Cosmetic market


23 Mar 2015

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1.0 What is cosmetic market?

‘Cosmetic' are not strange to everyone, even though some people don't use them. They definitely hear about them. Cosmetics were invented in thousands years ago. When cosmetics were introduced, they were considered as exclusive things used by female. In those times, only few kinds of cosmetics existed. Some people believe cosmetics are limited by some sorts such as perfume, makeup. Actually, cosmetics come in many forms. Except for perfume and makeup, they comprise of shampoo, soap, lotion and others. Cosmetics are used to care for and clean people' body, maintain people in a well condition and enhance people' beauty (Kumar et al., 2006). For instance, the goal of sun protection is to keep out UV and reduce the risk of getting skin cancer. .

In the past, men used cosmetics to dress up would be treated effeminate. Certainly, people didn't hear about men's cosmetic advertising. Nowadays, the reality has gradually changed. The cosmetics have not been the patent of women. Men and kids join in group of using cosmetics. The number is increasingly growing up. Estée Lauder as the first women's cosmetic companies tried to enter the male cosmetic market in 1964. After 1year trial, it came out with Aramis and an entire line for men's skin. (Alpern) In cosmetic market, thousands of cosmetics for men and kid are available. In past ten year, cosmetic companies launched some products that were suitable for both men and women. As men customers increase, companies start to launch new product line for men. Exclusive perfume and cleansing foam were designed for men. In order to target these emerging potential customers, many cosmetic companies invest a lot on advertising through TV, beauty magazine and others. The aim of the advertisement is to convey the idea that cosmetics are not girly products. Some big cosmetic companies employ famous actors or sportsmen to promote products through positive imagery. It lets men believe that using cosmetics is very normal. (Souiden and Diagne, 2009)

The cosmetic industry is one of the most competitive industries all over the world because more than 300 cosmetic brands exist in the market. Most of these companies utilize great number of resource in Research and development to launch new products every year in order to meet ever-changing customers' need and demand. Innovation is fundamental to survival and success of cosmetic companies. (Kumar et al., 2006) To stay vantage point during fierce competition, cosmetic companies should create value to customers.

The World' top ten cosmetic companies are Maybellline accounting for 7.4% market share, Avon (5.4%), L'Oréal Paris (5.3%), Lancôme (4%), Clinique ( 3.6%), Revlon (3.3%), Estée Lauder (2.9%), Max Factor ( 2.8%), Cover Girl (2.7%) and Shiseido (2.2%) (Ejiofor, 2006). All of them seize about 40% of the market share.

1.1 Overview of cosmetic market in China

China is the countries with the largest population in the world it makes up one-fifth of the world's population. The population growth rate of China is 0.629% in 2008 with a current average life expectancy of 73.18. Men possess 51.8% of the total population whereas women possess 48.2%. (Nancy E, 2008) Chinese paying more attention to beauty can date back to ancientry. It has already deeply rooted in Chinese culture. In Chinese poetry and art, beauty has always been extol (Newham, 2006)

Before the reform and open door policy were implemented, China' economy was very not good. Most of income of Chinese was spent on food, transportation and house. They didn't have extra money to buy cosmetics. Through proper economy' policies are carried out by Chinese government, economy is booming is China and people living standard is increasingly improved. People have more disposal income to spend on beauty. More and more people absorb beauty information from different sources. Some of them become ‘beauty professional'. They believe spending money on beauty as a valuable investment. Attractive appearance and figure will assist them to get benefits in career and social life, because everyone loves beauty. (World Wide Watch: China)

In order to join World Trade Organization (WTO), Chinese government reduced import tariffs. Due to reduction of import tariffs, cosmetic's import was increased 160% from 1996% to 2001. (Li,2003) Since 2001 China has entered WTO, it provided a good opportunity for foreign cosmetic companies to access China' market. For these companies, China is a big emerging market due to the largest population. In saturation market such as Europe, cosmetic companies are difficult to boost their sales. Many foreign companies joint venture with domestic manufacturers through advanced technology along with products and huge capital: and set up plants in coastal regions such Guangdong province and Shanghai in China. Top twenty cosmetic brands have flowed in China cosmetic market. (Asia Consulting) On the other hand, regarding to domestic manufactures, they also gain benefits. For example, advanced technology assists to effectively reduce production costs and improve product quality as well.

