Technovation 25 (2005) 1263–1272

www.elsevier.com/locate/technovation

Exploratory analysis of global cosmetic industry:

major players, technology and market trends
Sameer Kumar*
College of Business, University of St Thomas, Mail # TMH 343, 1000 LaSalle Avenue, Minneapolis, MN 55403-2005, USA

Abstract
Humans for time immemorial have used cosmetics, an industry dominated by a few major players. The study reviews main characteristics
of this industry and also the key players in the world marketplace. Comparative financial and SWOT analyses provide an enhanced
understanding of the industry. In addition to technology and innovations, current conditions and trends in the cosmetic industry are explored.
The study also analyzes in depth the impacts of globalization on this industry.
q 2004 Elsevier Ltd. All rights reserved.

Keywords: Cosmetic industry; Toiletry industry; Cosmetic industry analysis; SWOT analysis; Cosmeceuticals; Globalization

1. Introduction Financial and SWOT analyses can provide additional

Why study Perfume, Cosmetic and Toiletry industry?
The answer is straightforward (Perfumes, Cosmetics,
and Other Toilet Preparations, 2003). It is a significantly
vital industry not necessarily in terms of its contribution to
global GDP but by its striking influence on the colorful
social lives of humans globally. The use of cosmetics,
fragrances, and personal care products can be traced back to
ancient times as early as Egyptian, Greek, and Roman eras.
Here are some examples from history. Neanderthal man
painted his face with reds, browns, and yellows derived
from clay, mud, and arsenic. Bones were used to curl hair.
Makeup, tattoos, and adornments conveyed necessary social
information. Galen, an ancient Greek physician, invented
cold cream. The Romans used oil-based perfumes on their
bodies, in their baths and fountains, and applied them to
their weapons. Crusaders of the 13th century brought
fragrances back to Europe from the Far East. The perfumes
developed during the 16th century were powders or
gelatinous pastes. Natural perfumes were made from a
variety of ingredients containing aroma.
It will be of interest and value to get familiar with
the characteristics and background of this industry.
* Tel.: C1-651-962-4350; fax: C1-651-962-4710.
E-mail address: skumar@stthomas.edu.
0166-4972/$ - see front matter q 2004 Elsevier Ltd. All rights reserved.
doi:10.1016/j.technovation.2004.07.003
insights to the industry. Probing current conditions and
trends and also the level of sophistication in the deployment
of technology and innovations would unfold some mis-
conceptions about the industry. The impacts of globalization
on this industry is yet another important issue to explore.
Once equipped with this knowledge, a few industry
projections can be made. The rest of the paper presents
analysis of the points introduced above.
2. Industry background
When people mention about the cosmetic industry, it
mostly refers to only color cosmetic or makeup segment,
which values just slightly over 18% of the whole market of
the personal care industry (Toiletries and Cosmetics:
Industry Snapshot, 2003). The structure of this industry,
in terms of product classification and using global market
size for various product families in 2001, is illustrated in
Fig. 1.
In 2001, Cosmetics (Makeup) products constituted
roughly 18% of total global market for Cosmetics,
Toiletry, and Fragrance. Table 1 reports Global Cosmetics
(Makeup) Sales trends (including compound annual growth
rates (CAGR)) during the period 1997–2001 in the major
regions.
1264 S. Kumar / Technovation 25 (2005) 1263–1272
Fig. 1. Classification of industry products and global market size (total and by products) in 2001 (Source: Datamonitor (Lepir, 2003)).
Let us review some more facts about this industry. USA
is the biggest market in the world, but France is the biggest
exporter of cosmetic products worldwide. The growth of
market has shifted from Western hemisphere to developing
regions in South America, Eastern Europe, and Asia
especially China; having consumption more than 10.4%
CAGR per year during past 5 years. Despite global
economic crisis, the cosmetic and fragrance industry still
performed well with average growth rate almost 5% across
the industry. Cosmetic, Toiletry, and Fragrance Association
(CTFA, 2003) is the world organization that supports
cosmetic firm members on scientific, legal, and regulatory
services. The cosmetic industry, under the sponsorship of
CTFA, developed the Cosmetic Ingredient Review (CIR,
2003) in the mid-1970s to gather information about
ingredient safety and make the information available to
manufacturers. In fragrance segment, there are: Research
Institute for Fragrance Materials (RIFM, 2003) and
International Fragrance Association (IFRA, 2003)
supporting fragrance manufacturers and distributors on
researching and testing services. During 19th century,
chemicals were used to replace more expensive natural
ingredients; making cosmetics more widely used.
Innovations and technologies in producing cosmetics in
20th century brought the industry growing quickly,
concurrently creating a lot of concerns to users in terms of
health, safety, environment, and animal testing. Since the
USA is the biggest market of the industry, Food and Drug
Administration (FDA, 2003)—founded in 1906—became
the main regulator for this industry; protecting consumers in
health and safety aspects.
Table 1
Global cosmetic sales (including compound annual growth rates) during 1997–2001 in the major regions
Region Sales ($ million)
1997 1998 1999
North America 6,689.0 7,027.0 7,264.7
South America 2,050.1 2,185.7 2,407.1
Europe 4,729.3 5,142.6 5,618.5
Asia 5,115.3 5,188.5 5,387.7
Total 18,583.7 19,543.8 20,678.0
3. Industry leaders
Despite the economic slowdown in the US, the largest
geographic consumer of color cosmetics, most top global
cosmetics makers are seeing positive growth. They are
embarking on a common strategy of select product
launches, core brand re-marketing, and expansion in Asia,
South America, Latin America and Eastern Europe to
sustain and increase growth.
