OnDemand WTP Pricing Research

How Beauty Companies Price Your Lipstick | Racked

The bottom line about the beauty industry’s bottom line
Giving customers a peek into what it costs to make a lipstick is one thing. But the $17 billion question here (that’s how much the US prestige beauty industry sold in 2017) is: How do the prices consumers pay jump by ten times or more? There are a lot more intangibles that go into pricing besides just deciding to sell through retailers or not.

“Cosmetics are marked up so much because conglomerates aren’t just in the ‘sell you great makeup’ business. [Some of these] companies are in the lifestyle and brand business, and because cosmetics are so cheap to make, they use the opportunity to make 90% profit on the makeup they sell you in order to subsidize the rest of their business,” says Fredrickson. “Your lipstick is paying for everything from really expensive brand campaigns, to unprofitable designer clothes, to the profits for the retailer that sells the makeup to you.”

In an unusual move for a beauty company, Stowaway has added cost breakdowns for all of its products to its website. Its eyeliner costs 95 cents to make. The eyeshadow palette costs $4.08. Concealer in a tube is $2.44.

The brand has also also just dropped its retail prices on everything by several dollars. Fredrickson denies ever having received complaints about the old pricing, though brands, most recently Bliss, will make big price corrections if the market calls for it. Stowaway dropped prices, “because we can,” says Fredrickson, noting that “consumers are used to paying [higher] prices.” (Recently, an article in Beauty Independent for new beauty entrepreneurs advises them to “trend high on the price.”)

Stowaway’s increased transparency and lower prices have so far garnered positive feedback from customers. The cynical take would be that this is a savvy marketing tactic in a time of fake news, fake product reviews, and influencers peddling products for big bucks that they don’t disclose. But the brand might also be shooting itself in the foot with this strategy by possibly alienating retailers and decreasing its own profit margins. People also respond emotionally to brands and branding, which is why they’re often happy to spend for products that speak to them.

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How Beauty Companies Price Your Lipstick – Racked.