LITERATURE REVIEW - 臺灣Y世代與Z世代美妝產業市場區隔之研究

Cosmetics Industry Industry Overview

The fact that the first use of cosmetics dates so far back shows and emphasizes the importance and impact this industry has in today’s society in a global scale. Cosmetics are part of every human’s life in one form or another, hence, this industry is significantly vital because of the tremendous impact it has on social life globally (Kumar, 2005). The concept of cosmetics is defined as a chemical mixture that is applied to the human body to improve or enhance a specific body part or odor (Lee, 2018). According to the European Commission (2015), cosmetics are “any substance or mixture intended to be placed in contact with the external parts of the human body (epidermis, hair system, nails, lips and external genital organs) or with the teeth and the mucous membranes of the oral cavity with a view exclusively or mainly to cleaning them, perfuming them, changing their appearance, protecting them, keeping them in good condition or correcting body odours”. There is a common misconception that cosmetics only include products bought by people to enhance their external appearance. In fact, besides beauty products, cosmetics involve cleaning products, such as soaps, shampoos, shaving creams, deodorants etc. Moreover, products of a medical nature, such as anti-inflammatory creams, are also part of the term cosmetics. In this sense, these commodities are an essential part of life, which fulfil the fundamental prerequisites of cleanliness and basic hygiene (Amarjit Sahota, 2014).

The substantial significance of this industry is based not only on its social impact, but also on an economic point of view. According to Statista (2018), the worldwide cosmetics market grew with an average of 4.16% a year in the last 20 years, reaching a market value of 507.8 billion USD in 2018 and it is projected to reach a value of 758.4 billion USD in 2025, which translates to a growth rate of 49.35% from 2018. Many reports state that, improved living standards, a higher disposable income and changing lifestyle trends are all major growth drivers for this industry. Consumers become more aware of their wellbeing and the use of cosmetic products in their daily lives. The industry is evidently not hugely dominated by the female gender anymore, as men are increasingly including the use of cosmetics in their daily routines as well (Allied Market

Research, 2016). According to Statista (2019), the biggest cosmetic market value share belongs to companies from the US with 43.2%, followed by France with 32%. The Asia Pacific region is expected to growth their cosmetics’ market share as well primarily because of the social changes mentioned. Nonetheless, Statista (2019) reports that Asia Pacific generated the largest sales in cosmetics in 2019 (Figure 1.1).

Figure 1.1: Sales distribution in the cosmetics market worldwide by regions in 2019. Adapted from: „Markenwert der wertvollsten Kosmetikmarken weltweit nach Ländern 2019“ by Statista, 2019. Copyright 2020 by Statista.

More specifically, in 2016, Taiwan accounted for approximately 4 billion USD of the global cosmetics market (Lee, 2018). The product categories mainly sold are skin care (52%), color cosmetics (17%) and Hair care (9%) (Lee, 2018). There are various distribution channels of the cosmetic products with drug stores being the most important ones which approximately account for 48%. Other channels are Department stores (25%), Salons (11%) and E-Commerce (16%). The latter is becoming increasingly important as a sales channel. The Taiwanese cosmetics market is dominated by international brands. The top three brands in terms of sales are Taiwan Shiseido (Japan), L’Oréal Taiwan (France) and Procter & Gamble (USA) Taiwan, which make up 30%

of the market share.

41%

24%

18%

6% 3%

Asia / Pacific North-Amerika West-Europe

Latin Amerika East-Europe Afrika

Industry Trends

Consumers are apprehending that their buying behavior has a direct influence on the environment and different communities. There is a growing trend of demanding products that are natural based and environmentally friendly (Amarjit Sahota, 2014).

There are several aspects to be looked at when referring to sustainable products.

Consumers are valuing their favorite brands and products based on their carbon footprint, sustainable packaging, effects on the ecosystem such as nature and animals, and the use of natural ingredients and their procurement sources. While, the trend of sustainable products appears in a diverse range of intensity in different countries, in Taiwan can also be seen an increase of demand for environmentally friendly cosmetics.

Taiwanese consumers that want organic ingredients and less harm to the environment’s ecosystems are growing and will continue to grow in the future as society becomes more conscious about the background and consequences of their purchases (Lee, 2018).

Media has played a crucial role in procuring information and creating awareness on this issue and its many connotations (Bom, Ribeiro, Marto, 2019).