Coming off a record-setting 2000 in both sales and profit,
L’Oreal SA remains the global leader in cosmetics with a
16.8% market share and 2000 gross sales of roughly $4
billion, according to Euromonitor International, a global
market research firm with offices in Chicago, London and
Singapore. Estee Lauder Company (10.9%), Procter &
Gamble Company (9.3%), Revlon Inc. (7.1%), and Avon
Products Inc. (4.7%) round out the top five. Shiseido
Company Limited (4.2%), Coty Inc. (3.3%), Kanebo
Limited (2.1%), Kose Company Limited (2%) and Chanel
S.A. (1.7%) round out the top 10. Together these producers
account for 62.1%, or $15.15 billion, of the total $24.4
billion global cosmetics market.
The balance of the top 20 global cosmetics companies—
LVMH, The Body Shop PLC, Mary Kay Inc., Kao Corp.,
Yves Rocher SA, Pola Cosmetics Inc., Beiersdorf AG,
Oriflame International SA, Alticor Inc., and the Boots
Company PLC—account for a roughly combined 11% of
market share, according to Euromonitor International.
Overall, the top 20 cosmetics producers accounted
for roughly 73% of the global marketplace. Fig. 2 illus-
trates the market share of various cosmetic companies.
%CAGR
1997–2001
2000 2001
7,523.9 7,768.8 3.81
2,651.2 2,897.5 9.03
5,898.4 6,105.9 6.60
5,525.3 5,716.8 2.82
21,598.8 22,489.0 4.88
 S. Kumar / Technovation 25 (2005) 1263–1272
Fig. 2. Global color cosmetic sales (market share) in 2000 by leading
multi-nationals (Source: Euromonitor (Sauer, 2003)).
With the exception of consumer goods conglomerates
Procter & Gamble, which sells mass merchandising brands
Cover Girl, Max Factor and Oil of Olay, and Japan’s
Kanebo Limited, the leading producers are solely cosmetics
producers or cosmetics and fragrances producers. The
market leaders are mass merchandisers, prestige sellers or
a combination of both.
Overall, color cosmetics (face, lip, eye, and nail) account
for 14% of the $175 billion global cosmetics and toiletries
market. Lipstick has been the best performer in 2002, with
growth of 10.6% based on second quarter 2001 sales
performance, according to Deutsche Banc Alex. Brown.
Eye makeup grew at only 2.5% growth, and facial makeup
declined 0.3%.
In the lipstick segment, the Revlon brand holds the top
market spot in the US with a 21.7% market share, according
to estimates by Information Resources Inc., a Chicago-
based market research firm, and Deutsche Banc Alex.
Brown. L’Oreal is next at 13.5%, followed by L’Oreal’s
Maybelline (12.9%), Procter & Gamble’s Cover Girl
(12.3%), Procter & Gamble’s Max Factor (5.0%), Procter
& Gamble’s Oil of Olay, (5.0%), Revlon’s Almay (3.8%)
and Estee Lauder’s Jane Megabites (1.9%). These five
brands from these four companies—L’Oreal, Revlon,
Procter & Gamble, and Estee Lauder—account for roughly
76% of all dollar sales for lipstick in the US. Revlon lost the
most market share in a year-over-year second quarter
analysis of 5.3%. Procter & Gamble’s Max Factor gained
the greatest in market share by 3.2%, and Procter &
Gamble’s Cover Girl gained the second largest by 2.5%.
The other brands rounding out the Lipstick segment are
Bonne Bell, AM Cosmetics, Del Labs, Johnson & Johnson’s
Neutrogena and private label brands.
In the eye makeup segment, the leading US brand as of
the year 2002 was L’Oreal’s Maybelline, with 33.9% of
the market. This was followed by Procter & Gamble’s
Cover Girl (17.8%), L’Oreal (16.2%), Revlon (9.6%),
1265
Revlon’s Almay (8.1%), Procter & Gamble’s Max Factor
(2.6%), Estee Lauder’s jane Eye Zing (1.8%), Procter &
Gamble’s Oil of Olay (1.2%) and Coty’s Rimmel Special
Eyes (1.1%). These brands account for 92.3% of the total
market. L’Oreal had the greatest percentage change from
the prior year 2001 at a modest 0.6% gain.
In facial makeup, the US market leader is Procter &
Gamble’s Cover Girl (27.1%). Revlon is next at 16.8%,
followed by L’Oreal’s Maybelline (12.5%), L’Oreal
(10.3%), Revlon’s Almay (6.5%), Procter & Gamble’s Oil
of Olay (3.9%), Procter & Gamble’s Max Factor (3.9%) and
Coty’s Coty Airspun (1.2%). Of the remaining brands,
Johnson & Johnson’s Neutrogena had the largest market
share of 6.8% and the highest change in market share at
0.8%. Overall, these companies and brands accounted for
82% of the market.
Although color cosmetics is the third largest cosmetics
and toiletries sub-segment after hair care and skin care, it is
the fastest growing sub-segment in the sector, accounting
for 12.9% annual growth rate in 2000, compared to the
sector’s overall performance of 3.4%. Increased growth of
24.4% is expected from the sector between 2000 and 2005,
according to Euromonitor International, with the ratio of
premium brands versus mass-market brand remaining fairly
constant at a 2:1 ratio.
4. Financial and SWOT analyses
It is important to look at the financial statements as a
whole than just the profits. We should be concerned about
future performance of companies. Financial analysis of
major players in cosmetic industry is important as one uses
it to anticipate future conditions of industry. Table 2 shows a
summary of important financial figures providing compari-
son among the major players in cosmetic industry.
The SWOT (strengths, weaknesses, opportunities and
threats) analysis is an important tool in analyzing
businesses. The SWOT analysis allows us to analyze a
company, their objectives, business plans and decisions. It
also facilitates reviewing the positives and negatives of the
industry and the company itself.
Table 3 presents a comparative SWOT analysis for the
cosmetic industry leaders and the industry itself.
5. Current conditions and trends
As the perfume, cosmetic, and toiletry preparations
industry entered the 1990s, it faced many challenges
including regulatory changes, product safety concerns,
calls for scientific data to document product claims,
increasing environmentalism, natural ingredients, pressure
from the growing animal rights movement, economy and
market channels for product distribution. Lawmakers in USA
began investigating possible revisions to the traditional
 1266
Table 2
Financial data comparison of five major players in cosmetic and toiletry industry

