In previous times, Australians would have to wait until their next overseas trip in order to get their favourite beauty products on the cheap – now it’s just a matter of grabbing their smartphone or finding the nearest computer.
Around 70 per cent of the cosmetics and toiletries in Australia is made up of imported goods, with consumers often paying higher prices for these products compared to their international counterparts. The reason for higher prices is due to freight and import duties, shipping, repackaging to comply with Australian regulations, high rents, costs of product registration and high labour costs,” explains marketing and public relations manager Ai San Beaumont.
Despite these factors, we have seen a number of beauty brands recently drop their prices in Australia to help retain customers. We spoke to these brands to discover how online shopping has affected the retail industry in Australia, why the brand decided to reduce RRPs and the outcome from offering lower prices.
Impact of e-commerce
The growing popularity of e-commerce has changed the way we shop, and in doing so, has changed the retail landscape in Australia. And online has proven to be a major factor in many brands’ decision to reduce prices. The evolution of e-commerce has led to consumers’ increased capability of searching for the brand in other locations around the world and their increased confidence in buying from an overseas supplier,” says Green Living Cosmetics, NuFACE’s parent company, director Tamara Hart.
Catherine Biedermann, managing director of Advanced Cosmeceuticals, SkinCeuticals parent company, adds, Online discount stores have made the consumer very price conscious; e-commerce was a major factor in our price reduction. Unfortunately, our government does not acknowledge the damage American and Asian e-commerce is doing to the retail industry, hence there are no restrictions in place to protect Australian retailers.”
The grey market also continues to rear its ugly head, with brands hoping that by decreasing their prices they might help deter people from purchasing from illegitimate sites. Due to the price differential, some customers were looking to purchase from overseas websites or even unauthorised websites and it was a factor that supported a price-reduction strategy to be trialled,” reveals Beaumont.
Why the price drop?
Global harmonisation
As a result of the popularity of e-commerce, a few beauty brands decided to drop prices in Australia to align the brand’s prices globally. We all know that the retail scene globally has changed. Women now have more choices and ‘retail borders’ have merged. Being an international brand, Lancôme ’s decision to lower prices reflects an understanding of the international market,” says L’Oréal Luxe PR and communications general manager Christine Burke. brand manager Ashleigh Scott agrees, saying the brand decided to undergo a global price re-positioning in order to be in line with global markets to be more competitive locally and online.
Lancôme and DECLÉOR weren’t the only ones who decided to drop prices to ensure there were equal prices across all markets. Hart explains, NuFACE is a relatively new brand to the global market, so they wanted to make this price adjustment early to ensure price stability moving forward into future growth.”
Attracting customers
With the rise of online shopping, consumers have also become more price savvy – willing to shop around to find the best deal”. This has resulted in some brands’ decision to drop prices. We have been analysing the market for the past 20 years. In that time frame, the feedback, especially in the past five years, is popularity of products has jumped considerably with consumers wanting more for less,” says Jonathon Pritchard, director of John Pritchard International, Guinot’s parent company.
Lancôme felt that by dropping prices, they could encourage more people to try the brand. By lowering our prices, we hope to introduce more people to the luxury of the brand and provide them with the best service and education on skincare at our department store counters so that they never have to compromise on service or safety,” says Burke.
After significantly investing in attempting to entice customers to buy in Australia rather than overseas through increased gift with purchases, value packs and eventing with limited success, La Prairie decided to instead look at reducing prices. A decision that has proven to pay off.
Remaining competitive
Not just a competitive nation on the sporting field, a few brands in Australia decided to lower their prices as a result of their direct competition’s RRPs. Biedermann explains they reduced prices to be more competitive with online sites.”
For ILCSI, it was the realisation that similar brands were offering lower prices that led to their reduction. After analysing the current market via all distribution avenues, there was only a few competitors in ILCSI’s category and ILCSI was significantly higher,” explains Ilcsi brand manager Ashleigh Scott. True Solutions decided it would be in the best interests of our authorised stockists to perform a global price repositioning to be more competitive online, but mostly in this case with other organic spa brands.”
Rewarding customers
For some brands, the decision to drop prices was all about rewarding customers. revealed it reduced the suggested retail price on some of its most popular products as it understands consumers’ desire for excellent products at a favourable value.” This sentiment was also echoed by , with Kiehl’s Australia general manager Teresa Love saying: As Kiehl’s has grown to become a global brand with an expanding business, we rewarded Australian customers for their loyalty and support by dramatically reducing the prices of the entire range.”
Success!
A lower price point has resulted in positive outcomes for many beauty brands. DECLÉOR and ILCSI have both seen an increase in unit sales, with Kiehl’s noticing a voluminous return to people buying its products from department stores. La Prairie has only had lower prices on five key SKU’s for six weeks, with the results exceeding their expectations. NuFACE has also been surprised by the noticeable change in sales, but has also had some marketing campaigns at the same time, which may have helped drive more consumers.
Not only have the reduced prices led to more sales, but they have also seen new customers attracted to the brand. Customers who were previously hesitant to try the brand due to price restrictions are now willing to switch from their ‘other’ organic skincare brand,” Scott explains of ILCSI. Pritchard adds, We have witnessed new clientele, different clusters of people purchasing - those who would not consider it in the past.”
DECLÉOR believes the price drop has also affected consumers’ loyalty. I believe the trend was the consumer would buy a DECLÉOR product after experiencing a DECLÉOR facial and re-purchase online due to the price factor. Now, they are more inclined to return to their trusted beauty therapist as the price is more competitive.”
Other considerations
While it might all look like rainbows and smiles, there are also some negative impacts of the lower prices. Biedermann points out that the SkinCeuticals team and its clients must now achieve larger volume of sales to offset the lower price point.
Hart explains that the price drop impacts on the profit margins of the Australian distributor, leading to restricted spending. The decreased margins mean companies like mine can’t support marketing the brand through consumer advertising mediums, we can’t travel as much to introduce the brand to different businesses - just to name two issues that will occur as a result of wiping significant amounts off the retail price. This issue is affecting many aligned businesses in Australia.”
With pros and cons for both corners of the price harmonisation issue, it will be interesting to see if more brands decide to introduce reduced prices in the new year.