There are three growth engines to realize Product-market fit, a pretty uncommon feat, for your beauty brand. However, brands can still find themselves on an exciting journey between having no product-market fit and reaching the holy grail of full product-market fit. And you know you’re closer than ever when the demand for your product exceeds what you can supply!
What is Product Market Fit?
Product-Market fit is a term coined and defined by Marc Andreessen as follows: “Product/market fit means being in a good market with a product that can satisfy that market.” It is a stage where all your three growth engines: acquisition, loyalty, and advocacy, are in sync and above the minimum benchmark so that your brand is profitable and growing at a healthy rate.
As a rough approximation, I have seen brands achieve >50% year-over-year growth, ideally>80%, to reach or validate their product-market fit.
But, a better indicator is the performance of each growth engine combined with the overall profitability and growth.
Beauty brands like Glossier, Hero Cosmetics & Drunk Elephant went to $100 million in approximately four years with (a rough approximation) an average growth rate of >300% year on year.
Why Does Product-Market Fit Matter?
So, you know that effort, money and relationships you will invest in scaling up your business will be profitable and take you closer to your goals and vision.
As mentioned above, your beauty brand has three growth engines. Below are the advance indicators for each stage. And it’s crucial for an emerging beauty brand to see these indicators moving forward to attain product-market fit. These indicators should trend upwards to reach a product-market fit.
1. Loyalty: To What Extent Do Your Consumers Exhibit Loyalty?
Loyalty is the next stage of repeat purchases in the marketing funnel.
Ideally, it’d be best if you studied & focused on the >50% repeat purchase year over year consumer with multiple orders every year.
The difference between repeat purchase and loyalty is that repeat purchase is mainly around the purchase frequency. It is more transactional, whereas loyalty is about the higher share of consumption occasions for the consumer with a broader assortment of products for routines, lesser discount-induced sales & lack of switching during high sale seasons.
The following metrics should be on an ascending curve and are in the order of becoming more loyal with each sub-stage to reach the next and final step in the brand funnel of advocacy.
Loyal consumers increase their dollar consumption with your beauty brand over time when you compare a current period versus a previous one. This indicates a higher share of consumption occasions or higher usage per occasion.
Purchase beyond hero products:
Loyal consumer is usually delighted by the results and the whole brand experience, and they experiment with buying products beyond the hero products. The metrics around new products bought by the loyal consumer, whether new launches or within the assortment of existing products, should track upward.
Routines and bundles:
This is the final check which tells you that the loyal consumer is now ready to enter the advocacy stage of the funnel. Brand bundles have become a part of her routine, meaning she uses multiple products during the same and different occasions as part of her daily routines.
Here’s a 2×2 matrix illustrating the relationship between number of loyal consumers and the profitability of a loyal consumer.
Low # Loyal Consumers-Low $/Loyal Consumers
- Nurture: & convert into loyal consumers through targeted innovation & better assortment
- Targeting: Improve your targeting to attract the right consumer
Low #Loyal Consumers-High $/Loyal Consumer
Cross-sell Hero: Understand the cross-sell gap between repeat purchasers & loyal to build desire for hero products amongst repeat purchasers
Alternative Products: Segment repeat buyers into categories & cross-sell to A/B test the responsiveness of each category and then pull the most responsive into loyal
High #Loyal Consumers-Low $/Loyal Consumer
- Rewards: Implement loyalty programs and incentives to retain & reward
- Personalize: Offers & recommendations based on individual preferences
- Encourage referrals and word-of-mouth marketing: To attract new
- Invest in an innovation factory: To increase assortment of hero products with the aim of increasing $/loyal consumer
High #Loyal Consumers-High $/Loyal Consumer
- Exclusive: Perks and benefits to drive advocacy
- Targeted marketing campaigns: To further engage & retain high-value loyal consumers
- Ritualize consumption: With routines & bundles to become a part of their life
- Leverage for advocacy: With campaigns & inclusivity for most loyal as an integral part of the extended brand family
You start with why your consumers are repeatedly buying the brand. Then you validate by focusing on increasing the value of the causal driver and checking if the above loyalty metrics show an increase or not.
Challenges to Loyalty as a Growth Engine:
Newness affected by competition:
Humans have a bias for novelty. With the continuous influx of emerging beauty brands, there is always a danger of your loyal consumer’s exposure and trial to a new brand which puts them on the path to becoming lesser loyal.
-Perceived Value: Perceived Value=Quality/Price. Your beauty brand must offer at least 30% higher value than the competition, especially if your brand does not offer an emotionally affective experience and is not a prestige beauty brand. Even for prestige beauty brands, you will face some heat from other beauty brands in the same price range as you.
