The global cosmetics industry has experienced tremendous growth over the past years. With a valuation of $532.43 billion in 2017, projections put the industry’s valuation at $805.61 billion by 2023, translating to a compound annual growth rate of 7.14% between 2018 and 2023 (Reuters n.p.). How attractive, therefore, is the global cosmetics industry and can current players sustain competitive advantage in the industry?
The structure of the global cosmetics industry is such that customer loyalty, economies of scale strength of market leaders, and the capital-intensive nature of the products subtly block the entrance of new players into the industry (Kumar 1265). Developing unique and safe products that are able to attract customers and assuage safety fears, in addition to passing regulatory authorities’ safety tests requires a great investment in research and development, most of which new entrants into the market lack. Moreover, there exists stiff competition among the major players including L’Oréal, Revlon, Procter & Gamble, Avon, and Estee Lauder (Kumar 1265), as well as small competitors, all of who have a huge market and small shares, generally reducing the overall profitability of the industry.
Increased competition in the cosmetics industry has had a huge impact on consumer bargaining power (Reuters n.p.). With many players in the cosmetics industry (despite some holding huge market share), the consumer bargaining power in the industry is relatively high. Moreover, many of the products in the industry have a large number of substitutes, a fact that makes it possible for consumers to force manufacturers to fairly price their products lest consumer switch to rival products.
Perhaps the attractiveness of the cosmetics industry lies in the low bargaining power of suppliers. The industry has a large number of players and suppliers for a wide range of raw materials needed for the final products. Moreover, many of the products manufactured in the industry are inhouse sourced from companies’ R&D departments. For this reason, suppliers have relatively weak bargaining power.
The highly competitive nature of the cosmetics industry means that the market is flooding with tones of products from various manufacturers (Kumar 1266). The influx of products from different manufacturers means that products from different players are easily substitutable. Therefore, despite brand loyalty, high prices and low-quality products from manufacturers are inexcusable as customers can easily switch to substitute products at fair prices and higher quality.
Research costs, product development, customer loyalty are barriers to entry into the cosmetics industry. Moreover, the large number of competitors in the industry dull the industry’s profitability, making it especially difficult for new players to get a foothold or break even in the industry. On the other hand, the high costs of product development and production, as well as machines and equipment used in product development, are exit barriers to players in the industry.
Despite the cut-throat competition in the cosmetics industry, an attraction exists in the industry’s appeal to people across all age groups and social backgrounds. Players within the industry develop products that meet the needs of different segments within the market, a fact that makes customer concentration very low. Moreover, with an aging population of baby-boomers who have disposable income, in addition to emerging markets with high potential of economic growth and high population, the industry is once again highly attractive. The emerging markets and the aging population are therefore rapidly replacing the mature markets in developed countries.
Kumar, Sameer. “Exploratory analysis of global cosmetics industry:
major players, technology and market trends.” Technovation, vol. 25, 2015, pp. 1263-1272
Reuters. “Global Cosmetics Products Market expected to reach USD 805.61 billion by 2023 – Industry Size & Share Analysis.” Reuters, 2018, https://www.reuters.com/brandfeatures/venture-capital/article?id=30351.