What Beauty Segment—Prestige, Mass, Masstige Or Value—Will Win In A Shaky Economy?

Inflation in the United States hit 9.1%, a four-decade high, in June in yet another reminder of the economic quagmire the country is stuck in. Facing the effects of persistent inflationary pressure, interest rate hikes and supply chain snarls, shoppers already appear to be trading down at retailers like Walmart, and consumer spending is likely to be impacted going forward.

In light of the precarious market conditions, for the latest edition of our ongoing series posing questions relevant to indie beauty, we asked 17 beauty investors, investment bankers, retail specialists, marketing experts and entrepreneurs the following questions: How do you view the various tiers of the beauty and personal care segment (prestige, mass, masstige and value)? Where do you see winners and losers, and why? In the tiers that you believe will struggle, what should brands do?

Cristina Nuñez Co-Founder and General Partner, True Beauty Ventures

There are several dynamics taking place. The economic pressures on discretionary consumer spending coupled with the continued blurring of retail distribution channels (Ulta Beauty at Target, Sephora at Kohl's, SpaceNK at Walmart, and now CVS prestige skincare) means that the consumer has more choices to fit the needs of both their beauty routines and their wallets.

Today, consumers can more easily shop high and low in beauty conveniently, and that means that we will see both a trading down and a trading up occurring. Brands in mass/masstige have the opportunity to capture consumers who are looking for more affordable price points without sacrificing on ingredients and experience, while brands in prestige need to articulate and substantiate their value proposition using content, education and innovation to promote their higher quality and efficacy over lower priced options.

The winners that will emerge from these consumer shifts will be the ones that can demonstrate attractive price to perceived value ratios. Brands at either end of the spectrum can entice with a steal or a splurge. Brands in the middle price point tier, on the other hand, could be at risk of being squeezed if they can’t demonstrate their value proposition relative to lower price point options.

Even within traditional prestige specialty beauty retailer Sephora, for example, you are seeing the introduction of lower price point brands like The Ordinary with compelling innovation and clinical results that are also contributing to price compression in that channel.

Ultimately, no matter what price point tier you play in, the goal is to get your products to hero—and hopefully cult—status. The loyal beauty consumers are way less likely to trade down or move on from a hero “can’t-live-without” staple product in their beauty routine though they may explore and shift their buying strategies on other products.

Germaine Bolds-Leftridge Founder, I KNOW and GBL Sales

In times of economic challenges, value and mass brands are typically your go-to options based on necessity and accessibility.  Shoppers will prioritize their lifestyle based on their budgets and capabilities especially if capital is compromised.

There are no winners or losers, but the opportunity lives with brands that provide cost value and accommodations based on market conditions. Mass and value brands will always have a greater reach and response due to their price points.

Masstige carries both a wide distribution and elevated premium value where the commitment to purchase may be easier. While consumers are choosing to be more astute, I believe the value of masstige will ultimately have the upper hand in serving their customers.

Prestige and masstige will need to consider opportunities to keep communication open within their communities and align on the economic trends or risk losing consumer spend. There are always replacement products for prestige brands, so the concern is to rely on loyalty. I believe prestige brands can permeate lifestyle to raise perceived value.

ROI also comes into play with prestige because people pay for things that last longer and deliver more features and benefits. Ultimately, every tier will need to rely on proof of brand performance, earned credibility and customer devotion to their products in these tenuous times of economic instability.

Lauren Leibrandt Director, Beauty and Wellness Practice Leader, Baird

The distinction between prestige, mass, masstige and value has blurred in recent years, with most consumers purchasing seamlessly across categories. I don’t view beauty in such defined buckets, and I don’t believe consumer behavior will necessarily downshift from a higher tier of price points to a lower one.

Instead, consumers will focus on the value of the product they are getting for the money. If a product costs $40, but it’s made with high-quality ingredients that produces real results, then that is money well spent. Telling an effective ingredient story, how the product was made and making the consumer feel as if they’re purchasing more than just a product, these are proven ways to maintain current customers and acquire new ones in good times and in bad.

In times of economic uncertainty, some consumers trade down when they feel like they can buy a similar product at a cheaper price point. This happened during the last recession and is already happening now. I’ve noticed a rise in popularity of product dupes videos on YouTube.

