Perspectives

Innovate your innovation: Leveraging a startup playbook in luxury beauty

Innovation is the driving force behind growth, and global luxury brands have had difficulty bringing innovation to market quickly. Their global scale and expert workmanship, long a competitive advantage, now often serve to hamper the ideation and execution of product and service transformation with the speed and agility required by the modern consumer. Learning from innovative and early stage companies can help global luxury brands bring innovation to market at a pace that resonates with modern consumers.

Heritage beauty houses have long built their success on prestige, craftsmanship, design, premium packaging and materials, and exclusivity. While these qualities are synonymous with luxury, they are no longer sufficient to drive sustainable growth. Consumer preferences are dynamically shifting, and brands are evolving quickly to meet those needs. Today’s consumer expects rapid developments of new products, inclusive and expansive color ranges, and quality ingredients. In tandem, social media and the influx of influencers via blogs, vlogs and the rise of e-commerce have facilitated the quick discovery and adoption of niche companies that seemingly are born overnight to address consumer preferences. Modern consumers expect multichannel, tech-enabled engagement and interaction with their beauty brands. They expect a proliferation of products, have increased the demand for on-trend products, and have altered expectations around the degree of innovation and the time to market.

As such, and more than ever, companies must innovate to stay relevant and drive growth; they can no longer rest on their (impressive) laurels. By looking to earlier stage companies that have led the market in innovation, we see that these breakthrough stars are built on a product or concept development that expands existing lines, creates new categories and improves efficacy, disrupting the market and driving category growth.

Today’s key success criteria for innovation in luxury beauty brands

Innovate your  innovation: leveraging a startup playbook in luxury beauty

By studying several large global luxury beauty brands and their innovation processes, EY-Parthenon found launch execution and internal launch processes were typically areas that hampered the ability to get disruptive products to market expediently. These steps affect the entire production process and often are the culprits in failed innovation over time. In contrast, smaller companies have been winning in the market by introducing well-executed launches with speed.

The value of speed to market with luxury goods first became apparent in the apparel sector with the rise of Zara. Inditex leveraged innovations in design capability and the supply chain to express on-trend copycat looks from couture runways into Zara’s stores in a matter of weeks. Major beauty brands typically require one to two years to launch new products and release products on a seasonal schedule. But there’s an emerging wave of “fast beauty” companies that have introduced trend-inspired products in a few months, and sometimes even a few weeks. e.l.f. Cosmetics, for example, copied this model and is now known for its rapid production and trend-focused product launches. Many of the major recent innovations in beauty, such as ethnic beauty, limited ingredient formulations, novel packaging, and tech-enabled matching or customization, have been introduced by upstart players. These mass or “masstige“ brands have gained an advantage over the slower pace of innovation in the luxury market, but it is one that can be adopted and leveraged.

Additionally, consumers will not hesitate to substitute on-trend luxury beauty products with “beauty dupes“ in the case of stock outages (recall Kylie Jenner’s Kylie Lip Kit selling out within minutes of launch), leading to further leakage of the value of being early to market. Given the beauty market’s focus on trends right now, customers want a trial at a low price point before committing. Legacy brands that can accelerate and invest in rich marketing and trial are more likely to win these consumers early by providing a higher quality offering before the customer has a chance to commit to a lower-tier brand. Unsurprisingly, smaller brands are more agile and can react to trends: this is a strong competitive advantage given the importance of speed to market in luxury beauty, and heritage brands must not be left behind.

Beauty upstarts that are winning in the market can be defined both by their production process and strategic focus. A “digital-first” strategy is a hallmark of recent winners and a foundation for success. This approach encompasses everything from the obvious (marketing) to not-so-obvious aspects, such as the launch calendar and cycle, production and inventory planning, and even the product mix, all taking into account a constant stream of consumer engagement and interaction. These entrants also rely more heavily on e-commerce, with destination sites and channels that help educate the consumer about relevant and evolving authentic brand identity. Lastly, smaller companies also are able to take advantage of their more compact and less complicated manufacturing and distribution, with the ability to directly manage a smaller number of manufacturers and vendors and more highly leverage international distributors.

While some luxury beauty brands have used mergers and acquisitions to increase the agility and speed of innovation, others have successfully co-opted the key success factors that fueled growth at small upstart brands. A self- assessment of existing innovation processes and agility enables companies to identify gaps and begin to create solutions that will overcome strategic and organizational vestigial issues, and allow luxury brands to capitalize on quick-moving trends.


Source: EY-Parthenon Analysis

Contributors

Enoch Minn
Managing Director
EY-Parthenon
Ernst & Young LLP

Randy Quinn
Executive Advisor
EY-Parthenon
Ernst & Young LLP

Maggie Lee
Vice President
EY-Parthenon
Ernst & Young LLP

Patricia Branch-Zakkour
Senior Consultant
EY-Parthenon
Ernst & Young LLP

Sophia Fleischer
Consultant
EY-Parthenon
Ernst & Young LLP