Another trend affecting the cosmetics industry is online advertisement and social media. Kumar (2005) states that while online marketing has the advantage to create and launch new product campaigns much faster than for example, in magazines, the cosmetics industry faces challenges because the sale of a product highly depends on face-to-face consultation. Additionally, a consumers’ purchasing behavior is highly influenced by online communities (Parker, 2011).

Natural cosmetics.

The sustainability of cosmetics affects each phase of the product life cycle, where the designing phase plays a crucial role in presenting the presence of sustainability of a brand and the use of natural ingredients (Bom, Ribeiro, Marto, 2019).

Figure 1.2: Top factors impacting Global cosmetics market. Adapted from “Cosmetics Market by Category (Skin & Sun Care Products, Hair Care Products, Deodorants, Makeup & Color Cosmetics, Fragrances) and by Distribution Channel (General departmental

According to the Allied Market Research (2016) report, the use of natural ingredients in cosmetics is predicted to be a rising trend. As shown in Figure 1.2, this trend is evidently significant in the foreseeing future with the highest increase compared to the other factors. Additionally, according to Statista (2018b), the global market value for natural cosmetics is expected to increase from around $34.5 billion in 2018 to $54.4 billion in year 2027. This is a clear evidence of the significance of the natural cosmetic market in the future (Figure 1.3).

Figure 1.3: Global market value for natural cosmetics from 2018 to 2027.

Although the awareness towards the use of natural ingredients in cosmetics is not new, consumers nowadays have access to more information when it comes to the composition of a cosmetic. As often is the case, cosmetics are the most chemically loaded products in the market, whose use affect the human body directly (Csorba & Boglea, 2011).

Csorba & Boglea (2011) state that in general the concept of green cosmetics is regarded as products that use simple formulas composed of natural ingredients only, with no extracts from animals and no toxic components. Although this is not an accurate depiction of the products’ composition, their perception affects their buying behavior and is definitely associated to their perception of a brand (Bom, Ribeiro, Marto, 2019).

According to Dimitrova, Kaneva and Gallucci (2009), people who care about health and appearance in an environmentally friendly mindset are the ones who will also purchase natural cosmetics.

Online advertising and social media.

Kumar (2005) also expresses that it is difficult to convey attributes such as texture, color or smell through a screen and therefore cosmetic brands try to attract consumers to promotional events like makeover counters and sample offering events. Moreover, many experts believe that mobile advertisement is more efficient in driving customers to such events.

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0 10 20 30 40 50 60

2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

Wheat and Dodd (2009) state that aside from acquaintances, friends and family, consumers now trust strangers’ reviews on the internet as well, thus creating a wide consumer produced media. There are several stages through which a consumer goes through in their decision-making process before completing a purchase; need recognition, information search, evaluation of alternatives, decision making and post evaluation (Hoyer, Macinnis and Pieters, 2018). The leap from getting information directly from the brands to information received from people in online platforms, has had a great impact on the cosmetics industry. Social media gives users the possibility to look what their peers like. This in itself, can make a consumer realize a need they have, when they see someone else’s preferences or choices online. Furthermore, shoppers have the opportunity to go through several online consultations from their peers and experts, who straightforwardly influence the “information search phase” (Wheat and Dodd, 2009). Being able to access online product reviews and evaluations other consumers post online, leads to having a means of comparison for different products and make it easier for an individual to evaluate their alternatives. Consequently, it is evident that social media affects one’s decision to purchase a product or not.

Additionally, this channel offers the opportunity as well to express their post evaluation opinions on purchases. Jaffe (2010) state that consumers tend to trust the corporate marketing less than their peers online. In fact, given the vast amount of information passed through social media, consumers use filters to what they want to see (Brown &

Hayes, 2015). This brings the need for marketers to find new approaches to reach, connect and engage with their targeted audiences.

Market Segmentation

The concept of market segmentation was first introduced by Smith (1956). He defines market segmentation as seeing a heterogenous group of consumers into smaller homogenous groups.

Tynan and Drayton (1987) express that for a marketing manager to select a segmented market for a specific product and plan a fitting marketing strategy, market segmentation serves as a decision-making instrument. This instrument is key to strategic marketing and crucial for its success (McDonald 2010), (Lilien and Rangaswamy, 2003).

Furthermore, according to Roberts et al. (2014), segmentation has the biggest impact on decision-making.