Strong economic growth in China shock people all over the world, but cosmetic market in China is growing faster than China's economy. According to China's National Fragrance and Flavor industry Association, cosmetic sales in China have increased by 16.6% to $4.2 billion in year 2001. In year 2004, the sales jumped to 85 billion yuan. China is considered as the second largest cosmetics market in Asia, and ranks no.8 worldwide. Cosmetic spending was 1yuan during the early 1980s, but spending dramatically went to 25 yuan in year 2000. Even in big famous cities Shanghai, Beijing, the annual average spending on cosmetics was among 150-180 yuan (LI&FUNG Research Centre, 2005) Compare development of cosmetic market among Asia, growth rate of cosmetic market is significantly faster than other countries and regions. (Figure 1). Even around the world, this kind of growth rate is fantastic. Hence, “China is the market cosmetic companies will never give up. China is one of the most important countries for our overseas business operations; it is a huge market backed by a population of about 1.3 billion about 10 times Japan's population.” (Tadakatsu Saito, Director of Shiseido)

Consumption tax introduced by the State Administration of Taxation gave benefits to domestic cosmetic companies' develop. 11 categories of goods such cigarette, car are subject to consumption. The aim of consumption tax is to narrow the income up. The widening gap currently became serious social problem in China. High-end cosmetic is subject to 30% consumption tax, for basic cosmetic is subject to 0%. (Fang, 2005) Actually, most of foreign brands are considered as luxury. For domestic cosmetic companies, they can provide competitive price to customers. In areas with lower income, it may be more attractive customers than foreign brands.

Competition of China cosmetic market is very intense because more than 300 brands exist. However, target markets of domestic and foreign brands may be different. For example, customers in large cities with a higher level of disposal income have a preference for famous brands from foreign countries. Outsides the metropolitan area, however, many customers are purchasing products produced by local companies. In 1980s, there were more or less 40 cosmetic brands available in China cosmetic market. These brands only offer limited products such as Shampoo, lipstick. Cosmetics like perfume were used by few people. However, currently more than 300 brands can be found in market In respect of types, skin-care products account for 35% of total cosmetic output, hair-care products possess 28%, make-up products perfumes are 29% and 28% respectively (Figure 2)

In earlier of 1990s, the regulations on Cosmetics in China were very imperfect so that China cosmetic market was jumbled. A huge number of small cosmetic enterprises raid the market healthy development ( Li et al., 2004). Regulations on Cosmetics Hygiene Supervision are the basic laws and regulations on cosmetics that were enacted by Ministry of Health on November 13, 1989 and put into effect of January 1, 1990. They include general provisions of cosmetics, hygiene supervision over cosmetic manufacture, hygiene supervision over cosmetics distribution, the organ for Hygiene supervision over cosmetics and its duties, penalties and supplementary provisions. For instance, cosmetic ingredients must abide by standards set by Regulations on Cosmetics Hygiene Supervision. Besides, with regard to labeling, the regulations set down provisions. On the label of cosmetics, the name of the product, the name of the producer and the serial number of the hygiene license for the producer should be clearly stated. Lots of false advertisements existed in the past exaggerate the effectiveness of the products to misguide customers. Regulations ban false and misleading statements in advertisements (Regulations Concerning the Hygiene Supervision Over Cosmetics) On the other hand, the related authority actively attacks false advertisements. As rapidly development of cosmetics, regulations gradually become complete. China cosmetic market is standardization and is brought in line with international practice. Complete regulations guarantee sound development cosmetic market. More and more cosmetic manufacturers have corporate social responsibility consciously comply with regulations.

