A High Price Tag?

In today’s struggling—but surviving—economy, can companies really afford cutting-edge innovation? Some argue companies can’t afford not to push innovation.

The development for Mibelle’s PhytoCellTec Malus Domestica, for example, took more than three years and, therefore, was very expensive. “We also had to show the efficacy of the product regarding protection of skin stem cells,” says Fred Zülli, business unit manager, Mibelle. “Because it was a first, we had to invest quite a bit of money to get the result.” The company had to invent a new reactor type to produce the plant stem cells in a more cost-effective way than it was done before. Therefore, the initial development was very expensive, but the ongoing product is definitely affordable. It also paved the way for its Solar Vistis product and other innovations.

And while ingredients such as PhytoCellTec Malus Domestica are indeed expensive, they are within the range of other molecules and ingredients, such as peptides, used in advanced formulations. “In general, the cost of ingredients is overestimated regarding the selling price of a finished product,” explains Zülli. “The brand image (advertising cost), packaging (packaging costs) and distribution channel (margins of each step) usually are much more important for the pricing of the final product.”

Because a cosmetic product is based on the basic material—emulsion, packaging, documentation—and on an added value made up by the brand image, innovation and purchase experience, the customer is willing to pay extra for—in addition to a nice formulation, efficacy and packaging—the added value. Consumers want to see the results. “Innovation is the key success factor in cosmetics,” says Zülli.

“Our company has established an efficient innovation process to meet the demands of these markets and consumers.” Therefore, an ingredient such as Mibelle’s apple stem cells will not only add functionality to the product but will also create a new cosmetic story based on a rare Swiss apple, a new sustainable technology and a novel field such as skin stem cell protection. Despite consumer choices leaning toward less expensive items, YG Lab’s Rebecca James Gadberry agrees that they are willing to pay a higher price for natural, sustainable products that work.

YG Lab’s successful products layer results, she explains. Consumers are trained to continue use of a product with immediate results and, therefore, will experience the more long-term results. The key is for brand owners to ensure products they are selling are doing what they claim. “And the more you can prove the product will be beneficial, the more likely consumers will be to pay for it in the first place,” says Gadberry.

In time, cost reduction will make ingredients more accessible as well. The past has shown that new ingredients and concepts will move from prestige cosmetics to mass-market and private label. This transition has become much faster than in years past. Zülli explains, “About 20 years ago, liposomes maintained [a long-term, sole presence] in the prestige market before they moved into mass-market and finally disappeared from the labeling. Recent developments such as peptides moved [in positioning and segment] in less than three or four years. Therefore, we believe that PhytoCellTec and similar technologies will also be available to mass-market products in a few years, if the concept is fully understood by the consumers.” The relatively high price of the ingredient, for now, will limit this transition.