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Thought Leadership

How Subscription Services are Changing the Personal Care Game

Subscription boxes are redefining the way we approach our self care routines. Across every subset of the beauty and personal care market, companies are using subscription-based distribution to cultivate new audiences, reinforce branding, and increase customer loyalty.

To consumers, these corrugated containers represent the convergence of style, technology, and convenience. Posting a value of nearly $2.6 billion dollars and encompassing more than half of all online shoppers, it also represents the future of e-commerce.

That’s only the start of the appeal. Each box offers marketing potential, product launch opportunities, and a pipeline to some of the most niche, hard-to-reach audiences.

Digital Microtargeting in a Tangible Way

Since we are now able to market with pinpoint accuracy, and manufacturing workflows are becoming more streamlined, servicing a highly targeted niche audience is no longer an impossibility.

Box services for male audiences? Check. Female? Check. Oily skin? No problem. Dry skin? That too. A gluten-free young professional who runs 4-5 days a week? There’s a box service for them.

What’s more — the data cultivated from Facebook, Google, or abandoned shopping carts help define the markets for future subscription services.

Subscription services are targeting underutilized demographics, like men’s care (which now accounts for 18% of subscribers in the personal care segment)

This data can also help companies increase profits through up charges and add-ons. Most services are in touch with their customers — through Instagram or email — with a sophisticated workflow of pre-shipment reminders, additional sales opportunities, and increased exposure to new brands.

The Psychology of Subscription Services

For these recurring services, there are two main models in the personal care segment. Curated & Customized services ship you a monthly box of products tailored to match your skin type, fashion sense, or lifestyle.

Replenishment services automatically ship refills on a predetermined schedule or when a smart device is notified or alerts you when you’re running low. Both models offer psychological rewards, either in the form of convenience, or a rise in the level of neurons in the pleasure centers of our brain.

In a 2006 study, ‘Pure Novelty Spurs the Brain,’4 researchers Nico Bunzeck and Emrah Düzel found that the ‘novelty center’ of our brain — the SN/VTA — can be activated by the unexpected. They discovered neurons that were more stimulated when a subject was shown a series of repeated images, but were also shown new images on occasion.

This might help explain the success brands have been having on getting subscribers to join. We are hard-wired to find value in getting a gift, even if it’s a gift we pay for ourselves.

So who’s winning? Several companies have proven to be key players in this segment of mail order commerce.

Harry’s | Dollar Shave Club may have been the company that put one buck razors in the zeitgeist, but Harry’s has built upon that model with a brand of sophisticated masculinity. They believe that self care is more than just a close shave and some tonic. Its about a full line of skin creams, body wash, and styling products that round out a man’s grooming habits.

Harry’s has expanded its product line to more than a dozen products including face cream, body lotion, and hair putty

Birchbox | The leading company in blending fashion and personal care, Birchbox makes the connection between one’s skin cleanser and their clean pair of open-toed shoes. They are selling a personality, and connecting brands with audiences that match them in a meaningful way.

Quip | Quip started with a toothbrush (a sophisticated one) and built their subscription model on keeping customers stocked with toothpaste and replacement heads. They offer the convenience of not needing to think about such a prosaic purchase, and are making tooth brushing more exciting.

Quip onboards customers with their innovative toothbrush, but retains profits through monthly refills

Stitch Fix | With a focus on fashion, Stitch Fix offers boxes catered to women, men, and kids. Their profile assessment tools go beyond the fit to ask how much you might be interested in spending on clothes, or how bold you want your selection to be (“bring it on — I’m into trying new brands”). Stylists are assigned to each customer, providing a touch of personal service.

IPSY | As the largest cosmetic subscription service, IPSY seeks to ‘inspire individuals around the world to express their unique beauty.’ Their product offerings run the gamut of skin cleansers to skin creams; concealers to compacts, and is constantly introducing new up and coming indies.

Stitch Fix assigns each customer a personal stylist who helps navigate their unique fashion sense

When brands align themselves to a platform that matches their own culture and personality, sales can be impacted in an enormous way. Subscription boxes have experienced more than 890% growth in the last five years,5 a boom in profits is allowing companies to continue improving their user experience, sales touchpoints, and marketing reach.

All of this leads back to the fact that subscription boxes are one of the most effective ways to distribute something that is hot in demand (or would like to be). Predicting product supply and the logistics of distribution become much easier to manage. So much in fact, that some brands are pushing subscription plans over on-demand purchasing.

In the brick-and-mortar retail world, there’s an old theory that when a person tries something on, they’ve often already made the decision to buy it. Another theory states that on-the-fence customers are more likely to buy if they can try it out, and yet another one speculates that new brands are discovered through personal recommendations.

Subscription box services acts on all of these, and includes a truckload of other commercial advantages. Expect these services to continue influencing personal care for the foreseeable future.

