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Building a Beauty Brand Online

By: Herman Chein
Posted: January 31, 2012, from the January 2012 issue of GCI Magazine.

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The first seven channels require a physical shelf presence and a tremendous amount of capital to operate. In addition to the cost of real estate, department stores, flagship stores and spas/salons, in particular, also need large, trained, full-time sales forces; the capital required to develop a sustainable direct sales network is no less significant. And because of these large investments, brand owners dependent on these channels lack the incentive to persuade their customers to shop online. Diverting foot traffic away from stores would also lower the return on the investments on the entire infrastructure—inevitably impacting store sales. Because retailers evaluate their tenants (the brands on the shelves) by how much profit each generates per square foot, underperforming brands/products can lose space to competitors. Therefore, the risk of seeing lowered return on the most costly investments might seem to be too great for some established brand owners to try to develop significant online sales.

Though brand owners are faced with rising costs, diminishing bargaining power vis-à-vis retail partners and growing competition from, as one example, private label brands, brand owners cannot negate all the investments and infrastructure established to date—and it is often too risky to grow sales online.

So why is it that multinational brand owners don’t simply start a new brand to grow their online businesses worldwide instead of simply using the Internet as a complementary selling tool for potential customers who are looking for product information or a sales channel for people who might be too busy or too distant to reach a store? A meeting with an executive from a global European beauty company provided a clue about why there hasn’t been any significant efforts in pushing online sales.

The executive visited UNT Skincare in Taipei because the company needed a licensee to take over its mail catalog/Internet-based brand in Taiwan, and he shared a few of the hurdles that the large global brand owners face when considering and building their online business. For one thing, they tend to be very centrally managed companies, and that contradicts the characteristics of e-commerce. E-commerce moves fast by nature, responding quickly to last-minute market changes and is highly adapted to local conditions. In a centrally managed company, everything needs approval centrally. In the case of the visiting executive’s company, the servers were all located at the headquarters, and all changes on the international websites needed to go through the system managers, also located at the headquarters—even when errors caused the site to be out of service.

For those same reasons, customer relationship management campaigns were slow to implement, and developing new services and site functions were unimaginable. Consequently, the only and most important channel for this brand owner’s Internet-based brand, its own website, gradually slowed and became laden with error messages for potential customers.

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