Opportunities in Premium Personal Care: Trading Up Trends
Introduction
Growth opportunities in premium personal care are most apparent in Asia Pacific. In particular, double-digit year-on-year growth has characterized the Chinese and Indian premium personal care market from 2002 to 2007. Though starting from a low base, this is indicative of how the emerging markets can help offset difficulties that are likely to be encountered in the next 12-18 months
Scope
*The first in a series of three sector specific reports designed to help FMCG companies capitalize on consumers’ desire to trade up
*Asia Pacific, Western European and US consumer wealth group data and premium personal care spend data by category and country
*A comprehensive analysis of how consumers form their perceptions of what constitutes a luxury/ premium proposition
*NPD analysis and detailed recommendations offering practical strategies based on the trends and insights uncovered throughout the report
Highlights
The rise of the so-called global middle class has been a major factor in facilitating trading up (or premiumization) across the globe. From 2002 to 2007, Hong Kong, China, and India witnessed the highest growth in the number of Mass Affluent Individuals. The latter two nations are also showing the most growth in premium personal care products
Perceptions of what is considered to be a luxury/ premium brand are dependant upon five key factors which make up what Datamonitor refers to as the ‘Premium Price Index’. By using this as a reference, personal care manufacturers and retailers can show consumers that their goods represent value for money in more than just price
Consumers will increasingly ask questions about what brands/ products stand for and how they match their own values. Basing a campaign around a strong ideological belief held by a target audience can be effective in building brand relevance and increasing shoppers’ willingness to pay (WTP) a price premium
Reasons to Purchase
*Mitigate the threats posed by an uncertain economic environment by understanding how consumers perceive and judge upscale beauty brands
*Access unique consumer wealth and premium personal care data spanning Asia Pacific, Western Europe and the US
*Understand the most pertinent opportunities to drive brand and market growth in the personal care sector
Overview 1
Catalyst 1
Summary 1
CONTENTS 2
Table of figures 2
Table of tables 3
THE FUTURE DECODED 4
INTRODUCTION: A number of factors are influencing premiumization in personal care 4
TREND: Economic conditions and the growing 'mass class' have a major impact on trading up and luxury purchases in personal care 5
Favorable conditions have led to considerable up-trading in personal care among mass market consumers 5
Many countries have seen economic growth but personal care products have not fully benefited 7
The Number of High Net Worth Individuals (HNWI) is growing steadily worldwide and is a driving force behind high-end luxury personal care purchases 8
There are more Mass Affluent Individuals but the rate of growth is slower than among HNWI 10
Higher income shoppers are less likely to shop on a budget 13
But it is important to not be complacent even if you are targeting core luxury shoppers 14
Key takeouts and implications: a growing economy has facilitated premiumization in personal care, but the current downturn threatens to limit growth 14
TREND: The search for value is widespread especially as luxury/ premium products have become more accessible 15
Luxury/ premium is becoming more relevant to mass-market consumers leading to higher expectations 15
Additional access to better quality products has created a sense of entitlement among many consumers 17
Price-led value is a hugely important factor in purchase decisions and store selection and will become increasingly influential in personal care 17
Bargain hunting gives consumers a sense of satisfaction and increasingly has status value 19
Rapidly declining consumer confidence will further re-enforce the allure of 'good value' but doesn't necessarily equate to wholesale changes in FMCG consumption 20
Key takeouts and implications: industry players will have to work harder to convince consumers that price premiums are worth it amid a strong desire for good value and declining consumer confidence 23
TREND: The importance of image and appearance is a key premiumization driver in personal care 24
Consumers' considerable interest in looking and feeling good is heavily tied to self esteem enhancement 25
Consumers' interest in looking good is arguably exacerbated by modern society 28
'Personal branding' and the growing industry supporting this concept exemplifies the emphasis that individuals place on image 28
The growing proportion of individuals having cosmetic surgery, or considering and having cosmetic surgery, reflects an image conscious society 29
Consumers' interest in glamour has assured the longevity of advertising with 'beautiful people' 30
Attitudes to looking good vary by country across Europe, North America and Asia Pacific 31
Key takeouts and implications: image conscious consumers create premiumization opportunities for manufacturers and retailers even in the context of a difficult economic environment 34
TREND: Premiumization in personal care is expected to continue to drive market value especially in the emerging markets 34
The recessionary environment will make mid-market positioning even more precarious 35
Emotionally involving personal care categories will see less down-trading if recession occurs because consumers will pay more for a product of service that they are passionate about 36
An increase in private label personal care purchases is also expected in the years ahead 38
Consumers are more likely to revert to home personal care solutions products if recession hits 39