Don’t focus on me-too products, promote your hero SKUs, manage your inventory carefully and keep a tight control on expenses, and you’ll weather the storm. If your product can easily be knocked off or there is little to differentiate it, then the consumer won’t miss much when using a cheaper version. Now is the time to double down on what defines your brand and products.

Kiva Dickinson Co-Founder and Managing Partner, Selva Ventures

The impact of inflation unfortunately impacts lower income households the most, which is why we have seen consumers in mass retail trading down from branded to private label in a number of categories this year, while higher end retailers have yet to feel much downward pressure.

We will ultimately see if that trend changes later this year as some form of recession sets in, but, for the time being, we can see prestige staying relatively insulated as a segment, while mass and value products with close private label substitutes have struggled more.

Times like these really force brands of all tiers to be laser focused on repeat consumers: stress the value of routine, build on and offline connectivity with consumers, and ensure your consumer understands the unique differentiators of your products so they have less temptation to trade down on price. Helping to set consumer expectations so they stick with your products and build an emotional connection is a valuable way to weather the economic storm.

Tina Bou-Saba Co-Founder and Co-Managing Partner, Verity Venture Partners

Nothing is recession-proof, but we worry less about prestige beauty and personal care than we do more economically sensitive segments. The prestige beauty shopper is generally less impacted by macro factors, especially since beauty and personal care price points offer a more affordable, self-indulgent experience than luxury apparel and accessories, for example.

At the other end of the spectrum, we think that value-priced products will be beneficiaries of trade-down as middle- and lower-income consumers reduce their discretionary spending. For example, we note Walmart’s recent commentary around trade-down to private label, and the dollar store sector’s relative strength during past recessionary periods.

On the other hand, masstige and mass brands are likely to experience pressure as a segment, as consumers trade down to more value price points. That said, we think that elevated brands in the masstige space are more resilient since they offer consumers a higher end experience at an accessible price point.

These masstige brands should emphasize the value that they offer consumers (i.e., high-quality product and modern branding at an affordable price point). It’s the mass brands that are dated and lack real consumer connection that will be most negatively impacted. These brands might consider more aggressively discounting if margins permit.

Margarita Arriagada Founder, Valdé

First, I think beauty will be a category that will remain resilient during these times. It is a feel-good category, and given the overall environment, beauty fills not only a practical need, but an emotional one, meaning there is an opportunity for all tiers to thrive.

That said, I do agree consumers will reevaluate their consumption and spend. I tend to think there will be a shift towards trading down on the "need-to-have" to still splurge on the "gotta-have.”

What this means is that the "need-to-have" are some of the basics that consumers may find dupes for at a lower price (i.e., cleansers) and save for products that deliver on innovation, covetability or experience. Value will reign again as it did on the last recession, but should not be from a promotional activity standpoint, but delivering true value.

While some customers may be trading down, it is clear many are also trading up as evidenced by the growth in the fragrance category, which is entirely due to experiential reasons. The AOVs are going up in many categories. So, I think the brands that may suffer are the ones that are not delivering on true value, whether price/quality ratio proposition or experience/quality.

The ones that should thrive are mass, masstige, value, entry-level prestige and upper-level prestige. The more volatile tier is potentially mid-tier prestige.

Evaluate assortment/price rationalization to ensure value in some way shape or form is being delivered even in the highest tiers. Ensure that newness launches are "gotta-haves." It goes without saying, this is a time to surprise, delight and build desire because the customer will save for these experiences regardless of price.

Pamela Friedman President, CV Skinlabs and Principal, The Beauty Sales Group

It’s no secret the industry is amid transformation due to many nuanced factors. The tiered retail landscape is being altered by channel blending like Target at Ulta, and Kohl’s at Sephora blurring the lines with mass, masstige and even prestige, and there’s opportunity for lower end/value channels to gain market share. The market is crowded, and with an influx of indie brands, consumers have lots of choices and are being offered a wider range of price points across all channels.

Brands will have to work hard to win over shoppers with value, convenience, points of differentiation and loyalty. While not all will migrate down, consumers are becoming price sensitive and cautious about how and where they are spending. They are not only reducing their discretionary spending, but looking for deals and value.

Promotional efforts drive sales, but also train consumers to wait for these sales. Brands should evaluate their promotional strategies, have a solid strategy, and keep an eye on profitability and cash flow. Those who choose not to reduce prices with promotions should position their value offer with points of differentiation to drive demand, delivering what they promise in terms of claims and attributes.