Company L’Oreal Estee Lauder Procter & Gamble Revlon Avon

Fiscal year end 31-Dec 30-Jun 30-Jun 31-Dec 31-Dec
Fiscal year 1999 2000 2001 2000 2001 2002 2000 2001 2002 1999 2000 2001 1999 2000 2001
Earning data
Total revenues, $ million 11,469 11,720 12,318 4,440 4,668 4,744 39,951 39,244 40,238 1,710 1,448 1,322 5,328 5,715 5,995

S. Kumar / Technovation 25 (2005) 1263–1272

Operating income, $ million 1,350 1,425 1,458 516 496 341 5,954 4,736 6,678 (212) 16 16 549 789 794
Net income, $ million 883 951 1,102 314 305 192 3,542 2,922 4,352 (371) (130) (154) 302 478 430
Net income to common stock, 883 951 1,102 291 282 169 3,408 2,786 4,241 (371) (130) (154)
$ million
Cash flow data
Cash flow from operating 700 712 884 443 305 518 4,675 5,804 7,742 (82) (84) (87) 449 324 755
activities, $ million
Per share data
Earnings per share: basic, $ 1.31 1.41 1.63 1.22 1.18 0.71 2.61 2.15 3.26 (7.12) (2.49) (2.94) 1.18 2.01 1.82
Earnings per share: diluted, $ 1.31 1.41 1.63 1.20 1.16 0.70 2.47 2.07 3.09 (7.12) (2.49) (2.94) 1.17 1.99 1.79
Shares outstanding: basic, shares 676.0 676.0 676.0 237.7 238.4 238.2 1,305.9 1,295.7 1,300.8 52.1 52.2 52.2 352.6 354.5 356.3
Shares outstanding: diluted, shares 676.0 676.0 676.0 242.5 242.2 241.1 1,379.9 1,345.8 1,372.4 52.1 52.2 52.2
Balance sheet data
Working capital, $ million 2,459 2,896 3,185 717 882 968 3,246 3,276 3,193 961 674 612 (375) 186 428
Total assets, $ million 11,605 12,611 13,333 3,043 3,219 3,417 34,366 34,387 40,776 1,558 1,102 998 2,529 2,826 3,193
Total debt, $ million 2,042 3,167 2,635 425 417 411 12,253 12,025 14,932 1,800 1,594 1,661 1,007 1,214 1,325
Stockholders’ equity, $ million 6,185 6,096 6,454 1,160 1,352 1,462 12,287 12,010 13,706 (1,015) (1,107) (1,283) (406) (216) (75)
Per employee data
Number of employees 43,038 48,222 49,150 40,500 43,000 43,800
Revenue per employee, $ 266,474 243,038 250,627 131,553 132,898 136,861

