A beauty brand turnaround strategy? Who needs it? Your beauty brand will likely need a turnaround strategy during its lifecycle.
SALES DECLINE
CHART 1-When Growth Stalls
Sales growth is not an accident and needs deliberate fueling. An in-depth study of 500 major US global companies showed that, during their lifecycle, 87% experienced a stall in their sales, as shown in chart 1 above.
Surprisingly, the sales during the stall year were higher than the previous year. However, for 15 years after the stall year, sales growth rates were way below those before the year of stalling.
As the study’s authors summarized in “When Growth Stalls”, “After a burst of energy, growth does not descend gradually; it drops like a stone.”
Equally startling is that not all companies with solid historical records recover quickly.
CHART 2: Growth After Stall
As shown in chart 2, only 46% of the 87% that experienced a sales stall could rebound fast.
A whopping 54% continued with slow or negative growth for several years. Out of the 54% with slow or negative growth, just 7% ultimately recovered to pull off decent to high growth, whereas 26% continued to realize sluggish growth or decline in sales. Shockingly, 67% ended up becoming bankrupt, becoming private, or being acquired.
The bottom line is that most brands or companies will encounter a stall in their sales growth at some time, and when you do, swiftly create and execute a growth strategy to turn it around.
Turnaround Strategy
A sharp decline in sales growth is a significant indicator of the need to turn the brand and business around, as a decline in profits usually accompanies the sales decline.
Diagnosis
Declining sales and profits, decline in market share, lower prices & margins because of competitive pressure or rising costs, and stakeholders & competitors becoming stronger.
Usual Causes
New technologies, consumer demand and trends shift, media inflation, media and channel consumption and preference shift, regulation, competitive disruption, and strategic errors.
Multiple Strategies Possible for Turnaround
Sales and profitability could stall at early growth, late growth, or during the maturity stage of the brand lifecycle, whether the category has matured or not. The root cause, the critical issue, must be addressed to reverse the trend.
The turnaround strategy would depend on the core issue uncovered through the deep dive exercise and the brand’s lifecycle stage.
A turnaround has to be quick, within 1-2 years maximum, or there is a risk of never recovering.
Also, any turnaround strategy needs to deliver fast forwards by plugging cost drains, generating higher sales and profits, and implementing focused initiatives to invest in the turnaround and create a winning culture.
A few classic mistakes that a brand makes when sales growth stalls are
-incurring more and heavier debt without figuring out the critical issue and developing a strategy to overcome
-increasing price across the board without any brand or market justification.
-other mistakes are frequent price cuts to increase volume and
-creating long-term turnaround plans without short-term wins, success signals, or leading indicators.
Or, a classic,
-random pivots without thinking through!
Don’t wait and watch. Turnaround fast, reducing complexity, and adopting a leaner organizational structure to move closer to the market and action are some common leverage points of all brand turnarounds.
Presenting,
5-Step Brand Turnaround Strategy
1. Core Issue
The core issue will be the underlying driver of poor performance and trends for three growth engines: Acquisition, Loyalty, and Advocacy, impacting overall sales stall and decline.
A few standard issue zones & their underlying causes
a. Consumer resonance or consumption behaviour
-Existing consumers to new consumers
The ideal route is to create quick wins with existing consumers and then go after new ones.
For a turnaround to build momentum, you need to add new consumers and bring back lost consumers, as there is always a churn of consumers as long as they are your core target.
b. Poor performance at existing channels/accounts
-Pay to play
Brands find it difficult to get the best retailer support due to budget constraints
-Competition
The category has became cluttered for newer brands
-Shoppers
Unable to target the right shoppers and influence purchases for desired consumption goals, reflected in poor velocity
-Category development
Lose favour with the buyer as the brand stops adding to category profitability
c. Media
-Media inflation
The consumer base starts to stabilize, but brands on the media keep increasing and creating affordability tiers for bidding
-Media consumption behaviour
Inability to adapt to the evolving media consumption behaviour of consumers
-Inefficient and Ineffective Marketing Funnel
Narrow, top-down funnel, massive leaks in-between funnel stages, poor bottom of the funnel focus
d. Competition
-Frequent price discounts and offers
Attracting deal seekers and training the consumer to time their purchase, impacting frequency and cart size both
The consumer base starts to stabilize, but brands on the media keep increasing and creating affordability tiers for bidding
-Losing the value game
Inability to up your value as the category matures and the brand enters the mainstream market
Exercise a deep dive with a comprehensive 6C analysis to dig out the critical issue behind the decline.
Case In Point:
Elf Cosmetics veered from its vision of affordable prestige products, launching over 100 items without brand alignment. This led to unprofitable stores and a drop in colour cosmetics sales.