No matter what channel, brands need to develop strategies that can capitalize on ever changing dynamics. Those who keep a watchful eye and remain facile will be in a better position to seize opportunities as they arise and leverage marketing tactics to maximize return.

Kemper Brennan Founder, Bravura

Convenience and accessibility will play a key role in guiding consumers’ decisions moving forward. From CVS Pharmacy’s recent expansion into prestige brands to Ulta’s partnership with Target, the retailers are looking to engage with shoppers where it’s the most convenient for them.

While some consumers may become more price sensitive due to shifts in economy, they will still be shopping for necessities. So, mass retailers that are able to create a one-stop shop environment will find themselves in a winning position.

When it comes to traditional prestige players, they generally have a loyal following and their most engaged consumers are most likely to stay with their retailer of choice. The opportunity lies in continuous customer engagement so that they don’t lose the frequency and/or AOV and continue growing their base of loyal clients.

Brands should be hyper aware of where they stand with each retail partner, what’s working and what may need to change. This may not be the time to let your six- to nine-month marketing plan ride out on its own. It’s best to monitor the performance on a weekly or monthly basis and be ready to pivot your spend and utilize your brand’s platforms to drive consumers where you are seeing the biggest payoff.

Kristy Engels Founder, HTH Consulting

It's going to be interesting to see how consumers respond to this economic downturn. Given high prices for gas, restaurants and household expenses, some budget tightening will be inevitable. Mass channels will see some sluggishness in replenishment sales as consumers try to make their products last longer.

Many of the large mass CPG brands have decreased package sizes and eliminated bundle deals due to supply chain pressures and rising costs. They’ve avoided raising prices by reducing some product sizes, in effect hiding the increase. To retain customers, they should consider bringing back some of these savings.

Value chains will see an uptick as budget-conscious mass consumers look for more savings wherever they can find them. Mass brands should be offering promotions throughout the year to retain these customers without losing share to more affordable brands.

Prestige and masstige categories tend to ride through these downturns a little better. With customers cutting back on more expensive splurges like vacations, fashion or dining out, prestige fragrance and beauty products become a way to indulge yourself.  These brands should avoid discount pricing in favor of more aggressive sampling and customer loyalty programs.

Positioning products as a way to pamper and provide self-care worked throughout the pandemic and will most likely hit home again in the coming months.  Prestige skincare, in particular, might see a quick rebound to increased sales in this environment.

Mia Bell Founder, Inspired Beauty Wholesale

In downturns like this it's natural to see more brands compete on price to match consumer spending trends. Unfortunately, early-stage brands that don't have the margins to engage in a strategy like this will have to find creative and value-driven ways to gain and retain market share.

We'll also get to see which brands were actively cultivating a loyal customer base and establishing their unique positioning in the market before the downturn. When you can't compete on price, you can still thrive by being that “can't-be-without” product for consumers. If that's something brand founders and their teams haven't been focused on, they should start now before it's too late.

Ashleigh Barker Director and Head of Beauty, Lincoln International

Despite inflationary pressures and a looming recession, consumers will still be spending on beauty as our needs for these products don’t diminish based on the economic situation. In past recessionary periods, prestige beauty has proved its ability to weather the economic pressures time and again with consumers still opting to splurge on small beauty indulgences.

It’s also worth noting that many consumers who can afford prestige products are less likely to be impacted by economic pressures. That said, there are an increasing number of new brands entering the mass and masstige channels, which, recession or not, also present an enticing value proposition to a broad audience.

Ultimately, it comes down to the switching cost associated with trading down from prestige to value-oriented products. A consumer using a prestige skincare brand that they know achieves the results they want is less likely to trade down to a mass brand just for the cost savings.

Product categories that tend to be less distinct and have very low switching costs to the individual such as body care and sun care (SPF) are where you’re likely to see an influx of consumers looking for lower cost alternatives. Color is also experiencing a similar trend with several mass channel dupes offering similar offerings to their prestige counterparts.

However, artist-led brands tend to bring a cachet of credibility and expertise in their formulation and application, and therefore are also expected demonstrate strong resilience in this current economic cycle.