Source. Corporate annual reports (L’Oreal Management Report, 2003; Management’s Discussion and Analysis of Financial Condition and Results of Operations, 2003; Financial Review, 2003; Annual Report
2001, 2003; Management’s Discussion and Analysis, 2003).
Table 3
SWOT analysis of major players and the overall cosmetic and toiletries industry

Company Strengths Weaknesses Opportunities Threats

L’Oreal High rank on market position: Number 1
(France) worldwide and Europe
Strong investment in R&D: major labs in
France, Japan, and USA create O3000 new
formulas/year
Growing strategy: M&A to achieve econ-
omy of scale and scope
Heavy market promotion and advertisement
Estee Lauder Well known for high-quality, innovative
(US) products
Products ranked in prestige level
Leader in US fragrance segment
Average manufacturing efficiency
Challenges in Latin America, Asia and
Japan
Recent cost control reflects ability to
promote and sell products
Relatively low operating margin
Maturing fragrance market in USA
Attempts to expand market outside Europe and
North America, which are now maturing
Acquisition of niche companies who are specialists
in ethnical markets
Aiming to aging baby-boomers who have high
spending power
Most profitable products come from recently
launched products and new brands
Acquisitions of premium, niche brands
Projects to joint venture with local cosmetic
makers like Shiseido and Nu-Skin
Maturing West Europe market mainly
impacts 50% of company sales
Merging of Clairol to P&G
Strong potential of Euro currency will
lower values of oversea incomes
Growing trends of shopping at low-scale
stores
Internet channel was not really effective
for promotion

S. Kumar / Technovation 25 (2005) 1263–1272

Procter & Best known global brand for consumer
Gamble (US) products
Company is sustainable from consumer
products
Relative high operating margin: 14.5%
New executive is more externally focused:
more growth outside USA
Revlon (US) Leader in mass-market cosmetic brand
Strong relationship with retailers
Avon (US) World’s largest direct sales covering 143
countries with O3.5 million
representatives
60% of total sales come from international
markets accounting to only 50% of total
assets
Leader in initiative of restructuring and
business process design
Overall industry
Too large to be innovative despite of
4% of sales on R&D
Company bureaucracy hinders quick
decisions
It takes w5 years to bring a new product
to market!
Too much focus on streamlining oper-
ations rather than improving revenues
Low spending on promotion and mar-
keting
Relatively low R&D spending !2%
High level of inventories due to the
nature of direct sales business
Buying Clairol to strengthen hair color product line
Strategy to grow through M&A increases global
presentation
High demands of consumer products globally
ensure company finance
Benefit from market share and large budgets
New executive team appointed to boost sales
Recently, more spending on ads and promotions
McAndrews & Forbes financial support to improve
cash flow
Growing E. Europe, South America, and Asia
markets
During economic crisis, Avon’s products are
preferred due to lower prices compared to
department stores’
Direct sales are still looking good in US
Aging baby-boomers, who have high spending
power, tend to spend more on beauty
Emerging markets, that have high economic
growths i.e. E. Europe, Latin America, and Asia;
replace the maturing, developed, western markets
Despite of huge free cash flow, debt per
equity ratio reaches 103%
Cosmetic contributes to only 5.6% of
company net sales
Recently downgraded by S&P from
CCC- to CC
JC Penny cut cosmetics (incl. Revlon)
out of shelves due to low sales
Growing trends of shopping at discount
stores where many mass products take
advantages
China can be both opportunity and threat
because it has high capability to develop
products and compete in global markets
Consumer concerns on health, environ-
ment, and animal tests raise manufac-
turing costs
More intense regulations by FDA

L’Oreal Management Report of the Board of Directors for 2001, 2003; “Management’s, 2003; “Financial, 2003; Annual Report 2001, 2003; Management’s Discussion and Analysis, 2003; Weaver, 2003;

