El País in Spain).
• Banners on other websites (magazines).
• Coupon aggregator websites.
• Their own app.

How KIKO localizes promotions?

They offer different discounts in different countries. Some offers are country-specific (holiday-specific), some offers are running longer in some countries. Some are similar, but have different promotional mechanisms.

How KIKO fights coupon fraud?

They offer coupons only for a limited time.

In some cases, the time is extremely limited. Some online advertising appears only once, on your first session in selected day.

In the case of an occasion-specific coupon (like birthday), they have special rules set up that let you use your coupon only on that day (which is the date of your birthday set up in the CRM). They activate different coupons in different countries. Even if the same coupon is valid in different countries, it can have a different availability dates.

Gift cards have specific bar codes and can be used only in the country where they have been purchased. The bar codes are specific and set up by country.

How KIKO controls promotion budget?

They regularly do A/B test promotions, in the same country and in other countries. That is why they have established different promotions in different countries as well as different promotion durations. Some countries have more discount codes, some have more free gifts, some have more free shipping. All is continuously tested and optimized, also based on the ROI of the campaigns. They collect the data about all e-commerce transactions. Everything is tracked and optimized to bring profits.

Summary

In short, KIKO has designed an omnichannel strategy focused on low-cost customer acquisition (placing shops in popular places, e-commerce business, a wide online presence, a newsletter optimized for conversion, working with influencers, and user-generated content to bring brand awareness – which are, indeed, cost-effective methods). They are constantly optimizing and updating their portfolio and bringing in a mid-priced innovation. What really helps them to survive in those competitive times is a great pricing strategy (discount coupons, personalized promotions, in-cart discounts) and a gamified rewards (loyalty) program (which helps them to retain the customers and convert them in free brand ambassadors).

This strategy would be impossible to implement without a technically advanced system and a good collaboration between the tech and marketing teams. The development of such a program is a long and costly process, unless you go for a ready-to-implement solution like Voucherify.

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