And while consumers are less likely to trade down from products that are already staples in their beauty regimens, when they’re in discovery mode for a new product that bears no switching cost to use, even the prestige shopper may start to look to lower cost alternatives, both for the cost savings and for the fun of trying a new product.

Ashlee Cook Managing Director, Glam Room Consulting

With supply chain issues and raw material prices skyrocketing, many brands have no choice but to raise their prices. In the prestige world, price hikes aren’t always an issue. For consumers willing to spend a small fortune on their beauty products, adding a few dollars here and there isn’t affecting them much.

However, in the mass and value world, raising prices is causing major problems for both consumers and brands. Mass consumers may trade down to value, but, for value shoppers, there is nowhere for them to go. They are forced to pay the increased price for products that may not necessarily seem worth the money anymore.

I think mass may end up being the winning category moving forward for just that reason. Value shoppers won’t see the “value” in their products anymore and may feel forced to trade up to mass, spending their hard earned money on brands with higher quality.

Taylor Barry Co-Founder, Beauty Breakthrough and Brand Uncover

Retail channel tiers become more and more blurred as mass retailers continue to partner with prestige beauty retailers. With the launch of SpaceNK at Walmart or Ulta at Target, convenience will always win with the modern consumer. The “winners” will be those that continue to lean into this concept by creating a destination that yields a one-stop shop consumer experience.

To the brands that may be struggling at more challenging points of distribution, I strongly advise them to come up with incentives to encourage consumer spending. This could be a deluxe token of appreciation, gift with purchase or even a high-touch service in brick-and-mortar doors. The missing link in many of these mass retail partnerships is the personalized experience that a dedicated sales associate can provide in prestige beauty retailers.

Laura DiGirolamo Founder, Brand New Beauty

The beauty and personal care segment has become extraordinarily saturated across all tiers. So, while we’re more concerned than ever about the state of the planet, most brands are still launching newness multiple times a year just to have something fresh to talk about. Of course, this goes against the whole spirit of sustainability, and it was just a matter of time before the market forced this “day of reckoning.”

Regardless of tier, brands not anchored in authenticity and doing newness for newness’ sake will likely suffer these market conditions first. Consumers cutting back will be less likely to buy things just because they’re new. Instead, they’ll buy products that offer palpable physical or emotional benefits, and from brands that reflect their core values.

What should brands do now? Well, it’s important for brands to sense-check their reason for being and revisit their NPD approach. Ideally, the process should include what I call a RE-PD strategy: a refocusing and reallocation of energy on their existing products that have real value and meaning, but have generally been overlooked in favor of newness.

Consumers are smarter than ever, and to “win” in this challenging time, brands should ensure their platform, offering and communications are transparent, authentic, aligned and full of purpose.

Lara Schmoisman Founder and CEO, The Darl

I believe that the recession will affect every tier of the beauty and personal care segment. With this, there is also an opportunity for every brand to make some adjustments and come out stronger on the other side of the recession.

While luxury brands will become even more exclusive, target audiences splurging in this tier will have to find new solutions in a different segment. This is an excellent opportunity for mass and masstige segments to pivot and conquest new customers.

The value segment will continue to serve its loyal customers, even if they become more careful about their spending.

Odile Roujol Founding Partner, Fab Co-Creation Studio Ventures

Founders should continue to focus on what problems they fix powered by their community [and] having great products people want to repurchase. Less is more. Keep your North Star.

I would not recommend expanding to more than one key retailer, not multiplying new developments, be cash conservative, build pillars and make your retail partnership successful, while you continue developing the knowledge of your customers, which is the ultimate value of your company. A good balance could be 50% DTC, 50% with select strategic retail partner(s).

Brands need to show up where the consumer is, and we've seen the merging of mass and prestige brands at different retailers for some time now. The consumer may trade down on where they shop, but I'm not convinced that they will trade down on their favorite products.

Moreover, they are less likely to take chances on brands they haven't tried before. We will see loyalty play a bigger role than ever before with creative value offers, deals and loyalty perks to ensure repeat purchases.

For brands that have been built on a prestige proposition, they will need to work even harder to maintain their positioning in areas that they are able to control.

No matter where they sell the brand, their owned channels will need to work harder than ever with clear messaging, clear positioning and strong brand DNA. Keep it simple, keep it precise and focus on winning the hearts of the consumer.

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