With rapid China cosmetic market development, cosmetic distribution channels are diversified. Different kinds of modern retail distribution channels swarm into market. In the past, Chinese customers bought cosmetics through supermarkets and hypermarkets. Most of cosmetics they purchase were ‘basic' cosmetics such soap, shampoo. In that time, scarce premium cosmetic brands were in the market due to high tariff. Accounting to beauty retailing China 2005, 80% of cosmetics and toiletry sales were completed through hypermarkets and supermarket. Except for supermarket and hypermarket, department store is the other major channel that is very popular among Chinese customers. (Pitman, 2005). In China, cosmetic companies open specialty counters on the first and second floors of department store. These counters forming cosmetic area are convenient for customers. Not every cosmetic brand is able to own specialty counters. The premise is that the brand should have a wide range of products and distinctive brand name and images. Therefore, customers believe cosmetics sold in department store have reliable quality and can be safely used. Nowadays, various channels including Pharmacy chains, specialty stores professional stores exist in the market. Specialty stores provide professional services and full range of products of a particular cosmetic brand. Actually, specialty stores in China are owned by former cosmetic direct selling companies such as DHC. Because direct selling business model is generally prohibited by China government unless license is given by China government. Avon as a leading direct selling cosmetic company was successfully granted direct selling license in year 2008. It's also the company obtaining first direct selling license in China. For most of companies, specialty stores as the effective way for them to adjust their business models (LI&Fung research center, 2005)

Rapid development of China cosmetic industry has went on over the last two decades. Cosmetics become the fifth largest consumption products by Chinese customers. This market still has a great room to develop and is far way saturation. There are two main reasons. On one hand, China has a population of 1.3 billion so that it has a large potential customer. China government has committed itself to develop the middle and western part of China to balance the economic gap between east and west China. The grand western development program is in process. The purchasing power of west China will become strong in future. On the other hand, the current capita annual spending on cosmetic of Chinese customers is still far below that of developed countries. Capita annual spending on cosmetic of Denmark and Sweden has reached €171 (Global Insight, 2007) China economy is still booming so that people living standards will increasingly improve. Customers will spend more money on cosmetics. For cosmetic companies, China is expected as a market with enormous business opportunities. (LI&Fung research center, 2005)

1.2 Why choose Shanghai?

Shanghai has the world's fastest growing economy. The population of Shanghai is about 16 million, financial income is more than RMB 6 billion, GDP Per Capita is RMB 37,382 and average annual people salary is about 21,781 in financial year 2001. (Zhao, 2005). Shanghai is the biggest commercial city in China; GDP has continuously grown up in past 13 years. In year 2004, GDP growth rate has achieved 13.6% (Wu and Delong, 2006). Shanghai alone accounts for a large proportion of the target markets for cosmetics. Eastern coastal region is critical to the whole China's cosmetic retail sector. At present, total cosmetic retail sales of Shanghai, Beijing, Jiangsu province, Guangdong province, Zhejiang province and Shandong province is up to 55% of nation cosmetic retail sales. Among them, Shanghai accounting for 12% ranks first, followed by Beijing, Jiangsu province. ( HKTDC's China cosmetic market report, 2008). Shanghai is just a city compared to one whole province; cosmetic sales of it are still higher than that of province. It proves that cosmetic used by Shanghai people is really popular.

Furthermore, Shanghai is viewed as ‘fashion capital' in China. In Asia, its status has gradually been enhanced. It plays a key role on leading fashion in Asia. Many people believe Shanghai is ‘The Paris of the East'. Everything managing people's appearance and figure are considered as fashion process. Hence, expect for apparel, cosmetic, jewelry and others are parts of fashion people pursue. Cosmetic are used to enhance people's beauty, exhibit their personality and aesthetic preference. (Guthrie et al., 2008). Customers from other cities and province may imitate how Shanghai customers make up, which facial cream brands they use.

Another main reason of choosing Shanghai is that mostly cosmetic brands no matter international brands or domestic brands can be found in Shanghai cosmetic market. According to the Shanghai Commercial Information Center, Shanghai is not only a place of using cosmetics, but also a major place producing cosmetics. Except for domestic manufacturers, many foreign cosmetic companies set up plants in Shanghai. Shanghai has a sound production environment. Most of suppliers, manufacturers are located nearly in industrial area so that it facilitates communication and assists to reduce transportation costs. (HKTDC ,2002)

As the economic and financial center of China, Shanghai as locations of this study is selected. The findings of this study can give an overall understanding of brand loyalty of Chinese customers in cosmetic market. Shanghai may be more representative in contrast other areas, because a huge number of people in Shanghai are from different cites and areas of China. Hence, it ensures respondents of this study have different background.