-Creative Redefinition or Brand Story: Creative redefinition of the problem allows you to move along the spectrum of a new solution to an existing problem or solve an unsolved problem.
Dove Real Beauty’s transformation from a functional soap brand to solving the issue of society and corporate-induced insecurity in women by redefining the brand around inculcating confidence in women.
Availability drives consumption. Limited availability can impact your loyalty as you might not be available when and where the consumer wants to purchase. This becomes more relevant as the emerging beauty brand enters the early mass category and less emotionally involved your consumer is. Frequent out of stocks at your partner retailer or DTC could also lead to a drop. As you scale up, distribution helps with availability without losing focus on penetration of existing markets first.
A limited assortment of hero products when you first try to scale up to minimize the unpredictability in your supply chain and inventory and manage cash flow right to keep fast-moving SKUs in stock.
Example: Glossier is a beauty brand that scaled its DTC to $100M within a few years with a limited assortment and then launched a range of assortment along with opening brick-and-mortar stores resulting in a lack of focus and frequent stock-outs of critical SKUs. While the brand’s woes are not solely attributable to the lack of availability for hero SKUs, it did lead to a few loyal consumers trying out other beauty brands during those phases.
Evolution of consumer needs and wants
Consumer needs and expectations continuously evolve, driven by technological advancements, shifting trends, and evolving market dynamics. Brands must keep up with these changes and consistently meet or exceed consumer expectations to foster loyalty.
Design and execute the process of continuous listening to consumers across all data points from DTC data to retailer data to social listening to pre-set intervals conducting of consumer surveys to focus groups to interviews for deep dives and digging out the why behind data breaks or sentiment or real.
A beauty brand that creatively redefined itself to prevent decay is CoverGirl. CoverGirl, a well-established cosmetics brand, faced the challenge of declining sales and relevance as consumer preferences shifted towards more inclusive and authentic beauty standards.
To address this, CoverGirl reinvented itself by recognizing the need to update its brand messaging and reflect the changing beauty landscape.
They shifted their focus from traditional, aspirational beauty ideals to celebrating individuality, diversity, and self-expression. CoverGirl launched campaigns featuring a diverse range of models, including different ages, ethnicities, and gender identities, to promote inclusivity and resonate with a broader audience.
“I Am What I Make Up” Campaign: In 2017, CoverGirl unveiled a groundbreaking campaign called “I Am What I Make Up.” This campaign aimed to redefine beauty standards and celebrate individuality, featuring a diverse group of brand ambassadors known as “CoverGirls.” The campaign showcased influential women from different walks of life, including actress Issa Rae, model Maye Musk, and chef Ayesha Curry. Through this campaign, CoverGirl emphasized that makeup is a tool for self-expression and empowerment.
Losing differentiation as you scale
As you scale your beauty brand, you will try to increase your distribution; you might have to work on your pricing and tone down your product for the masses, but most important, you will have to penetrate the market to increase your consumer base by upping your market share. Market share is value-driven, and for value, you will have to focus on the most desired quality features by as many people as possible, and you will start looking like the other mass beauty brands, causing an erosion in your loyal consumers who treasure your uniqueness.
Offering higher perceived value, the emotional transformation of the brand, creative redefinition of the category & creating and maintaining the distinctiveness of brand identity are key.
An example of a beauty brand that lost its differentiation as it scaled up is The Body Shop. The Body Shop, founded in 1976 by Anita Roddick, initially gained popularity and a loyal customer base by emphasizing natural and ethically sourced beauty products. It positioned itself as a brand against animal testing and focused on using ingredients sourced through fair trade practices.
However, as The Body Shop expanded and scaled up globally, it faced challenges in maintaining its unique differentiation.
As The Body Shop expanded its product range and global reach, there was a perception among consumers that the brand’s ethical messaging and commitment to natural ingredients became less prominent. Some consumers felt that the brand’s focus shifted more toward mainstream beauty trends and marketing rather than its original values.
The Body Shop has tried to regain its differentiation and reconnect with its core values. They have introduced various initiatives, such as recommitting to their “Enrich Not Exploit” sustainability program and launching new product lines with a renewed focus on natural and ethically sourced ingredients.
In my opinion, Body Shop is no longer the beauty brand leading the causes around organic, sustainability or ethical treatment of animals, nor is it offering a differentiated consumer experience at its stores. The brand needs to reinvent its retail experience!