Optimally, consumers belonging in a homogenous segment, present similar characteristics to one another that are crucial to researchers (Tynan and Drayton, 1987).

On the other hand, by following the same logic, consumers in different groups or segments display dissimilar characteristics compared to one another and are easier to distinguish when planning a marketing strategy for them. Kotler, Kartajaya, Setiawan (2014) follow expressing that targeting always trails segmentation, meaning that brands select certain groups to focus their marketing efforts on. Subsequently, brands make wiser decisions regarding resource allocation, positioning and their offerings. The conditions set to define segments are stated as segmentation criteria. These criteria can be one single characteristic, such as gender, age or origin, but they can also be more complex and represent consumer behaviour or interest and preferences. Kotler, Kartajaya, Setiawan (2014) state that segmentation is the first step of marketing that identifies groups of individuals with similarities between them in the geographic, demographic, psychographic or behavioral aspect. Obinna and Bruce (2018) mention in their work that there are many studies that focus on sociodemographic segmentation, creating groups based on age, salary, gender etc. such as (Hammond et al., 1996; Lin, 2002; Uncles and Lee, 2006). Other studies such as (Fennell et al., 2003; Hassan and Craft, 2005; Sarigöllü and Huang, 2005; Wells et al., 2010) which have emphasized on psychographic traits that include attitude, lifestyle, behavior etc. are also addressed by Obinna and Bruce (2018).

Marketing segmentation leads to new viewpoints and insights when implemented because it forces marketers to re-evaluate their current position, what advantages do they have compared to competitors and ask the question where they want to be in the future (Cleveland, Papadopoulos and Laroche, 2011). According to McDonald and Dunbar (1995), segmentation is beneficial because it gives companies a better insight on differences in consumer behaviour and increases the ability to satisfy consumer needs. Furthermore, they express that this gives the opportunity to as well find a niche market, which has a solid potential of growth, and is sufficiently large to procure a product while making profit from it.

On the other hand, Kara and Kaynak (1997) mention hyper-segmentation, which refers to the case when market segmentation is taken to the extreme and a product is offered to a very small segmented group. They additionally state that hyper-segmentation could be taken further to finer segmentation where each consumer is considered to be their

own segment. Nowadays, the later approach is more than feasible. The rise of technologies like data mining tools and e-commerce make possible to analyse a person’s buying behaviour throughout time and better asses what to offer in the future.

Geographic Segmentation

An individual’s place of residence is the only criteria considered when doing geographic marketing segmentation (Tynan and Drayton, 1987). In most cases, when this type of segmentation is applied, there is a need to use various languages for it. Many product attributes vary when targeting geographical segments, such as price, description of the product, communication channels etc. (Cleveland, Papadopoulos and Laroche, 2011). The main benefit of segmenting consumers geographically is that their association to a geographical location is very easy to be done. On the other hand, people who live in the same area, do not necessarily exhibit the same characteristics that might be of value to marketers. For instance, people who live in the same area, can have different raveling preferences that depend on their social status, life-cycle phase etc.

According to Steenkamp and Ter Hofstede (2002), this segmentation approach can also be difficult if a research is conducted by distributing the same survey in several regions while considering biases in consumer perception and perspective coming from different culture backgrounds. For instance, Haverila (2013) serves an example for this, whose study segments young mobile users across national borders.

Socio-Demographic Segmentation

The most common demographic variables used for segmentation are age, gender, income and education (Wedel and Kamakura, 1999). It is well known that individuals change their product needs and buying behaviour throughout their different stages of life (Cleveland, Papadopoulos and Laroche, 2011). Older individuals tend to be more committed to patterns and less open to new products of lifestyle changes (De Mooij, 2004). High income consumers are more prone to purchasing expensive items that enhance their status and higher educated people tend to shop and expand their purchases more on a global level while leaving behind the local customs (Keillor et al., 2001).

Finally, age is considered to be among the strongest differentiators between groups.

Males and females are different in their tastes and preferences, thus displaying buying behaviour, shopping patterns, preferred products, reactions to advertisement and

judgement that are dissimilar (Cleveland et al., 2003). Socio-demographics have proven to be useful for many industries. According to Cleveland et al., (2011), demographic segmentation has the advantage that it is easily determinable in grouping consumers. In some cases, this type of segmentation explains an individual’s preference towards a product but in most cases, it is insufficient in concluding the reasons behind said preferences. It is estimated by Haley (1985) that demographic segmentation explains about 5% of the difference in consumer behaviour. Tastes, values and preferences are more influential in describing consumers buying decisions (Yankelovich and Meer, 2006).