7 Personal Care Trends CPGs are Watching

The personal care industry has been affected by modern consumerism like almost no other industry out there. Online retail, social media, and a new generation of customers have so fundamentally reformed the way we connect with brands that many companies have stumbled trying to adapt.

Of course, any brand can experience difficulty navigating new markets, and we often see big names struggling to sync their old workflows to the new. Those who appreciate these dynamics and welcome out-of-the-box thinking are often the ones setting the ground rules moving forward.

Here are some things major brands are watching out for right now in personal care.

The Beauty Care Landscape is Shifting

Established consumer goods companies might have the advantage in infrastructure, but emerging brands are gaining ground in innovation, new ingredients, and the ability to appeal to new audiences. They are proving themselves to be significant disruptors to the status quo by offering new approaches to old ideas.

The overall market is experiencing fluidity, as smaller brands are gobbled up by larger, well-known names. These companies can offer the innovativeness of a start-up with an enterprise workflow. At the same time, cash-flush organizations are investing heavily in their own internal R&D, hoping to incubate the next great start-up.

Consumer Spending is Cultivating Prestige

Luxury beauty products have seen some of the most impressive increases in market share since the economic recovery. U.S. sales in prestige personal care is expected to come close to $4.5 billion in 2019 and with a CAGR of 4.1%, this number will only increase. Skin care alone has posted a strong 6% increase according to beauty industry analyst, The NPD Group.1

Major CPGs are putting an emphasis on prestige largely due to its high profit margin, and the fact that consumers are more likely to remain loyal to their beauty care regiments when higher-end products are involved. These companies also have a huge advantage in the R&D infrastructure they already have in place.

Custom Tailored Product Offerings…

As AI integrates itself into everything we do, consumers are expecting personalized experiences on all levels. This includes the product itself, the marketing used to sell it, and the ordering process required to buy it.

Companies like Proven — a company born out of the Skin Genome Project — offers an algorithmic approach, recommending products based on an in-depth questionnaire. After answering some basic details, Proven pairs a cleanser, SPF moisturizer, and night cream for a quick, out-of-the-box skin care regiment.

Proven Skin Care uses algorithms to match an array of products to a customer’s specific needs

…Sent Automatically Every Month

Once a purchase is made, shoppers are offered the convenience of automatic order placements every month. This worry-free approach practically ensures brand loyalty and offers some stability in product supply while offering additional upsells through à la carte add-ons prior to shipping.

The Internet’s most popular toothbrush company, Quip, makes sure that a 90-day supply of toothpaste arrives on your doorstep exactly when you need it. Amazon pushes customers towards renewal purchasing by offering discounts for products designated with ‘Subscribe and Save’ pricing.

These services have the potential to expand audience reach in compelling ways. According to Forbes, 15% of online shoppers have signed up for these types of automated services.2

Lumin Skin Co. focuses on custom product groupings geared towards male consumers

…In Custom Branded Packaging

To round out these personalized experiences, brands are able to more cost-effectively brand the presentation of their goods when it’s shipped. Printing on demand allows brands to reinforce messaging on and inside the box. In the end, the entire experience of receiving a product in the mail is a case study in brand loyalty and messaging.

These custom designed, custom-tailored packages extend the brand recognition and consistently reinforce why the user purchased the brand in the first place. Stylish graphic design, high-quality construction, and a user-centric approach add a layer of distinction to a product’s reputation.

Embracing the Digital Shelf Space

It’s hard to meet someone who hasn’t integrated Prime’s 2-day shipping into their day-to-day life. With only a few simple taps, that refill bottle of sulfate-free, ultra-moisturizing shampoo is on its way. Amazon is an incredible pipeline to consumers, but companies have to play by their rules.

In trying to balance appropriate inventory, a lot of onus is placed on companies to figure out how they can leverage their in-house packaging operations to fulfill on-demand orders. Walmart, Target, and other big-name retailers are making plays to compete with Amazon, so this will only continue to grow.

Changing What it Means to be Green

With our social communities bringing ethical questions to light, brands are in need of reformulations in order to accommodate modern expectations. Hawaii made a strong statement in banning oxybenzone and octinoxate in sunscreens, and charities around the world are bringing to light the effects of using too much palm oil in the world. Ingredients, source of supply, ethical manufacturing all play a part in how personal care products are distributed throughout the globe.

Keeping a Product Supply Regiment on Track

Personal Care will of course continue to adapt, then evolve, and adapt some more. As our marketplace becomes more global, more digital, we will see outside forces continuing to shake up the landscape. Brands will continue to jockey for market share and test experimental, new ways to solve yesterday’s problems.

Companies that exceed in reading the tea leaves of personal care understand that in order to execute on strategy, they need a product supply that can adapt to today’s economy.

Keeping Product Supply Consistent with Consumer Demand

A CCM Benchmark study found that 9 out of every 10 conversations about beauty products happen online.1 In fact, more than a third of customers learn about new brands on places like Twitter and Instagram. It’s a notable reference point for an industry that used to rely on a “look, feel, smell” approach.