2. Source of Power, Back to Basics: Strategy
Start from core strength, and in rare cases, you can acquire a new strength, which is more risky as there is always a learning curve
There are three types of brands and you can have a mix of all three with one dominant type:
- Story-led brands
- Innovation-led brands
- Value-driven brands
-Core strength that skews the brand toward a type and your vision:
Core strength could be your
-margins, high-value offering, supply chain efficiency for value-driven brand
-research & development capability for innovation-led brands
-Intimate consumer understanding for designing a brand story or an experience
Strategy
After uncovering the core issue, the strategy needs to focus on the best-fit and executable solution to overcome it. This could involve developing new capabilities, but it usually involves going back to basics and leveraging one’s source of power.
Strategy is not
-A laundry list of activities
For example, E.L.F. Cosmetics’ strategy to overcome the slump was
Improving the “quality and margin together” of best-selling prestige products will expand demand, increase value, and boost revenue and customer loyalty.
E.G., Core strength for Elf Cosmetics: high-margin, high-volume masstige products, biggest D.T.C. volume channel in colour cosmetics
-Plug the leaks to focus & invest in strategy:
E.L.F. closed 22 unprofitable retail stores to invest the money they saved in the strategic initiatives below.
3. Key Opportunity: A market opportunity that fuels strategy forward
Direct your strategy to a specific opportunity in the market where you can best overcome the core issue. This means you could pick a specific opportunity around consumers, competitors, channels, vendors, or partners to focus your strategy, which was part of the 6C analysis you used to uncover the core issue.
E.g.
For Elf Cosmetics, the Key Opportunity was
- Women of all ages seek minimalist, prestigious beauty at affordable prices.”
-Gain Cost Advantage for both better margins & for a Stronger Competitive Position with Higher Perceived Value Offering to “Penetrate Late Mainstream Market” By Outsourcing Manufacturing
&
- Offer Better Personalization to “Boost D.T.C. Loyalty & Improve funnel” for huge base of D.T.C. buyers
Once you have identified the key opportunity to which strategy should be applied (using your source of power), you need to design two to three strategic initiatives.
Strategic Initiatives-
a. Strategic Imperative 1: Expand market demand & penetrate the late mainstream market with high perceived value
E.g.
-Elf Cosmetics focused on fewer game-changing innovations, like the $8 Poreless Putty Primer, to generate higher returns. Their masstige products expanded the market by offering affordable alternatives to pricier options like Tatcha’s $52 Silk Canvas.
They applied their core strength in masstige products to the skincare category and expanded hero products into the Canadian market for new consumer acquisition.
b.Strategic Imperative 2: Loyalty
Elf focused on its loyalty program during the pandemic, which resulted in over 2 million Beauty Squad members, a 40% increase over the previous year.
c. Strategic Imperative 3: Improve brand funnel for DTC
Boosted loyalty, revenue, and profits by enhancing perceived value and personalizing for the vast D.T.C. base. Developed a personalization strategy, creating over 60 consumer segments based on online behavior to offer tailored content and journeys.
4. Success Signals: Fast Forwards
Quick wins within days/weeks/months of implementation, especially around the identified key opportunity with consumers, channels, influencers, media or even competition
Examples of quick wins, that also improve employee morale across the company:
-Progress in brand health measures across one or multiple stages of the marketing funnel, whether awareness to purchase to loyalty to advocacy, etc.
-Increase in velocity and support from channel or influencer partners
-Higher profits to fuel the strategy further
-Lower cost of consumer acquisition
E.g.
- In 2019, Elf’s innovation launch gained strong channel support, increasing sales and profitability, while selling more to existing consumers and acquiring new ones through the masstige category.
- After implementing the personalization strategy, Elf converted a higher % of site visitors into buyers.
- The loyalty program delivered 70 % of D.T.C. sales, buying more often with much higher order value than the consumers.
5. Ultimate Desired Outcome
Sustains success with the key opportunity to feed the strategy back for a virtuous cycle leading to desired 1-2-3 years sales and profitability, improvement of brand health and company morale.
Note: A brand should always turn around light without any excess baggage.
- Elf attracted the late majority with high-value masstige products, significantly boosting profitability through channel and innovation.
- In Q2 2020, Elf Cosmetics saw a 3% annual growth in color cosmetics sales, contrasting with a 20% decline for other brands, according to Nielsen.
SUMMARY
An H.B.S. study reveals that growth plummets abruptly rather than declining gradually after a burst of energy.
Equally surprising is that not all companies with solid historical records achieve quick recovery, and some go bankrupt or are sold.
Though you can turn around the brand with alternative strategies, you must uncover the key issue and turn it around fast.
Here is the 5-step turnaround strategy:
- Uncover the Core Issue using the 6C analysis
- Go back to your Source of Power and come up with a Strategy to overcome the core issue
- Identify a specific Key Market Opportunity to apply the strategy
- Define and achieve Success Signals: Fast Forwards to validate the strategy, and keep everyone’s faith in the turnaround
- Achieve the Ultimate Desired Outcome around brand health and numbers in 1-3 years to fuel the strategy further
Also, read my other article on how your beauty brand can go viral
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