1.3 Why select facial cream?

For this research I select facial cream among thousands upon thousands cosmetics. The reason is that facial cream is one of the popular cosmetics in China market and also has large market potential. By contrast, cosmetics like shampoo, soap have already reached saturation because growth rate is very slow (HKTDC,2002). According to figure 1, skincare products account for around 35% of cosmetics market share and still are the main stream of cosmetic consumption. At the same time, skincare products are the one with bigger market potential and highest profit in cosmetics market. In the skincare segment, facial care is the largest product category consumed by Chinese customers in China .Facial care includes facial cream, facial cleanser, toners, masks and sun protection. Facial cream can be categorized into moisturizer, whitening cream, anti-ageing cream, nourisher and others depending on its function. Moisturizer and nourisher already constitute nearly 71% of facial care market share (Fukuda, 2004). These cream are sold well in China because of dry weather. On the other hand, the whitening cream in China is supposed to be prevalent due to China's culture. White skin is one standard characteristic of the Chinese concept of beauty. Chinese proverb say ‘ Yi Bai Zhe San Chou'. It means white can offset three uglity. Skin tone is very important viewed by Chinese. Even though healthy skin is popular all over the way, Chinese people are eager for white skin. (The China observer)

The demand of facial cream is expected stably growing. Purchase rate and usage rate of these are relatively high in contrast with other products. Therefore, target population may easier to be accessed.

1.4 Problem definition

The goal of business is to make as much money as possible. Brand loyalty grants a great number of advantages to companies for them to achieve goal. It prevents companies from competition imitation and maintains business stability. On the other side, it gives customers confidence to shop in a complex market. Because customers need not go through decision process to decide which brand should purchase. (Tepeci, 1999). Companies are able to charge higher price to loyal customers to maximize their profitability. Actually loyal customers are less likely to affect by price increase. (Kumar, 2002) Furthermore, companies enable to save funds on promotion and acquisition costs to attract customers. Customers are loyal toward brands will make repeat purchase in the future and make recommendation to their relatives and friends. It provides efficient and effective way for companies to increase their sales. Hence, establishing brand loyalty is the sustainable advantage which will build the constant flow of customers, continuous profits for companies, finally determine success of companies. (Coggins, 2009)

As China's economy roars ahead, lots of cosmetic companies have entered China cosmetic market in order to seize this attracting market share. One of fundamental reasons is that most of these companies are difficult to increase sales in mature regions such as Western Europe and America. On the contrary, in emerging market, a number of potential customers companies will target. However, in accordance to China market research group (CMR), many marketing executives complain brand loyalty cannot be built among Chinese customers. (Rein, 2007) Importance of brand loyalty should not be ignored. Because it lacks brand loyalty, consumers are readily to switch to competitors' products. Cosmetic markers realize significance of brand loyalty. When existing customers are not properly retained, new customers must be continuously induced. Hence, companies are supposed to invest huge amounts of advertising, promotion activities, and sales costs to seize new customers. For example, companies have to carry out sale promotion to induce trial and enhance their brand name as well. The expenditure of capturing new customers is approximately six to ten times what spends on retaining current customers. ( Pogol, 2007)

Furthermore, brand loyal customers are less likely to switch to other brands by price allure. Since they consider brand they are loyal towards possess unique value that other brands cannot replace. (Tepeci,1999) Due to meet customers' need, companies are able to keep price at high among fierce competition. It reduces threat of price wars for companies. In China, companies lack brand loyalty is really in danger. Imitation is very rampant in many industries of China. Cosmetic market is no exception. Imitator usually set quite low price to draw customers.

Moreover, customer spending tends to increase over time. For example, customers who are loyal to facial cream of particular brand are highly likely to try other product lines or new products of the same brand. It provides a solid foundation to companies for new product launch and reduces new product failure risk as well. Thus companies are able to increase sales.

Importance of brand loyalty have already recognized by marketer and researches. A number of studies were conducted in this area. Why don't cosmetic companies to create customer brand loyalty? Cosmetic companies cannot implement appropriate strategies to contribute brand loyalty. Because cosmetic markers don't have clear understanding of which factors play important role on affecting brand loyalty in cosmetic market. They didn't make effort in right areas. Even many researches are about significance of brand loyalty, few of them studies on factors creating brand loyalty. Therefore, cosmetic marketers cannot obtain sufficient information to implement appropriate marketing strategies to build brand loyalty.