The emerging markets will offer protection against potential weaknesses in market performance in developed western markets 40
Consumers already have established patterns of buying premium fragrances 41
Consumers are looking for multiple benefits from make-up products and this has facilitated additional prestige in the category 43
Consumers' trading up in haircare is influenced the growing popularity of professional products 46
Skincare is an emotionally involving category for many consumers and is becoming synonymous with premiumization 47
Premiumization in personal and oral hygiene is less established than other categories 50
Key takeouts and implications: consumers are still willing to spend premiums for products that make them look and feel better 52
INSIGHT: Premiumization is influenced by the consumers' emotional involvement with the product and a number of important product characteristics 54
Premium is still a high price related to extraordinary factors perceived and experienced by consumers 54
Consumers are skeptical of the product quality benefits offered by premium/ luxury brands 55
Key takeouts and implications: establishing a luxury/ premium positioning involves a strong understanding of how consumers perceive brands according to five key criteria 56
INSIGHT: Packaging is the most pertinent extrinsic quality cue and can significantly impact consumers' quality judgments of personal care products 57
Color is an important intrinsic and extrinsic attribute shaping consumers' quality judgments 57
Packaging creates and enhances product positioning and creates preconceptions of quality standards 57
Product appearance judgments can also be influenced by the retail outlet from which it is purchased 59
Consumers' perception of 'premiumness' can also be influenced by the provision of product information including word of mouth 60
Numerous examples illustrate personal care brands leveraging 'intrinsic and extrinsic quality' cues to facilitate a more premium positioning 62
Key takeouts and implications: industry players must establish whether the intrinsic and extrinsic quality attributes of brands/ products are perceived favorably, especially in comparison to competition 65
INSIGHT: How consumers use and experience personal care products has additional weighting especially as luxury becomes 'experiential' 66
The experience of scent is extremely powerful in shaping perceptions and forging an emotional connection with personal care consumers 66
Product efficacy is an vital route to premiumization in personal care 69
Though consumers expect convenience as a matter of course, it can still be a route to premiumization 71
Consumer trends indicate that more emotional, rather than material forms of consumption may be emerging as consumers become more pre-occupied by experiences 72
Numerous examples illustrate personal care brands offering 'experience quality' based benefits to facilitate a premium positioning 74
Key takeouts and implications: experience based quality will become even more important in creating a luxury/ premium positioning 77
INSIGHT: Credence quality influences trust, involvement and willingness to pay for premium personal care products 77
Details surrounding ingredients and production methods are particularly important because of the crossroads characterizing personal consumption trends more generally 77
'Professional quality' and 'professionally recommended' credentials are linked to efficacy and therefore an enhanced willingness to pay price premiums 80
Alternatives to cosmetic surgery are becoming increasingly credible to attract luxury/ premium consumers 81
Regionalism, origin and authenticity form a basis for premiumization in personal care 83
Socially responsible personal care products have the potential to command price premiums 84
Numerous examples illustrate personal care brands offering added value 'credence quality' benefits to facilitate a premium positioning 85
Key takeouts and implications: 'credence quality' reflects a myriad of consumer trends impacting consumer markets in general - and not just the personal care industry 90
INSIGHT: Many consumers will pay more for products satisfying status needs 90
Product conspicuousness is related to two similar but distinct patterns of consumption: 'status consumption' and 'conspicuous consumption' 91
Ethical/ sustainability led consumption behavior increasingly has status value 93
The cult of celebrity has imbrued many personal care brands with added status and popularity 94
Numerous examples illustrate personal care brands offering status enhancing benefits for appearance and brand conscious personal care shoppers 94
Key takeouts and implications: status conscious shoppers are more willing to pay premium prices so industry players need to understand what status means to a target consumer 95
INSIGHT: Uniqueness and specificity is equated with quality and brand cachet as well as the emerging needs of 'Generation C' 96
Premium personal care consumers want products that are unique and evoke a feeling of individuality 97
'Premium fatigue' is a threat as consumer expectations continually increase in line with market dynamics 97
A commonplace way to ensure uniqueness in any product market is to raise prices 98
Individuals are looking for more customization possibilities and opportunities for self-expression 98
Numerous examples illustrate personal care brands providing unique benefits, especially through personalization/ customization benefits 100
Key takeouts and implications: enhancing the exclusivity of certain premium personal care products is another way to encourage consumers to believe in the value proposition on offer 103
