Blueprint for a cosmetics empire: NSbrands enters a hot Japanese market

Japan, Inc., Sept, 2004 by Terrie Lloyd

AFTER the US, Japan is the second largest market for cosmetics in the world, a market worth about [yen]1.4 trillion per year. It is a brand-conscious, fast-moving market, where a favorable review by a leading magazine and "kuchikomi" (word of mouth) by mobile young women can catapult a fresh brand into billions of yen in sales in a few years--at least that's the vision of the cosmetic world's latest challenger, NSbrands.

RIGHT AWAY, NSBRANDS CEO and founder Steve Bidinger can tell you that Japan is a unique market for cosmetics. For a start, a breakdown of market figures shows that Japanese women are more concerned about the quality of their skin and less about creating an alluring look or an ambience through the use of fragrances. The figures tell us that the product mix is roughly 60 percent skincare, 30 percent color cosmetics and 10 percent fragrance. Within the color cosmetics category, foundation (which is, in a sense, another type of skincare) accounts for more than 60 percent.

In other words, Japanese women want to be appreciated rather than noticed. In the US, the share of color cosmetics to skincare and fragrance is reversed, while in Europe, the ratio of skincare and color cosmetics is roughly equal.

Cosmetics industry "navigator" Bidinger notes another peculiarity of the market: While younger consumers use cosmetics for self-expression and attracting attention, as might be expected, by the age of 30 most consumers have moved to an "obligation" buying mode, where they wear make-up to go out because it is socially required. Thus, while color matters to the younger set, quality of ingredients and skin benefits are more important to older users. This, says Bidinger, explains why more mature Japanese consumers insist on learning everything about the products they want to use, and why the media has such an important role to play. If you feed that need for knowledge, the market is yours.

Although most of the heaviest user group of cosmetics falls into the 18- to 40-year-old female demographic, Bidinger explains that local cosmetics marketing experts prefer to look at the Japanese audience in terms of lifestyle. "One consumer may have several lifestyle attributes. For example, a professional working woman may go to a department store on the weekend to test and listen to the benefits of a new skincare line. Here the person is demonstrating an interest in discovery and health benefits. And yet that same person can drop by her local pharmacy during lunch hour to pick up some mascara--thus showing a practical aspect related to her socially active, mobile working lifestyle. As merchandisers, we have to learn how to match product to these shifts in lifestyle."

Learning about lifestyle segments is important in targeting your products properly. In the cosmetics world, these approximately map to pre-teens and teens, temp staff and part-time workers, professionals, working mothers and the mature audience. Although it may seem a good idea to get your product into every store possible, in fact, Bidinger advises targeting outlets to customers lifestyles as a much more effective way to allocate resources and demonstrator stock. For example, it would be no use placing a mid-market mature user skincare range in the Sony Plaza stores, where 70 percent of the customer base is aged 18 to 24 years.

Market segment primer

The key to effectively competing in the Japanese cosmetics market is having an understanding of product positioning, the distribution and sales of the product, and how you fit into the food chain. Unfortunately, it appears that there is no reliable source of sales data for the Japanese cosmetic industry, unlike in the US, where a marketing person would simply go to Nielsen. Bidinger gives the example of Maybelline, once a direct competitor while he was at the helm of Bourjois. Although the brand had sales of at least [yen]10 billion, it barely showed up in Japanese published market survey data.

The Japanese market for cosmetics has an established strata of six brand segments. At the top are the prestige brands--occupying about 10 percent of the overall cosmetics market--which are sold in the top 200 department stores around the country. Sales are made from beauty counters, which require trained beauty advisors on hand to help consumers understand and sample a product.

Foreign prestige brands control a large part of the luxury (department store) market, with names such as Lancome (L'Oreal), Chanel, Estee Lauder and Max Factor leading the way. Sales and profits are tremendous, allowing most of the foreign makers to build their own headquarters in the most expensive areas of Tokyo, such as Chanel's new [yen]24 billion headquarters in the heart of the chic Ginza shopping district.

Products in the premium segment typically range from [yen]3,000 to [yen]5,000 for color cosmetics and skincare. The average customer purchases 2 or more items for a total of more than [yen]10,000.

Being a prestige brand is hard work. Not only do the products need to be outstanding in their pharmacological qualities, but they need to stay in front of the consumers through substantial print advertising, beautiful counters and other forms of marketing. Prestige brands that drop their concentration on what the market wants are soon shunned by the department stores--who are ultra-sensitive to the interests of their elite customers--and either relegated to the back of the stores or kicked out altogether. Indeed, this is what happened to the Revlon brand back in the 90s, before it was repositioned as a mid-market, self-service brand.