1267
Cosmetics and Toiletries in Europe, 2003.
1268 S. Kumar / Technovation 25 (2005) 1263–1272
‘drug’ and ‘cosmetic’ definitions established under the Food,
Drug and Cosmetic Act. The distinction between cosmetics
and drugs was sometimes vague. According to FDA
guidelines, products claiming to offer medical benefits or
physiological effects were over-the-counter (OTC) drugs
(What are the differences between an over-the-counter
(OTC) drug product and a cosmetic, 2003). Examples of
items with controversial classifications included antiperspir-
ants, which were classified as OTC drugs in the late 1970s,
sunscreen products that listed a Sun Protection Factor
number, hair care products claiming to protect or restore
hair, and shampoos professing to cure or remove dandruff. If
the FDA deemed a cosmetic product to be an OTC drug, it
was regulated as a new drug. The manufacturer was then
required to demonstrate product safety and efficacy to gain
FDA approval.
A report titled Classification and Regulation of Cos-
metics and Drugs: A Legal Overview and Alternatives for
Legislative Change included provisions for a third category
of ‘Cosmeceuticals’ (What are Cosmeceuticals, 2003) to
include products like sunscreens that fell in the gap between
‘drugs’ and ‘cosmetics.’ Some industry analysts welcomed
legislative changes to clarify product distinctions but
doubted whether manufacturers would accept proposals
that would require safety and efficacy testing to substantiate
label claims.
5.1. Safety concern
The FDA continued compiling complaints from custo-
mers about neurological reactions to perfumes including
symptoms such as burning of the eyes, nose, and throat;
flushing; dizziness; nausea; difficulty in breathing; memory
loss; and drowsiness. Some hospitals banned the use
of perfumes by operating room nurses. A group calling
itself the National Foundation of the Chemically Hypersen-
sitive wanted to ban the use of fragrances in public meeting
places.
Although the industry’s safety record before the 1990s
had been good, some seasoned industry watchers expressed
concern about continued safety as many small, new
companies emerged.
5.2. Environmental issues
Growing concern about environmental issues also
affected the industry. Several surveys demonstrated
increased awareness of pollution and related issues. In
1990, Find/SVP (a New York survey group) estimated that
18.8 million US households were environmentally inter-
ested shoppers. These consumers, called ‘Green consu-
mers,’ accounted for about 20% of the US population and
their number was expected to increase. In a report on Green
consumers, Find/SVP cited three main concerns: animal
rights and species preservation, availability of clean air and
water, and waste management.
One of the most controversial environmental matters
facing the fragrance industry was pressure to reduce its use
of volatile organic chemicals (VOCs). The most popularly
used VOC was ethyl alcohol, which functioned as a solvent.
The industry claimed that water was not a good substitute
for ethyl alcohol because many fragrance ingredients were
not water-soluble. Ingredients designed to help materials
dissolve in water affected product texture and also presented
possible safety concerns. Propellants and many other
ingredients used within the industry were also VOCs.
VOCs were blamed for contributing to ground-level
ozone. In California, VOC emissions from colognes,
perfumes, toilet water, aftershaves, and body splashes
were estimated at almost 1700 pounds per day. Conse-
quently, in the early 1990s, California proposed limits on
VOC usage in fragrances (Donegan, 2003). New York and
other states were expected to follow (Approval and
Promulgation of Implementation Plan, 2003). In California,
regulations took effect January 1, 1995, that limited VOCs
to 70% of perfumes, colognes, and toilet waters; 60% of
aftershaves; and 50% of other fragrances. Colognes,
perfumes, and toilet waters that were on the market before
the regulations took effect were exempt.
In addition to planned compliance with VOC regulations,
many fragrance and cosmetic companies brought ‘green’
products to the market place. Estee Lauder introduced its
Origins Natural Resources (Origin Natural Resources,
2003) line of skin care, body products, aromatherapy, and
makeup. The line was promoted as natural and non-animal
tested. Items were sold in recyclable containers. Revlon
brought out New Age Naturals, skin care products made of
all degradable ingredients, and Pure Skin Care, a line of
products developed without animal testing (Cosmetic
Testing, 2003). Revlon was one of the first large companies
to fund research for alternatives with a $750,000 contri-
bution to the Rockefeller University in 1979. While animal
testing is still very much in existence at large corporations
such as Procter & Gamble and Lever Brothers, there are
now several hundred ‘cruelty free’ consumer product
companies. Mary Kay Cosmetics’ Countryside Colors line
emphasized its use of recyclable packaging made from
recycled materials. Mary Kay also eliminated most external
packaging on men’s skin care products. As some companies
eliminated, reduced, or redesigned outer packaging to
emphasize their concern about waste disposal problems,
others, particularly fragrance manufacturers, expressed
concern about the trend because packaging contributed to
their image.
Critics claimed that many of the environmental efforts
advertised by cosmetic and fragrance manufacturers were
exaggerated, false, or meaningless. For example, ‘biode-
biodegradable’ packages were incapable of degrading under