1.5Research questions:

Do any factors significantly affect brand loyalty in cosmetic industry?

What is current brand loyalty level in cosmetic industry?

Which cosmetic brand possesses the highest brand loyalty level

1.6 Research objectives

The objective of this research is twofold. On one hand, the objective is to investigate main factors affecting brand loyalty in cosmetic market. On the other hand, it identifies current brand loyalty level of cosmetic industry in Shanghai. It can be treated as a benchmark for cosmetic companies to compare their own brand loyalty level with overall brand loyalty level to determine their positions in industry. At the same time, the brand with the highest brand loyalty level is able to be identified.

1.7 Significance of study

This study will be a significant endeavor in determine main factors contributing to brand loyalty in cosmetic industry. By understanding major elements affecting brand loyalty, cosmetic companies are able to develop their appropriate strategies to enhance brand loyalty to gain competitive advantages in fierce competition.

This study will also assist cosmetic companies to utilize limited resources to target areas such as marketing; research and development (R&D) where critical affect brand loyalty in cosmetic market.

Moreover, this research will provide directions for cosmetic companies to set down their human resource policies including recruitment, training, reward and promotion. For example, companies implement training programs so that employees are able to serve customer better.



3.0 Introduction

This chapter illustrates an in-depth description of the research methods used to implement this research. In this part, source of data, sampling techniques and research instruments are explained. This chapter is very important because it highlights adopted models and methods utilized to answer the research questions.

3.1 Source of Data

There are two main methods available for data collection, the primary and secondary data collection methods. The primary data consisted of data collected by the researcher to ensure validity and reliability. Apart from conducting primary research, this study based its analysis on existing data from professional organizations such as HKTDC as supplements by published materials.This is because these organizations do extensive work in the relevant areas of this research.

3.1.1 Primary data

This research uses quantitative data in the form of questionnaires. The quantitative data in form of questionnaires consist of close and open ended questions and also questions based on Likert-scales. The questionnaires cover all relevant areas needed for the research such customer demographic, main factors affecting brand loyalty of facial cream. Questionnaire is selected as a quantitative method for collecting data because according to Oppenheim (1972) “Questionnaires are not merely just forms to be filled up, but also are scientific instruments for collecting and measurement of data.”

Developing a research questionnaire is a bottom up process. Beside of questionnaire, a pilot study using interviews is conducted with 40 customers who are shopping in shopping mall. Before they are interviewed, they are asked do they use facial cream. Only users are selected to do interviews. The aim of this pilot study is to develop the questionnaire for this research. According to the respondents, factors influencing brand loyalty of facial cream comprise of product quality, store environment, brand name and service quality. Besides, the nature of service quality dimensions directly relate to the industry under analysis. Information collected shows that salesperson's professional knowledge, appearance (beauty) and responsiveness are more importance to customers to identify whether the service provided is excellent or not that will affect their brand loyalty toward cosmetics. The information gathered from this pilot study indicates that Olay (P&G), Dabao, Avon , L'Oreal Pond's(Uniliver) are familiar facial cream brands. Furthermore, they also state brands like Shiseido, L'Oreal, Lancome and Olay (P&G) are famous cosmetic brands. Moreover, respondents state they usually purchase facial cream around two to three month one time based on their own experience. Therefore these data collected are used to address specific research problems in this study.

3.1.2 Secondary Data

This refers to data that have been already collected and analyzed by other people. The main purpose of retrieving these data is to find a basis for the research and acknowledge the work of experts who had contributed to the pertinent literature on the subject matter. This study bases its analysis on existing data from professional organizations (e.g. HKTDC) that do extensive work in the areas of China cosmetic industry and brand loyalty in China. It provides information about overall development of China cosmetic market. Furthermore, it identifies which kind of cosmetics is usually used by Chinese customers. Hence, I'm able to select object to conduct this study. Other secondary data sources used are journals, articles, dissertations, newspapers and textbooks. Journal articles help to identify relevant variables and develop theoretical framework.