Loyalty Hypothesis Validation Example
Example of a beauty brand that used loyalty hypothesis validation for achieving product-market fit. A CBD skincare brand in Jump’s portfolio called Code of Harmony understood the need to differentiate itself beyond CBD & bring an element of newness to the category along with understanding why their consumers are uniquely loyal and then reinvented itself further with the core promise around “manifest glow for complicated skin with clean CBD skincare,” Jump helped the rockstar founder, Janet Schriever, achieve this reinvention resulting in heightened resonance with her consumers.
Here is how you need to think of the consumer acquisition strategy and initiatives using the above consumer lifetime value & acquisition profitability matrix .
Low Consumer Lifetime Value-Low Acquisition Profitability
- Increase Acquisition Profitability: Reduce the cost of consumer acquisition or/and increase the average first order value
Low Consumer Lifetime Value-High Acquisition Profitability
- Upsell & Cross-sell Opportunities: Maximize the value from these by offering relevant upsells, cross-sells to increase their average order value
- Implement Referral Programs: Encourage consumers to refer friends and family to boost acquisition right after gaining these consumers
High Consumer Lifetime Value-Low Acquisition Profitability
- Further Lifetime Value: Use personalized experiences, targeted campaigns, loyalty-building initiatives & subscription models
- Leverage Advocacy: Encourage loyal to be brand advocates to attract new consumers
- Lower CAC: Experiment with channels, media & conversion funnel to lower the cost of acquisition
- Offer higher value for higher first-order $
High Consumer Lifetime Value-High Acquisition Profitability
- Double Down: Allocate more resources to target & acquire more similar to those in this quadrant.
- Advocacy for Acquisition: Cultivate strong relationships and leverage their advocacy with personalized experiences for them to increase the speed of acquisition.
You could divide your consumer acquisition initiatives into organic & paid.
Is your social funnel profitable with the first purchase of consumers or within a certain period, like a week or a month?
Beauty Counter is a beauty brand that used the power of organic social media to market itself around activism, transparency, social responsibility & clean beauty. Social has been a strong driver taking the brand beyond $100M in annual revenues.
SEO takes 3-6 months to deliver results, so you must extend the evaluation period for profitable acquisition.
Colour Pop Cosmetics does more than $100M in annual sales and credits its success mainly to the 5.7 m monthly visitors it draws through its SEO, which includes practices like content marketing, keyword optimization and backlinking.
Partnerships(overlaps with advocacy):
This is one of the most under-utilized initiatives, if not a strategy, especially by beauty brands, since the audience synergy is so easily identifiable. It usually is one of the most profitable acquisition strategies as you leverage the partner’s trust & credibility with their audience for profitable consumer acquisition.
Jump portfolio brand, Besame Cosmetics, has leveraged partnerships with Disney to launch themed collections for profitable consumer acquisition.
If in retail, then velocity month on month from a door, geo, account & channel, in the respective order, must go up. Why? Because that’s how you will fund further the penetration of the doors, geo, account and channel.
Hero Cosmetics did invest in Amazon but was able to achieve a profitable consumer acquisition funnel within a short period, thereby fuelling its profitable growth & contributing close to 80% of revenue on the way to $100M and eventually getting bought by Church & Dwight for a whopping $630M.
Challenges to Organic Consumer Acquisition as a Growth Engine
Lack of organic engagement and scale
Lack of control and time it takes to build your audience on social media, but more importantly, is to learn & improve your engagement to feed your DTC funnel.
Understand and work on your funnel: Experiment, learn and do the maths to determine the engagement you need for higher profitability= conversion percentage* high volume of traffic*profit margin.
Lastly, paid ads should become more and more profitable for consumer acquisition through any media or channel, creating a virtuous and upward spiral. Again, you can have a period of evaluation for the same. Advertising works on a threshold principle, meaning it doesn’t work below a specific budget and frequency, and the upward spiral of profitable ads will validate your track to product-market fit.
Anastasia Beverly Hills is a cosmetics brand known for its eyebrow products, eyeshadows, and other makeup essentials. While the brand received some initial funding, it primarily relied on its organic content & paid advertising efforts to drive growth and establish a strong presence in the beauty industry.
Challenges to Paid Consumer Acquisition as a Growth Engine
a. Advertisement works on a threshold principle:
It doesn’t yield results below a specific budget and frequency.
Experiment with multiple variations of your creatives/media/targeting to increase the conversion rate at a particular stage of the brand funnel to deliver overall advertising profitability over a short period.
b. Effectiveness may diminish over time:
Since it delivers instant reach, it loses novelty after a certain number of hits for the target audience.