conditions present in most landfills. Some products were
labeled ‘ozone friendly’ because they did not contain
chlorofluorocarbons (CFCs), but CFCs had been banned
since the late 1970s. ‘Recyclable’ notations on plastic
 S. Kumar / Technovation 25 (2005) 1263–1272
containers were meaningless when recycling plants for
particular plastics (like polystyrene) were not available.
5.3. Natural ingredients
Along with increased environmental awareness came
concern for healthy products. Items seen as safe for the
environment were perceived as healthy for users. This
philosophy drove a trend toward increased use of natural
products containing ingredients such as proteins and
vitamins. It also brought expanded use of botanical
ingredients (BOTANICALS, 2003) such as aloe, cucumber,
and berry extracts.
In perfumes, the trend led to the increasing popularity of
discreet scents, floral freshness, and sea smells. In makeup,
consumers began turning to functional products. Cosmetics
were expected to do more than add color and cover skin
imperfections. Buyers wanted products to contain ingredi-
ents such as sunscreens and emollients to nourish and
protect their skin. The focus on natural products also led to
more realistic product claims. The emphasis on natural
ingredients, however, extended only to plant sources.
Animal products were shunned and animal testing fell into
disfavor.
5.4. Animal testing
Many companies promoted cosmetic lines that were
developed without animal testing. One example was
SafeBrands Inc., which prohibited the use of animal testing
in the development of its products and by its raw ingredient
suppliers. The European Union’s Council of Ministers
recently approved the Seventh Amendment to the Cos-
metics Directive. Beginning in 2009, the new law will ban
animal testing in the European Union. Moreover, the law
bans the sale of certain products in 2009, if a product
contains an ingredient tested on animals or if the product
itself was tested on animals. This sales ban would apply to
products tested anywhere in the world and to animal testing
conducted after 2009 (Council of Ministers, 2003).
The CTFA supported some animal testing. According to
the CTFA, even products that claimed to use non-animal test
methods relied on models that were acquired as a result of
animal testing. The organization believed that human health
and safety were more important than animal rights. The
CTFA reported that 74% of Californians polled opposed
legislation that would prohibit animal testing to insure
product safety.
5.5. Economic impact
In addition to the social and political concerns surround-
ing animal testing, environmentalism, and product safety,
the industry was also affected by the USA’s economic
situation. The perfume, cosmetic, and personal care
products industry had established a ‘recession proof’
1269
image when sales of inexpensive cosmetics had outsold
mid-priced food items and clothing during the Depression of
the 1930s. Cosmetics also did well during the recessions of
the 1960s and 1980s. The recession of the early 1990s,
however, brought new challenges. Counterfeit products
were offered at low prices. Customers resisted high prices
and demanded value. The numbers of distribution channels
for upscale lines decreased as traditional department stores
closed. Costs associated with product promotion increased
and marketers turned more often to expensive strategies
such as giving free products.
5.6. Marketing and distribution channels
In an effort to move away from traditional department
store cosmetic counters, upscale manufacturers turned to
self-serve packaging and sold greater volumes to discoun-
ters. This enabled retailers to place items on sale. Depressed
pricing, however, sometimes diminished a product’s image.
Bridge brands were increasingly aimed at a niche between
the upscale and mass markets. Mass-marketers focused on
increasing volumes to generate more profit. In 1999, it was
reported that one of the major movements in the industry
was a trend toward providing consumers with premium
versions of health and beauty products (Schervish, 2003).
There is a growing trend towards industry globalization;
for example, industry leaders have focused product lines
and marketing at the ethnic niche market in USA, primarily
targeting the specific makeup and skin care needs of Asian,
African-American, and Latino consumers. This segment
reported sales of $210 million in 1997, and this market is
expected to continue its rapid growth. In the USA
purchasing power among ethnic groups is also on the rise:
African-American buying power jumped 73% between
1990 and 1999 to $533 billion, according to the Selig Center
for Economic Growth. This group tends to spend a higher
proportion of its income on HBC—10%—versus 8% among
the general market. During the same period, the Selig Center
reports, Hispanic buying power soared 84.4% from $208
billion to a projected $383 billion (O’Connor, 2003).
6. Technology and innovations
Four important trends on technology and innovations are
setting the pace in today’s cosmetics market. One is
utilization of information systems to enhance market
share. Second is growing proportion of transitive cosme-
ceuticals in the cosmetic market. Last two trends involve
special cosmetic products for aging population and ethnic
groups.
6.1. Information systems
The explosion of different online advertisement formats
has helped. Campaign elements range from microsites, SMS
1270 S. Kumar / Technovation 25 (2005) 1263–1272
vouchers and advertorials to the innovative virtual