3.2 Method

A self-administered questionnaire is directly distributed to 200 customers aged from 20 -50 years old. Sample size 200 should be suitable for exploratory study. The questionnaire is originally written in simple Chinese and then translated into English. According to national statistics, customers who are 20-50 years old are the largest group of cosmetic consumption in China. They account for around 76% of cosmetic consumption of whole country. This age group selected lead that sample can be more representative of the population. The surveys are conducted in Henglong shopping mall and Eastern shopping mall where respectively locate in Nanjing road and Xujiahui road that are the most important commercial centers in Shanghai. Because not only people in downtown come to these two shopping mall, but also a great number of people in suburb and country like to shopping in there. Hence customers from different income groups can be accessed. In order to ensure customers from suburb and country can be targeted, surveys are done in Weekend. Compared to Weekday, proportion of customers from suburb and country on Weekend is higher. Because customers have sufficient time to travel to downtown on Weekend. Furthermore, Most of facial cream brands are available in these two shopping centers. Quota sampling (non-probability sampling) is utilized in this study. Gender is chose as control variable. Number of male is 80, others are female. Since female using facial cream is slightly higher than male. Customers who are visually estimated to be 20 to 54 year old are approached and asked to respond to the questions. To further ensure customers with different income level to be targeted, questionnaires are distributed in supermarket, specialty stores and beauty counters in shopping malls. To ensure only customers using facial cream would be respondents of this research, I politely ask them first to identify whether they are the target population. 100 of them are from Henglong shopping mall, others are from Xujiarui shopping mall. Convenience sampling is the less expensive and faster and convenient method. Respondents are accessible, easy to measure and cooperative. The completed questionnaires are used for this research.

3.3 Questionnaire

Overall, the questionnaire includes three parts. Firstly, the questionnaire deals with demographic variables of respondents. Variables such as age, education are considered. Second part relates to customer brand loyalty of facial cream, the last part is concerning factors affecting brand loyalty. The structure of the questionnaire is clear, easy to understand, and straightforward to ensure that the respondents are able answer the questions with ease.

3.3.1 Brand loyalty

In this research, I use attitudinal measures that are usually based on survey to identify the current brand loyalty level of facial cream in Shanghai. As mentioned above, behavioral measures are more sensitive to short-run fluctuations. The most important limitation of behavioral measures is that they make no distinction between brand loyalty and repeat buying. (Day, 1969). In this questionnaire, brand loyalty is measured on brand preference, switching attitude toward loyal brand and purchase in intention. The open-ended question is used to ask respondents to list out their favorite brands of facial cream. Then five Likert scale question is set down to identify respondents' degree of preference. Next part questions examine switching attitude toward the loyal brand. Respondents are asked whether they feel comfortable when they switch to other brands. Furthermore, other question is relevant to respondents' willing to change to other brands. Five-point Likert scale questions are also exercised to indicate respondents' degree of agreement on each of the statement (1=strongly disagree; 5=strongly agree). Regarding to purchase intention, respondents are asked to state how likely are they purchase favorite brands in future. (1=no chance, 5=certain).

Target how many female and male

Target on customers of different income group

Income based on report (中产阶级)

3.3.2 Factors affecting brand loyalty

Four above mentioned variables (brand name, product quality, store environment and service quality) are measured on a five-point Likert scale using close-ended questions. Two questions are relevant to brand name, four questions are about product quality, three questions are asked about store environment, while three questions relate to service quality. Respondents indicate the level of agreement with the statements that the best describe their feeling toward their favorite brands, ranging from 1= strongly disagree, 5=strongly agree.

3.3.3 Variable scale












Brand loyalty

Which brand of facial cream do you prefer to use? (State one brand)

Open-ended question

What extents do you like given brand?

Five-point Likert scale

I would feel uncomfortable moving to another brand

I would not like to change to another brands

I will continue to purchase given brand in future

Brand name

Five -point Likter scale

The prestigious brand name and image attract me to purchase from the brand

I will trust famous brand compared to unfamiliar brand

Store environment

Five-point Likter scale

The brand is located in areas where is convenient for me to visit.

The brand has sufficient outlets

The store environment (temperature, music, space) is comfortable for me to shopping

Product quality

Five-point Likert scale

The brand has good functional quality

The brand is made of good ingredient

The brand guarantee long-term effect

The brand has high perceived quality

Service quality

Five-point Likert scale

Salespersons are well-trained and knowledge

Salespersons are willing to help me

Salesperson' appearances to some extent represent effect of product.


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