A survey carried out by US-based McKinsey & Company into the consumer habits of Americans shows that cosmetics companies targeting the prestige market may be disappointed if they think consumers will return to them with the end of the recession.
It has been well documented over the past 18 months that the economic downturn has impacted companies marketing more expensive products, but confidence that consumers will switch back to more expensive spending patterns may be short lived.
Historically previous recessions have seen consumers quickly switch back to their previous spending patterns, but, according to the McKinsey survey, satisfaction with lower-priced goods could win consumer loyalty.
Lower-prices have proved a recession winner
The McKinsey survey showed that in all consumer goods categories an average of 18 percent of consumers had switched to buying lower-priced products during the course of the past two years.
More interestingly the survey revealed that 46 per cent of respondents reported that they felt the lower-priced goods they purchased performed better than expected, while a majority reported that the performance was much better than expected.
As a consequence of their experiences with lower-priced goods, 34 per cent of those surveyed said they no longer preferred more expensive goods, while 41 percent said they still preferred the prestige brands but did not think it was worth paying the extra money.
Clear switch to lower-priced cosmetics
Backing up the survey results the personal care market in the US has seen a clear switch to lower-priced products, which has particularly benefited private label players that supply major mass market outlets such as Wal-Mart and CVS.
This trade down has impacted some of the world’s biggest personal care players, including L’Oreal and Procter & Gamble, both of which recorded falling sales during the course of 2009 for the first time in many years.
Both players target the mass prestige category, an area of the market that has most suffered from consumer trading down to products that can be more than half the price of prestige brands, and, as the survey suggests, do the job just as effectively.
Prestige players fight back
To counter the threat from private label and lower-priced brands, L’Oreal focused on marketing smaller-sized versions of its leading brands, while P&G concentrated on discounting, but both of these measures have impacted profits.
Industry experts such as Claudia D’Arpizio, a partner with Milan-based Bain & Company, which monitors global prestige cosmetic and fragrance brands, believe that although the category will continue to struggle in 2010, it should show signs of a recovery by 2011.
However, if the McKinsey survey is anything to go by, the extent of such a recovery is likely to depend on how long consumers remain satisfied with trading down to lower-priced personal care products.