makeover site Easy Make Up launched by L’Oreal Paris
(www.lorealparis.com) last year. This allows customers to
upload their digital photos onto the site to experiment
on-screen with the colors on their own faces. Avon has led
the field in terms of e-commerce—perhaps not surprisingly
for a company that has 160,000 door-to-door representatives
across the country and a customer base familiar with
ordering from a catalogue rather than a beauty stand
(Simmons, 2003).
One advantage of digital marketing is the speed at which
campaigns can be pulled together. Campaigns can be set up
in a week, rather than the three month lead-times often
required when advertising in glossy monthly magazines,
which makes online activity ideal for cosmetic product
launches.
However, for cosmetics companies, it is potentially a
bigger leap than other sectors to market online, as a lot of the
sell is dependent on face-to-face consultation. While
sampling can be facilitated online, through printable
vouchers, it is a bit more of a challenge, particularly as
color and texture cannot be accurately conveyed over a
computer screen. That is why many beauty online
promotions use the web to drive users to beauty counters
for makeovers and samples.
Moreover, some experts believe that mobile marketing is
more suited to cosmetic brands than the web. Internet
marketing. Latter is almost inappropriate to this sector
because the web is still more populated by young males.
Women are researching and buying online, but more for
bigger purchases such as cars or holidays. Shopping is a real
leisure pursuit, and for beauty products involves smearing
lipstick on your hand, not staring at a screen. Rather, SMS is
exactly where the target audience of young women is, and it
is an ideal tool with which to drive them to the beauty
counters.
6.2. Cosmeceuticals
Cosmeceuticals are best described simply as ‘functional
ingredients,’ much like aromatherapy has been described as
‘functional fragrance.’ These products have an effect on the
body and by definition cannot be ‘cosmetics,’ but they are
neither formulated nor regulated as ‘OTC-drug’ products.
Some cosmeceuticals are naturally derived and some are
synthetic. Global Cosmetic Industry Magazine estimated
the size of the US cosmeceutical market to be $2.8 billion in
2001 (Natural Cosmeceuticals, 2003).
Consumer attitudes and behaviors are in a constant state
of flux. According to the Natural Marketing Institute (NMI),
Harleysville, PA, 28% of the general population agree that
natural personal care products should be fortified with
functional ingredients. However, ‘Well Beings,’ the pri-
mary target for health and wellness products as defined in
NMI’s Health and Wellness Trends Database, representing
17% of the general population, are 32% more likely than the
general population to agree with this statement.
Well Beings are the natural cosmeceutical primary target
market, although it is important to remember that other
segments of the population are also buying these products at
differing rates. Research also demonstrates that natural
cosmeceutical usage is already fairly prevalent among
natural personal care users, and the next few years will show
how quickly this area will really grow.
6.3. Anti-aging
Consumers in the baby-boom generation, eager to reduce
wrinkles and smooth out other skin defects, will help drive
up US active cosmetic ingredient demand by 7.4% per year,
to $409 million by 2006. The incorporation of active
ingredients, such as plant acids and enzymes, into toiletries
and cosmetics has become a major force behind growth in
an otherwise mature industry. The fastest-growing actives
are likely to include polyhydroxy acids, which offer the
defect-fighting benefits of alpha hydroxy acids (AHA), but
cause less risk of skin irritation. Sales of sunscreens will
also be robust, growing 8.1% per year to $62 million in
2006, and more skin care products will include sunscreens
(Six Trends Guide Suppliers to Market’s Attractive
Features, 2002).
The aging baby-boomer has been a major force behind
the growth of cosmeceuticals, which promise health or
physical improvement benefits beyond the merely aesthetic
effect of masking. US and Western European sales of
cosmeceutical ingredients related specifically to anti-aging
claims total about $130 million—$150 million, and they
will grow 5%—10%/year through 2005 in a study published
last year by Kline & Co. (Little Falls, NJ). The study reports
about $30 million per year of the anti-aging cosmeceutical
ingredient market sales comprise enzymes, coenzymes, and
proteins. International Specialty Products last year added a
range of natural proteins intended to provide moisturization
in skin care and hair care products.
The study reports sales of proteins and enzymes generate
approximately 20% of total anti-aging sales. Another 60%
of this market comprises vitamins and antioxidants, and the
remaining 20% includes botanicals or plant extracts,
including green tea extract for its phenol content and soy
derivatives for their isoflavones.
6.4. Customized cosmetics
The cosmetics industry is also boosting sales by adding
products that cater to the needs and desires of people with
particular ethnic backgrounds, skin and hair types, and
genetic characteristics. Market research firm Euromonitor
(London) claims that ethnic cosmetics and toiletries market
is driven largely by products that whiten the skin of
Asia/Pacific consumers, or address uneven skin tone, adult
acne, and hyper-pigmentation in African-Americans.
 S. Kumar / Technovation 25 (2005) 1263–1272
The ethnic skin care market is also influenced by demand
