According to a report published by Orbis, the cosmetic products market size will maintain its average annual growth rate of 4.97%. That equates to about $4.98 billion in 2015 to $5.76 billion with the expected market size in 2023 will reach $7 billion. Think that’s a lot? The skin care products market will reach $150 billion by 2023, wow! Clearly, there is a huge pie that many businesses have an opportunity to take a slice of. The cosmetics industry is unique because it is just as possible for a small business owner to make a product and penetrate the market with it as it is for an established industry giant to do so as well.
What we will refer to as the beauty industry is the category of products that encompasses all manner of grooming products such as makeup, hair care, styling, fragrances/deodorants, and color cosmetics. There are even more product niches under the umbrella of the cosmetics/beauty industry. This industry is an absolute financial behemoth as was demonstrated by the stats above.
An interesting fact about the beauty industry is that the immense product availability and variety are actually balanced by the demand. This means that despite the enormous range of brands and price points available to consumers, there is an equal demand for new and existing products.
The reasons for this are simple, consider the aspects of cosmetic or beauty products. There is an almost infinite combination of smells, consistencies/textures, and price points available for most businesses to cater to innumerable demographics and utilities. That doesn’t even account for brands that succeed off of lifestyle/aesthetic marketing. This incredible level of diversity when creating product lines is what allows for the huge supply and demand to equal out.
What brings a customer into a store? Are they there on a mission or are they simply browsing?
A woman walks into a store and makes a beeline for the cosmetics/beauty aisle. Like many other people, she isn’t necessarily there to purchase a specific product. She has plenty of makeup, she has numerous bottles of shampoo and conditioners she either rotates or has simply tried and left behind. Despite this, she’s standing here in this aisle neither purchasing nor walking away. She may open the lid of one product, sniff it and put it back. Or she may find it smells delightful and tallies up a point for it. For most customers like this, shopping for new products occupies a nebulous gray zone. You could say it’s the best situation for a business to be in with a customer—as they are completely open to suggestions or what the product has to offer. Car salesmen often say a customer doesn’t walk onto the lot unless they’re interested in buying—this is the beauty version of that.
You see, many customers are always in the market for a new blend of makeup, a new type of pomade or hair gel, a different smelling shampoo. Haircare for strengthening, hair care for dandruff, hair care for color management. One person could theoretically make use of all of these products within the same year!
What does this all mean for payment processors, though? For starters, it means that the beauty industry is one on which there is a high percentage of chargebacks. Due to the product variety and the whimsical nature of most beauty purchases, returns are fairly commonplace. However, because of the sheer amount of retailers big and small that sell various grooming products and cosmetics, return policies are not consistent among them. Many of the larger retailers you can think of have fairly forgiving return policies.
This is an especially prevalent problem with smaller beauty businesses that can’t afford to have a robust return policy due to the fact that they can’t absorb the potential losses. Consider that there is also very little, if any, resell value on used cosmetics or grooming products. Typically speaking, once opened or used, they have no resell value because the integrity of the product is compromised.
The beauty industry is a multi-billion dollar industry, you can be certain that customers are looking to ecommerce for the variety and product novelty that they seek. While cosmetics departments in big retail corporations such as Target or Wal-Mart may offer the basics for customers, many of them have turned towards more catered offerings that are available online.
If you didn’t catch our post on the Visa subscription policy changes, you can check it out here. The quick and dirty of those changes are that disputes and chargebacks are high among subscription services because these services often offer a highly discounted/free first month.
In the case of beauty products, this subscription model has become wildly popular. There are many services that offer a box of goodies every month with various new cosmetics. The fact that these services exist clearly outlines the supply-demand relationship that we discussed with beauty products. Many beauty box services offer new beauty products every month at a premium—the sizes that are offered are typically smaller than what you would find at retail. Businesses know the novelty of trying new products is the true value of the service, not the products given. Due to the shift towards ecommerce sales (which seems to be the trend across many industries), the variety of offerings is more important than trying to sell customers on bigger packages. In a sense, the beauty subscription model is more like a grand marketing tactic that gives many brands exposure.
However, like all subscription services pre-2020, the disputing rights are grey at best. Chargebacks have always been a prevalent issue in the beauty sector and adding rolling subscription services on top of that will only serve to make them higher.
Did you know that a business that has a chargeback ratio that exceeds a certain percentage of their transactions will be levied fines or they can even lose their merchant account outright? Many legitimate businesses offering quality services are denied a merchant account for payment processing simply due to the industry they are in or the margins are not favorable towards the supposed “big dog” Payment Processing companies out there.
At Pinpoint Payments, our company was founded to provide payment processing solutions for companies big and small. Whether you need a slick POS system or a seamless checkout experience for your ecommerce business, we’ve got your back.
If you own a beauty business, you know how detrimental chargebacks can be towards growing your business. Staying within your ratios for chargebacks can be difficult in an industry where many customers are highly unsure about what they want before they purchase a product—leading to higher buyer’s remorse than in many other industries.
Don’t worry though, we understand. Pinpoint Payments has helped businesses with their payment processing needs across a wide variety of industries—including beauty. If you want to learn more about what we can do for you, you can contact us here or give us a call at 866-257-0502!