It also speaks to how much disrupting forces have changed the way the beauty industry operates. Today’s customers are more empowered than they’ve ever been. We are aware of the ingredients we put into our bodies. We are able to trace our ancestry with mail-in kits. We are able to connect with the brands directly and follow their every move.

These agents of change can represent new market opportunities, but present challenges for keeping product supply in check. Consumer goods companies have recognized the need to adjust manufacturing operations to compete in a new world.

For CPGs to maintain existing brands, integrate additional SKUs, and expand market opportunity, they must enforce agility into their operations. Big companies are no longer relying only on internal 24/7 manufacturing workflows. Instead, they are integrating outsourcing models that can adapt and scale as the market dictates.

The Economics of Personal Care

In the 1990’s — when fanny packs were in vogue and the radio was still the podcast of choice, most big-branded personal care lines were manufactured in-house. Each CPG had a network of factories capable of handling mass production of well-known products. Confidence in outsourced manufacturing was positive, but generally used for temporary demand surge or as a way to handle more mature, declining product lines.

During this period and into the next decade, the industry saw a wealth of mergers and acquisitions. Loyalty towards brand name products was high. Then, during the global economic downturn of 2008, things changed.

Higher priced brands plummeted. Consumers switched to private label equivalents. CPGs began consolidating plants to cut costs, accelerating the pace of production through contract manufacturers. Then, as the economy recovered and online retailers surged, contract manufacturers grew again by accommodating large CPGs and the upstarts they acquired.

The Outsourcing Model

One of the most critical needs of any product manufacturer is capacity. The entire slate of capabilities of a plant — manufacturing, filling, packaging, quality assurance — needs to be available when product is in demand. At the same time, it’s costly to keep operations ‘on retainer’ while waiting for the market to fluctuate.

Contract manufacturers are able to provide capacity to CPGs whenever it is needed. They have similar factory setups as their customers and have integrated an array of best practices seen by the world’s biggest brands. They can offer solutions to challenges both large and small.

Through this ability to produce and scale, contract manufacturers like Accupac can help companies stay nimble and respond more quickly to new ideas and formulations.

Contract manufacturers make about 1 out of every 7 personal care and cosmetic products worldwide.2 In 2018 it was a $17.1 billion industry. CMs are poised to help the industry adapt to change, and provide opportunities for new companies to break through.

Here are challenges an outsourced workflow can help with:

The Influencers

Before Y2K, the world’s biggest brands were aligned with Cindy Crawford and Naomi Campbell. Today, skin care is sold through likes, follows, trendability, and online stars like @jamescharles and @Zoella. These social players dominate the conversation around what products to use. Their millions of followers account for a collective audience that is deeply loyal to their opinions.

These customers — millennials among the lion’s share of them — are feeling more connected to the brands they trust. Hashtags have the power to bring change to outdated ingredients, and customer service is as easy as a DM.

CPGs are in turn seeking brands that speak to customers in a more personal way: products that are trendworthy, represent a new generation, and are socially responsible. They need to be able to add SKUs to their product lines without disrupting the existing operations of their other brands.

The Me Generation

We are more in tune with our physiology today than any other point in history. We know more about our heritage, our demographics, and our well being. We can send out for DNA results in a week and research chemical compounds on our phones. So we seek out products that conform to our ethnic, dietary, or social specifications.

These opinions that we form are far reaching. Our connection with social networks makes it easy to voice our opinions, unite behind a cause, and influence the corporate values of the brands we trust.

This often leads to reformulations of existing products. One only has to look back to the removal of parabens, or the boycott on palm oil as examples of how self conscious consumers have affected change. With the scalable workforce CMs have in place, companies are better prepared to test, verify, and deploy updated lines in order to compete for consumer mood.

An Expanding Worldwide Market

Our global economic footprint is changing every day. International brands are breaking through new markets and expanding product supply with regional varieties. The result of all of this is a global personal care product market estimated to be valued at $716.6 billion by 2025.4

Companies know that their products are finding success in new markets and are opening up new channels of distribution. This means more demand for product, but also demand for operations that can handle multinational validation requirements.

Contract manufacturers who have success in helping CPGs adapt to a global distribution model will place emphasis on proper quality control units and chemists who understand governmental regulations around the world. They also employ customer service teams who are adept at spearheading production through the hurdles needed to meet deliverables. They can often reduce headaches down the road by providing solutions to challenges before they affect operations. They can also cut start up costs for establishing product supply in new countries.

The point to all of this outlook is to reinforce the idea that in order to remain relevant, CPGs need a source supply that’s ready to support business change. In-house operations can be slow to adapt, but contract manufacturers have the capacity and knowledge to combat supply chain disruptions.

We might not know what the personal care landscape will look like in five years, and that’s exciting. We do know that the value of personal care will continue to grow and facilitate change from all angles. That’s why brands who integrate hybrid manufacturing workflows today are already preparing for what’s to come tomorrow.