INSIGHT: Hedonism is a major driver of trading up which means brands must leverage hedonic benefits of personal care product usage 103
Pleasure is highly linked with emotions and emotions are linked to loyalty and WTP price premiums 104
Satisfying personal care consumers' desire for enjoyment and pleasure is best served through multi-sensory marketing tactics 104
Research indicates that consumers associate higher priced products with additional pleasure 105
Consumers may seek to de-stress from financial pressures with premium personal care products 105
Numerous examples illustrate personal care brands providing added sensual benefits to appeal to hedonistic consumers 106
Key takeouts and implications: linking beauty products with escapism and indulgence adds another dimension to products especially in a recessionary environment 108
INSIGHT: Consumers are more likely to pay a premium for brands re-enforcing their self identify 109
Consumers' desire to choose products that reflect their self identity is particularly relevant to personal care 109
A consumers' self concept is multidimensional and will be heavily influenced by cultural differences 111
Consumers use natural and ethical personal care consumption as a means to express their values and beliefs 112
Key takeouts and implications: the health and beauty industry is particularly well placed to capitalize on consumers' desire to choose products reflecting their self identity 113
INSIGHT: Aging consumers have become important consumers of premium personal care products but premiumization is a trend with broad demographic reach 113
Older consumers have considerable personal wealth which makes them a potentially important target group for premium products 114
Younger consumers are also an important driver of trading up in personal care 115
Key takeouts and implications: the desire to trade up to premium personal care has broad demographic relevance which creates targeting challenges but broadens the market opportunity 118
ACTIONS 119
ACTION: Research to determine how much of a discretionary purchase your brand is and make preparations in recognition that some people are currently trading down 119
Use Datamonitor's Premium Price Index (PPI) to help frame your market and consumer assessment 120
Embrace new strategies in recognition that some beauty consumers are going to trade down 121
ACTION: Adopt to a 'no-compromises' approach to product quality through formulation and positioning of a premium brand 121
Use the best, most effective ingredients to elevate functionality using natural and technologically advanced formulations 122
Adopt a 'tiered' approach to branding in order to meet demand for both natural and technologically advanced ingredients 123
Protect the long term growth opportunities by making credible functionality claims 124
Source natural ingredients/products from a guaranteed specific area to boost authenticity credentials 125
Leverage heritage and tradition credentials wherever possible 125
Retailers should embrace a more holistic approach to beauty merchandizing and the development of product lines 127
ACTION: Ensure that a luxury/ premium brand has an identity that is consistent with a target consumers' self concept 128
Embrace the philosophy of 'lifestyle/ attitude branding' to empower premium brands and promote the idea of 'expressive beauty' and self confidence 128
Give consumers opportunities to express their self concept through products and services 130
ACTION: Emphasize the experience associated with a brand's premium credentials 130
Encourage consumers to consider a premium personal care product occasion as a special time 131
Sell consumers the idea of time 132
ACTION: Continually explore avenues for emphasizing the uniqueness of a premium proposition 133
ACTION: Maintain marketing spend, especially in the current recessionary environment, to justify premium prices 134
Maintain advertising efforts to help maintain differentiation of premium branded personal care products 135
The nuance of the premium personal care product advertising message might have to change during this period of economic uncertainty 135
Be wary of over-reliance on price reductions 136
Maintain a strong focus on innovation and R&D during times of economic uncertainty 136
Use Datamonitor's strategic reports outlining the key innovation opportunities that arise from consumer mega-trends 137
ACTION: Look for opportunities to extend pre-existing or launch new premium products into emerging markets 138
Explore opportunities for basic market entry, store expansion and distribution expansion in the emerging markets 139
Use acquisitions and alliances as a means of improving local market understanding 140
Do not assume emerging market consumers to be a large homogenous group 141
Use local personalities as brand spokespeople when expanding into the emerging markets 142
Release products in smaller sizes with correspondingly smaller price tags to target the lower incomes apparent in the emerging markets 144
APPENDIX 145
Definitions 145
Methodology 146
Further reading and references 147
Ask the analyst 152
Datamonitor consulting 152
Disclaimer 152
List of Tables
Table 1: Per Capita GDP, Constant, (US$), 1995 prices by country, Asia Pacific, Europe and US, 2002-2012 6
Table 2: Personal care spending as percentage of Gross Domestic Product (GDP), by country, Asia Pacific, Europe and US, 2002-2012 7
Table 3: Personal care spending as percentage of Private Final Consumption Expenditure (PFCE), by country, Asia Pacific, Europe and US, 2002-2012 8
Table 4: High Net Worth Individuals (000s) (HNWI)* by country, Asia Pacific, Europe and the US, 2002-2012 9
Table 5: High Net Worth Individuals (HNWI)* as a proportion of overall population by country, Asia Pacific, Europe and the US, 2002-2012 10
