No Signs of Aging: Sustained Growth with Cosmeceuticals

The natural and organic personal care market continues to grow at double digit rates as large mainstream players enter the marketplace and manufacturers, specializing in the category, introduce efficacious new product lines and extensions into a variety of channels. According to Kline & Co., the natural and organic personal care segment grew by 14.6 percent in 2005, while the overall U.S. cosmetics and toiletries market grew by only 3.5 percent, illustrating the demand for these specialty products.

The health and beauty segment is no longer solely the domain of abrasive, synthetic-based products. The latest innovations in the segment, known as cosmeceuticals, are incorporating a growing number of clinically studied botanicals, vitamins, amino acids, and other naturally derived specialty supplements that have an effect on the structure/function of the body. Cosmeceuticals essentially reside in a “gray area” between the “cosmetics” category (a non-therapeutic group of products defined by U.S. regulatory agencies) and the “over-the-counter (OTC)/drug” category (products that are, by definition, therapeutic).

The term “cosmeceutical” was first coined by scientist Albert Kligman at a Society of Cosmetic Chemists meeting more than 30 years ago to identify a product that may have a therapeutic effect on the body. Currently, the cosmeceutical category has not yet been defined by U.S. regulatory agencies, and such products have prospered with both aesthetic and functional benefits without having to cross into the OTC/drug category. It is important to note that nutritional supplements held this dubious distinction prior to the enactment of the Dietary Supplement Health and Education Act of 1994 (DSHEA), which finally gave supplements an identity and a defined place between a food and a drug.

Wrinkle reduction, skin lightening, skin darkening, collagen enhancement, cellulite reduction, skin irritation alleviation, antioxidant protection/treatment, and many other marketing tags have addressed the functions of these cosmeceutical products. One could even classify moisturizers, toners, and natural ingredients that protect from the sun, but do not make sunscreen claims, as part of this category. The demand for such products is driven by an aging population seeking to prevent and treat the symptoms of aging naturally. Botanicals that have not been over-processed and naturally derived organic minerals, numbering several hundred at present, are most often the active ingredients found in cosmeceutical products.

Cosmeceuticals tend to be relatively “high-end,” housed in small containers that command higher price points and desirable profit levels. Consumers can find such products across a wide variety of channels, including natural food stores, spas, boutiques, specialty outlets and mass market department stores. Higher profit direct channels—such as the Internet, television commercials and infomercials, direct mail, print advertising, and multi-level—have also been successful channels for strategic marketers, as they are able to reach more customers with essentially the same marketing message across a variety of channels.

In addition to the variety of mediums and channels, within which these products are currently marketed, they also fall under the less-regulated, non-therapeutic “cosmetic” category and are less expensive to research and develop than those in the OTC/ drug category. The main point of differentiation is the nature of claims that are allowable in each category.

The cosmeceutical market has always been driven by anti-aging and other skin/hair health concerns within certain segments of the population. Understandably, demographic trends indicate an aging population favors products geared toward treatment of these health concerns, while a younger population leans toward personal care products that aid in prevention. In 2005, anti-aging products were at $2.5 billion retail in the United States and were predicted to grow by 11 percent annually through 2008. The overall cosmeceutical category was forecast by the Freedonia Group to reach $7 billion in 2008. Combine these with the overwhelming growth in natural and organic personal care, and it would be difficult to argue against competing in this market.

Natural in the cosmetic category does not mean non-chemical, but “derived from natural sources.” Natural personal care products attempt to avoid the use of synthetically derived ingredients wherever possible. A great deal of resources have gone into the research and development of naturally derived compounds in the past few decades; and they can now be used safely and effectively almost anywhere a synthetic ingredient is found. When formulated for use in cosmeceuticals, natural ingredients should be minimally processed to maintain their inherent integrity and must be tested for safety and effectiveness.

A common practice creating confusion and mistrust in the marketplace is the act of “green washing,” or marketing products as environmentally responsible and/or natural, when they are truly neither. Companies marketing natural products must refrain from “dusting” their products with non-functional amounts of what are supposed to be functional (cosmeceutical) ingredients so that label claims can be made. This is especially common in the world of botanicals, which are popular with consumers but are expensive for formulators. A tempting practice, indeed, but consumers are not fooled for long. These misconceptions are created by overzealous marketers who are anxious to tap into the exploding natural personal care market, but do not wish to do their homework, both with regard to formulation and understanding consumer attitudes and behavior.

As large chemical suppliers continue to familiarize themselves with natural/organic ingredients, mainstream brands are beginning to understand what the natural/organic shopper wants in their personal care products. Sadly, green washing and dusting are prevalent practices, misleading the consumer and adding to the confusion in the marketplace as to what is really natural. These challenges have only begun and can be minimized with consumer research and direct strategic planning at the highest levels within a company.

A discussion of the natural and organic market would not be complete without addressing the growing sustainability and corporate social responsibility movement. Companies in all industries are cutting costs, enhancing their image and appealing to a growing group of “value-based” consumers by adopting business practices that are better for people and the environment. An optimal strategic marketing planning model targeting this area in detail should follow two “design for environment” principles. First is pollution prevention, including raw material inputs, energy and packaging. The second is resource recovery, defined as efforts to avoid terminal disposal by ensuring recovery in either biological or technological cycles, focusing on the reduction and eventual elimination of waste.

The company must have a corporate commitment to sustainability and social responsibility, which includes, at the bare minimum, a related marketing effort and both an audit and ensuing plan. This plan should:

1. Address all elements of the organization and supply chain 
2. Set measurable objectives for continuous process improvement 
3. Weave this plan into marketing communications for competitive advantage 
4. Evaluate results, continue to set objectives for improvement, and be as transparent as possible 

A company doing business in the natural/organic personal care marketplace should also look at the cosmeceutical arena. Conversely, any mainstream cosmeceutical company should consider offering natural/organic ingredients. A competitive advantage can be reached by serving both of these markets; and a company can achieve further differentiation through the adoption and effective communication of a more sustainable and socially responsible business model.

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