Create sticky campaigns with a high degree of novelty frequently while staying consistent with your core values, brand promise, and voice.
c. Might not build long-term loyalty
Understand your fans in great detail to improve your targeting and attract your potential super fans.
Example of a beauty brand that used growth hypothesis validation with consumer acquisition to achieve product-market fit.
In addition to the above beauty brands, Glossier, through an iterative development process, consumer feedback, a minimal viable product approach, community building, data-driven decision making, and continuous learning, Glossier successfully achieved product-market fit by validating their growth hypothesis. This approach allowed them to create a brand that resonated with their target audience for profitable consumer acquisition for its DTC channel.
3. Advocacy: How Effectively is Your Brand Recommended?
How strong is word of mouth for your brand?
The brands I collaborate with, which experience a growth rate exceeding 50% yearly, typically attribute 25% to 30% of their consumer acquisition to word-of-mouth (WOM) marketing. However, I have observed that brands that do not actively foster WOM tend to see a plateau or decline in its effectiveness. This is exacerbated when they struggle to generate loyalty and directly acquire new consumers.
For your beauty brand, having WOM account for more than 30% of your consumer base is crucial. Proactively leveraging WOM is particularly important if you are a resource-constrained beauty brand. Without significant funding, a higher level of advocacy will expedite your journey to achieve product-market fit. This is because referrals and advocacy tend to yield the highest conversion rates.
In contrast, loyalty in beauty brands heavily depends on the frequency of usage, warranting a higher share of multiple occasions unless you have a decent assortment of hero products you can cross-sell, increasing the usage of the same occasion. There is a cap on how much loyalty can help you grow.
Have you validated the positive correlation between fueling word of mouth and profitable consumer acquisition as another tenet of the growth hypothesis beyond direct/paid consumer acquisition & loyalty? How?
You can fuel initiatives targeting BUZZ/WOM leading to new consumer acquisition and see if more effort or design leads to more buzz and, finally, more attributable consumer acquisition.
Below are four scenarios with relevant strategy and initiatives.
Low Advocacy with Brand Experience-Low Deliberate Word of Mouth Marketing):
- Innovate with the brand experience at critical touch points using consumer feedback
- Reinvent the brand with in-built advocacy and then apply it to all touchpoints
- Brainstorm using consumer feedback to create word-of-mouth marketing intiatives
Low Advocacy with Brand Experience-High Deliberate Word of Mouth Marketing):
- Fuel advocacy: Craft compelling and shareable brand messages that resonate and encourage to advocate
- Design brand experience at one/multiple touch points to multiply advocacy
High Advocacy with Brand Experience-Low Deliberate Word of Mouth Marketing):
- Incentivise sharing: Encourage, incentivize & enable consumers to share their positive experiences
- Email flows
- Social communication-UGC
- Every touchpoint
High Advocacy with Brand Experience-High Deliberate Word of Mouth Marketing):
- Foster brand communities: Start from one and further segment to create multiple
- Encourage user-generated content (UGC): Actively promote and amplify UGC to leverage advocacy.
- Double Down on Advocacy: Keep your advocacy and word of mouth marketing initiatives fresh
a. Lack of an advocacy-friendly consumer experience
The best way to fuel advocacy for your beauty brand is by delivering a word-of-mouth-friendly consumer experience with every purchase. You can focus on one or multiple touch points from purchase to usage during the consumer journey.
b. Lack of deliberate word-of-mouth marketing
It is one of the most over-looked consumer acquisition strategies even though it has the highest conversion rate.
Word of mouth or advocacy automatically happens for you. However, you must find out the drivers of word of mouth for you and then amplify the same with a word-of-mouth marketing strategy and initiatives.
You can read my article here for examples of beauty brands that used word-of-mouth marketing to generate advocacy for feeding the funnel back to achieve product-market fit for eventual scaling up.
Validate your value and growth hypothesis and double down on the same, and you will be on the way to product-market fit.
Comparison of 3 Growth Engines for Beauty Brands
Your beauty brand has 3 growth engines-acquisition, loyalty and advocacy-which can help you achieve profitable growth.
All three are a sub-set of your growth hypothesis & loyalty-profitability is an indicator of loyalty hypothesis validation, which includes both functional value and emotional meaning.
Acquisition growth can be organic or via paid. Paid allows for instant & more targeted reach whereas organic is usually slow and lacks scalability.
Loyalty growth engine ensures consistency in revenue and profits for long-term sustainability
Advocacy is the most scalable if you are a bootstrapped beauty brand and also delivers the highest conversion rates.
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Jump Accelerator hyper-grows women-led, early-stage beauty brands with a custom fit, full & fundamental solution based on the first principles of science & emotion.