Table 6: Mass Affluent Individuals (000s) (MAI)* by country, Asia Pacific, Europe and the US, 2002-2012 12
Table 7: Mass Affluent Individuals (MAI)* as a proportion of overall population by country, Asia Pacific, Europe and the US, 2002-2012 13
Table 8: The percentage of consumers who seek discounts and express satisfaction from value, by country 19
Table 9: Premium fragrance* market (US$ millions) in western Europe, Asia Pacific and the US, by country, 2002-2012 43
Table 10: Premium make-up* market (US$ millions) in western Europe, Asia Pacific and the US, by country, 2002-2012 45
Table 11: Premium haircare* market (US$ millions) in western Europe, Asia Pacific and the US, by country, 2002-2012 47
Table 12: Premium skincare* market (US$ millions) in western Europe, Asia Pacific and the US, by country, 2002-2012 49
Table 13: Premium personal hygiene* market (US$ millions) in western Europe, Asia Pacific and the US, by country, 2002-2012 50
Table 14: Proportion of consumers (%) who have, "Chosen higher quality food/drink/cosmetics or toiletries for extra indulgence and enjoyment" in the preceding 12 months, Europe and US, 2005-2006 116
List of Figures
Figure 1: There are important drivers and inhibitors impacting premiumization in personal care 5
Figure 2: The 'democratization of luxury' is both an opportunity and a threat for luxury/ premium personal care providers 16
Figure 3: Good value for money has become the most important influence over grocery store choice globally while price exerts considerable influence in personal care purchases 18
Figure 4: Consumers use personal care products to feel better about themselves 27
Figure 5: Many women associate a desirable image/ appearance with additional opportunities and attention 27
Figure 6: Consumers feel under ever increasing pressure to adopt 'appearance management behaviors' 28
Figure 7: Personal branding is a concept that has built momentum in the last 10 years 29
Figure 8: Glamorous advertising remains pervasive in personal care categories 30
Figure 9: Consumer slowdown should compel personal care brands to reconsider their approach 36
Figure 10: Body odor is a key concern for all consumers 37
Figure 11: Manufacturers looking to capitalize of premiumization in personal care must excel - more than competitors - in the provision of factors associated with the Premium Price Index (PPI) 55
Figure 12: Premium products being offered at 'discount prices' is an emerging reality in developed markets 56
Figure 13: Packaging design plays a big part in shaping quality expectations, especially when making personal care purchases 59
Figure 14: Brands can be effective 'curators' of wellness advice with well-designed, informative websites 64
Figure 15: Manufacturers and retailers can manipulate intrinsic and extrinsic attributes to help facilitate a premium positioning and/ or achieve differentiation 65
Figure 16: Scent can be classified by its ambience and congruency 67
Figure 17: Offering time and effort saving benefits, combined with science-led and natural ingredient efficacy, can help insulate from the escalating private label threat add value to personal care market growth 72
Figure 18: There are various examples of brands offering added value 'experience quality' through scent, improved performance and convenience to facilitate a premium positioning 76
Figure 19: Beauty innovation is at a crossroads between technologically advanced science led products and natural formulations and there is increasingly a convergence between the two 80
Figure 20: Consumers will pay a premium for authenticity as they seek to 're-connect with the real' 84
Figure 21: Products offering the combined benefits of natural and technologically advanced ingredients appears to be a growing trend as does the proliferation of professionally positioned products 89
Figure 22: Status and conspicuous consumption are equally valid themes in premiumization but require different approaches 92
Figure 23: Status and conspicuous consumption are equally valid but require different approaches 93
Figure 24: Collaborations wit celebrities, fashion designers and co-branding are common routes to inflating the status of personal care brands 95
Figure 25: Four key personal benefits as well as the additional ease of customizing have driven the trend toward more personalized consumer packaged goods 99
Figure 26: Offering consumers additional possibilities by which they can co-create and self-customize will be more commonplace and will come to be an expected product feature by shoppers themselves 102
Figure 27: Sensory attributes have a significant impact on hedonistic positioning 108
Figure 28: Consumers are embracing brands that reflect their self concept while many global women embrace the philosophy that beauty can be achieved through interpersonal factors, not just appearance 110
Figure 29: A consumers' self concept is multidimensional and will be heavily influenced by cultural differences 111
Figure 30: A consumers' self concept is multidimensional and will be heavily influenced by cultural 120
Figure 31: Premium image and high functionality are irresistible propositions 123
Figure 32: Using the best ingredients to elevate functionality involves resolving the crossroads between preferences for natural and technologically advanced ingredients 124
Figure 33: If regional links are used to position a product, the connection should be clear 127
Figure 34: Sunsilk's "Life Can't Wait" campaign helps to establish a stronger personality for the brand 129
Figure 35: Spa treatment-type products offer consumers a relaxing premium personal care experience 132
Figure 36: Convenience can be incorporated into premium personal care 133
Figure 37: Situational and personally adaptive beauty solutions is an emerging area in personal care 134