for more gentle formulations. The standard active ingredient
for dark spot removal has been hydroquinone, which is now
facing tougher regulation a claim made by the Croda
Company. This company has been exploring new skin tone
ingredients, which are purified, concentrated plant actives
(Six Trends Guide Suppliers to Market’s Attractive
Features, 2002).
7. Impacts of globalization
Globalization means more than just being present in
many countries, it is about communicating, harmonizing the
message given to a customer, and the end-consumer
(Cooney-Curran, 2003). One important issue relates to
understanding global requirements. For example, for a US
company’s product to be accepted by Japanese consumers,
that is not necessarily only an issue for its marketing
personnel in Japan, but also for its marketing personnel in
Australia, who sell to a company that sells in Japan.
Another issue is global pricing. It often returns to the
lowest common denominator. One brings in currency
fluctuations, free trade agreements, transport regulations,
transportability, freight, shipping, etc. Being global is not
a simple step. Globalization of the marketplace and
economy has been stimulated by the technology revolu-
tion, the instantaneous information flow from Korea to the
US to the UK.
Consumer goods companies have tried to focus on global
brands with a regional twist, to ensure they meet the
demands of regional trends. Most suppliers are multi-
national operating in a global environment. Because of that,
the nationalism of each area in the world plays a big part in
the business; the company must have people from the
country actually operate within the country. The products a
firm offers into a particular country have to be directed
toward that marketplace by local personnel.
Product managers have to integrate with sales on the
local level first to implement strategies. This is a sensible,
manageable, and, indeed, measurable way of doing it.
The most effective way of penetrating markets outside of the
US is to tie up with local personnel and account managers,
then call on the customers jointly. If a local person calls on
customers, there is a higher comfort level than somebody
coming from the US and talking in English, even though
the customer might be very well versed in English. It is a
national issue.
8. Conclusion
In cosmetic industry, fashion trends, greater demand for
convenience and multi-functional products and higher
demand among selected specialty consumer segments,
particularly ethnic, teenagers and baby-boomers, are the
1271
key drivers in color cosmetics. Globally, North America
accounts for the greatest share of cosmetics sales, but
Eastern Europe is expected to be the fastest growing region
until 2005, according to Euromonitor International.
The US, the largest market for color cosmetics, continues
to lose sector share to premium lines. Manufacturers are
prone to pursue ‘premium–mass’ lines that narrow the gap
between mass and premium products by offering more
premium ingredients at reduced prices. Also, mass-market-
ers are implementing e-business strategies using the Internet
as a sales channel, such as Procter & Gamble’s Reflect.com,
launched in 2000, and L’Oreal’s renewal with Star Media
Network Inc. to provide a Latin American Internet site to
mimic personalized consultations performed in department
stores.
Although premium cosmetics continue to gain share in
the US, limited growth is expected in Western Europe.
Premium cosmetics in Western Europe account for 31% of
the market but are not expected to grow significantly due to
the availability of high-quality mass-market brands. In Italy,
for example, premium brands account for the greatest
proportion of value sales, but premium brands dropped 3
percentage points in 2000 largely due to the increase of
mass-market brands such as L’Oreal’s Maybelline. In
France, the use of premium brands decreased 9% between
1996 and 2000 led by the increased popularity of L’Oreal’s
mass-market brand Perfection. Emerging countries in
Southern Europe do not use premium brands, which
accounted for only 7% of cosmetics sales in 2000.
In Eastern Europe, mass-market brands remain the
dominant purchasing choice, Western mass-market brands
being equated with premium brands by the Eastern
European consumer. This purchasing trend is true even
among the more developed Eastern Europe countries, such
as the Czech Republic, Hungary and Poland.
As a region, Asia-Pacific sells the largest amount of
premium brands relative to its aggregate cosmetic sales.
Forty percent of all sales there are premium brands, with the
largest penetration in Hong Kong and Singapore. In China,
premium brands account for 16% of total cosmetics sales, a
9% increase in 2000 compared to previous year.
Given these trends, it would be prudent to mention that
major cosmetic players need to emphasize their core brands,
select product launches and continue offshore expansions,
and may also need new management to execute these
strategies.
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Sameer Kumar is a Professor and Qwest Endowed Chair in Global
Communications and Technology Management in the Department of
Management, College of Business at the University of St Thomas,
Minneapolis, Minnesota. His major areas of interests include
optimization concepts applied to product design, process innovation,
supply chain management, information technology, capital investment
justifications and total quality management effectiveness. Dr Kumar is
a registered professional engineer in the State of Minnesota.