Psychographic Segmentation

Psychographic segmentation is used when there is a need to group consumers or a group of individuals according to their interests, preferences or beliefs (Cleveland, Papadopoulos and Laroche, 2011). Haley (1968) is recognized for benefit segmentation, the most famous kind of psychographic segmentation. He argues that psychographics, as a word, is used to imply measures that are related to the mind. Another type of psychographic segmentation is also one that involves an individual’s lifestyle choices such as activities, opinions and interests (Cahill 2006). This type of segmentation is clearly more complicated than the geographic and demographic ones. Looking for insights in regard to a single studied psychographic dimension is difficult because of the complexity of the human character and determining group membership for a sample of individuals presents a higher level of complexity (Cleveland, Papadopoulos and Laroche, 2011). However, this type of segmentation gives researchers more reflective results when trying to find out the reasons why consumers behave differently.

Furthermore, the reliability of a research highly depends on the approach taken to analyze the data.

Behavioural Segmentation

The last segmentation approach that this thesis is going to explore is the behavioral segmentation. This type of segmentation is used when differences or similarities are found in consumer behaviour. For this purpose, different behaviors can be used, such as frequency of purchase, time spent on purchasing, past experiences with products, amount of expenditure on a product and information sought about a product (Cleveland,

Papadopoulos and Laroche, 2011). An advantage to this kind of segmentation is that the exact behaviour that interests the researcher is used to base the segmentation on.

Examples for this are provided for instance by Heilman and Bowman (2002) using purchase data through categories of products and Tsai and Chiu (2004) who segment their consumers according to their actual expenses.

Personality Traits of Generation Y & Z

Not many studies have been conducted regarding generation Y, also known as millennials. However, there are statistical sources that give useful information regarding their lifestyle and preferences. According to Van den Bergh and Behrer (2016) the youth’s behavior and choices are deeply affected by the era they grow up in. Baby boomers will soon be outnumbered by Generation Y, which is currently one of the largest demographic groups (Van den Bergh and Behrer, 2016).

Characteristics of Generation Y

There are different opinions by many authors regarding which individuals are included in one generation or another. Consequently, there is not a clear separation as to where does generation Y end and Z begins. For this research, Generation Y will be defined from individuals born between 1980 and 1995 and Gen Z is categorized to be those who were born after 1995 until 2010 (Bassiouni & Hackley, 2014; Fister-Gale, 2015; Wang 2017; Van den Bergh & Behrer, 2016). Generation Y individuals are also defined with other names such as Millennials, Gen Y or Yers. Knittel, Beurer & Berndt (2016) cite many authors stating that this demographic is considered to be very important for marketers because of their high buying power. Gen Y is an educated generation that learned to adapt to technology while growing up (Aquino,2012). Wang (2017) labels Gen Y as egocentric, meaning that they are interested only in things that they can profit from. According to Van den Bergh & Behrer (2016) this generation had the opportunity to have many different experiences throughout their upbringing therefore they are difficult to please. Furthermore, they are characterized to have a very short attention span and to seek for a meaningful purpose in their lives (Van den Bergh

& Behrer, 2016).

Characteristics of Generation Z

Different names are used to refer to generation Z as well. They go by Centennials, Generation Z, Gen Z or Zers. The individuals that are part of this generation, have been born in the smartphone era (McGorry, 2017) and they do not know a time when they could not google something on their phones to find information (Villanti et al., 2017).

Gen Z is the digital generation, always connected and with a full understanding of technology (Williams, 2017; Priporas, Stylos, Fotiadis, 2017). Therefore, they are able to get and share information in a very short time (Visioncritical, 2016). The virtual world is the place where Gen Z lives and consequently where they have the opportunity to interact with their preferred brands (Bernstein, 2015). According to Wang (2017) Gen Z is not a successor of the Millennials but a completely new generation with their individual principles and attitude. Zers are considerably different from Millennials when referring to their social media habits. Fromm (2016) states that Zers are common users of the “dark social”, which is a term for private messaging apps whereas McGorry (2017) says that millennials are more inclined to lean toward public platforms.

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