• by Tanya Gazdik , July 12, 2007

Faced with a challenging, mature market, beauty retailers are beefing up enticements like customer loyalty programs in an effort to retain customers and attract new ones, according to a newly published study by Little Falls, N.J.-based Kline & Company, a global management consulting and market research firm.

"Beauty product retailers are using more personalized approaches and more frequent, targeted communications to develop tighter bonds with their customer base," says Carrie Mellage, director of the consumer products practice for Kline's market research division, in a release.

According to the Kline study, sales of beauty products through department stores are expected to grow by 3% through 2011, compared with only 2.7% growth expected for the overall market.

Heather Thompson, an analyst with Chicago-based Mintel International Group, says the targeted approach is necessary because the beauty market segment is so overly saturated with new products.

There are two distinct niches of consumers, she says. One group of consumers prefers all-natural products, especially those geared toward sensitive skin or specific skin issues such as rosacea. The other group is the consumer who wants an almost Botox-like product that will improve the skin's appearance as much as possible without surgery. Both groups are reading more labels and tend to be more skeptical. They are more conscious of positioning and can't be as easily sold. But they do have more disposable income and are willing to spend it on self-care items.

"We're finding that people are spending more time and money taking care of their skin," Thompson says.

Retail giants like CVS, with its Customer Care Card, are now being joined by specialty shops like The Body Shop and Ulta in offering customers an opportunity to earn rewards that can be applied toward savings on future purchases. Meanwhile, department stores are focusing on a multi-channel approach, utilizing in-store, online, direct mail and telephone contact to drive growth.

"Retailers are stepping up their efforts to offer multi-channel touch points to reach customers and integrating these channels to make it easy and convenient to evaluate options and make a purchase," Mellage says. She points to NordstromBeauty.com, which is designed specifically to announce new products and special events. The site also lists a toll-free beauty hotline number that customers can call to speak to knowledgeable consultants about the product lines.

In concert with the online offerings, retailers are also adding a personalized approach to foster customer loyalty by maintaining purchase diaries to make replenishment purchases easy, delivering personal phone invitations by in-store beauty consultants and hosting "members-only" events.

"In a market where only modest growth is expected, retailers are learning that price is not the only motivating factor for consumers. They want service, rewards and atmosphere in exchange for their beauty dollars," Mellage says.

The Kline report, "Beauty Retailing USA 2006," provides a detailed analysis of the retailing environment for the $35 billion cosmetics and toiletries industry. Now in its seventh edition, the report examines the major purchase channels, product categories, and retailers in the U.S. market, providing insight into the competitive landscape for cosmetic and toiletry products at the retail level.