Natural Personal Care Update

December 27, 2007

Sustained growth in the age of sustainability.

Natural Personal Care Update: Sustained growth in the age of sustainability

With annual growth rates in excess of 15%, there’s never been a better time to enter the natural personal care space. But there are some caveats to consider.

Darrin Duber-Smith
Green Marketing, Inc.
Boulder, Colorado

Natural products have been on trial for the past decade or so. The “arguments against” have been heard. Natural products are too expensive… natural products don’t work…natural products are too difficult to formulate…natural ingredients are too hard to find…natural products are for hippies… natural products are a fad. What’s the verdict? Not guilty on all counts!
With sustained annual growth of 15% or more during the past 15 years, U.S. retail sales of natural and organic personal care products reached $7.5 billion in 2005, while global sales topped $21 billion, according to Nutrition Business Journal. At the end of 2007, U.S. sales were approaching $9 billion, and when compared with an overall U.S. personal care market that stood at $48.5 billion in 2005, this market now represents over 15% of the total market and remains an attractive proposition indeed. Natural and organic product sales are evenly spread across multiple channels, from natural to mass, as consumers continue to shop for personal care products that are healthier and more socially and environmentally responsible.

The Growing Consumer Target Market

Since demand throughout the supply chain is derived from the consumer, it is important for both suppliers and branded product marketers to understand why the end user does what she/he does. Data collected annually for more than a decade demonstrate that the target market for natural and organic products is steadily expanding. Market segmentation analysis across several behaviors and attitudes by Harleyville, PA-based Natural Marketing Institute reveal that two distinct consumer segments, the Lifestyles of Health and Sustainability (LOHAS) segment and Naturalite segment, represent the primary target markets for natural and organic personal care products (a group comprising around 50% of the U.S. population). This data is considered very reliable because it has been “trended” over the past 10 years. Consider the following:
     • 45% of the general population believes that natural, organic and green (NOG) products are as important as healthy foods;
    • 50% of the general population uses organic products and
    • 59% of women indicate that 100% natural ingredients are important when purchasing personal care products.
    The LOHAS report, as well as a host of other annual studies, is replete with this sort of compelling data.

 More consumers want to know about the make-up of their makeup.
Supply Side Mythology

Myths about natural and organic ingredients abound. The truth is, the term “natural” is not yet defined or regulated by government or industry resulting in much confusion over what is really natural. But, there is a common understanding that such an ingredient must be naturally derived and naturally processed, and availability of these ingredients is no longer a significant issue. There is now at least one acceptable natural substitute for every synthetically derived compound on the market. Organic ingredients are by definition not only natural, but must meet stringent National Organic Program requirements, which include certification by a third party organization. Certified organic ingredients are still difficult to source, but are in very high demand suggesting that suppliers must react.
These ingredients are increasingly more available, but do they work as well as synthetics? The short answer is most of the time, yes. As demand rises, so does supply. As formulators continue to work with more and more natural ingredients to develop the right products that meet consumer needs, they not only get cheaper but also easier to work with. This common business principle is called the “experience curve” and is highly applicable to this situation. Thus, these ingredients are becoming increasingly more efficacious.
Another common misperception about ingredients in general is that consumers are looking for certain “hot” actives like Green Tea or COQ10, two common antioxidants. This couldn’t be further from the truth since marketing science tells us that the vast majority of consumers do not buy features. They buy benefits. Most do not care which ingredient they are using as long as it provides the function they desire, such as anti-aging.
Formulators and marketers need not worry about incorporating an ingredient that, for one reason or another, may quickly lose its popularity and ability to provide a competitive advantage. Smart business tells us to concentrate on application and functionality.

Fun with Finished Products

Since there are no labeling requirements for natural products, using organic ingredients in finished products is highly desirable to marketers. Once the term “natural” has been defined, expect the labeling requirements to mirror the organic regulations. Organic labeling regulations (which currently apply to food and will soon apply to personal care) clarify exactly how organic a product really is. The product must be 100% certified organic to make a “100% organic” claim, 95% certified organic to make an “organic” claim, and between 70-94.9% to make a “made with organic ingredients” claim. Availability is the primary barrier to using these ingredients. Cost is a secondary factor since organic products are often priced in the prestige range.
The growth of natural and organic personal care products reflects the development of the entire industry in that the same specialty segments present the most opportunity for success. Products that are both formulated and positioned to address the needs of specific demographic categories are growth spots in an otherwise mature industry. Men’s care, ethnic-specific care, baby care, and anti-aging are all examples of areas growing faster than the industry itself. These areas present some of the best opportunities in the industry. Prestige-priced spa/salon products, sun care and color cosmetic products are also attractive areas.

Sustainability: The Green Imperative

A discussion of the natural and organic market would not be complete without briefly addressing the growing sustainability and corporate social responsibility movement, since these are issues of great importance to many in the natural and organic target market. Companies in all industries are cutting
 With the global warming issue gaining steam, more companies are putting sustainability programs in place.
costs, enhancing their image, and appealing to a growing group of “values-based” consumers by adopting business practices that are better for people and the environment. An optimal strategic marketing planning model should address this important area in detail along the following two “Design for Environment” principles:
    1. Pollution Prevention (raw material inputs, energy, packaging, etc.) and
    2. Resource Recovery (efforts to avoid terminal disposal by ensuring recovery in wither biological or technological cycles focusing on the reduction and eventual elimination of waste.
    The organization must have an overall commitment to sustainability and corporate social responsibility along product, process and people dimensions, which includes at the bare minimum some cause related marketing efforts and carbon offsets. The incorporation of natural/organic ingredients wherever possible and the use of environmentally responsible packaging is becoming less of a competitive advantage and more of a must. A sustainability audit and ensuing plan should:
    1. Address all elements of the organization and supply chain with regard to sustainability and corporate social responsibility;
    2. Set measurable objectives for continuous process improvement;
    3. Weave this plan into marketing communications for competitive advantage and
    4. Evaluate results, continue to set objectives for improvement, and be as transparent as possible.

No Substitute for Strategy

Don’t be confused or disenchanted by all of the hype. The health and wellness movement is clearly not going away, as evidenced by the attitudes and behaviors of younger generations that are supported by reams of data.
If your company is not yet involved or you think that it is too late, don’t despair! The market is so attractive that there is plenty of room for any number of new players. Natural products consumers shop in a variety of channels, so many mainstream companies can reach them easily in channels that are familiar to them. Consumers in this market are interested in products that work, but they are also interested in the health and environmental side effects of these products. This is where you come in. Good luck and remember to engage in marketing planning before moving forward with your strategic initiatives.

About the Author
Darrin C. Duber-Smith, MS, MBA, is president of Green Marketing, Inc., a Colorado-based strategic planning firm that has offered marketing auditing and planning, marketing plan implementation, sustainability planning, branding, product development, and other consulting services to natural products companies in all stages of growth for 10 years. He has 17 years of specialized expertise in the natural and sustainable products industries and is also visiting assistant professor of marketing at the Metro -politan State College School of Business in Denver, CO.
    He can be reached at DuberSmith @GreenMarketing.net

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