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Thursday, 13 November 2014 16:09

The Case Against Private Label

Written by   Catherine Atzen, MBA

Opinions differ about private label skin care products sold in spas and medical spas. We will explore clients’ expectations and how aestheticians earn their trust through product recommendations. We will identify why selling private label skin care is different from selling private label in categories other than personal care. Then, we will assess if private label personal care products may pose a risk to a spa’s brand if something goes wrong. Last, but not least, we will look at the fundamental reason a business leans one way or the other: profitability.

Client Expectations: Adhere to the Gold Standard
A professional’s job is to render a non-bias opinion and establish trust. Product recommendations should reassure clients that the products sold to them will deliver the best outcome: This is the gold standard. Consumers expect aestheticians to advise which skin care program will most likely deliver the expected skin improvement without conflict of interest.
It may not be in a licensed professional’s best interest to put themselves in a position where their personal credibility may be questioned. Consumers know that spas have choices as to which brands they carry; they know there are hundreds of brands on the market and wonder why a professional may elect to place their name/brand on the label. Guests may perceive that the spa’s owner carries private label for egocentric reasons – to get their name on the box. As with social media, the selfie is not well perceived. The public is generally aware that private label is more profitable to spas due to higher margins, which makes them feel they are getting less value, less quality, and being cheated.

Selling Private Label Skin Care versus Private Label Consumer Goods
Consumers have mixed feelings regarding private label personal care products. Consumer market research company Canedean recently reported that consumers do not believe that private label skin care and personal care products’ quality and effectiveness compare to brand name products. They do not believe both products are made in the same factories, not that everything made in the same factory is similar. The same mixers and filling machines are used for multitudes of different formulas, and contract manufacturers produce many brands, using each brands’ proprietary formulas and chosen ingredients. This belief system applies only to personal care products, not to goods such as fashion, décor, or electronics. Apple has their products made by contract manufacturers who produce for other brands as well; no one thinks that all products made in those factories are the same.
Consumers do not take skin care lightly. It is not like an ill-fitting sweater tossed into the closet; skin care affects how one looks and feels. They put more trust in the recommendation of a brand rather than private label. Regardless of how well or little known a brand is, they favor a brand. Research supports that little known brands chosen by spas for their unique formulas, benefits, appeal and user friendly packaging reflects well, because consumers feel the professionals go out of their way to research what is best to treat their skin, instead of offering brands commonly found elsewhere. In other words, differentiation gets consumers’ attention but not to the point of believing that the spa created one of a kind product line only sold in one location. Furthermore, more informed consumers know that manufacturing requires large volumes for each production. Therefore, they conclude that private label skin care products on which spas just slap their label are sold to hundreds of other businesses.
Aestheticians claim they had to create their line because they could not find brands that have ingredients and formulas that deliver results. Another common theory is that private label products compare to high end brands, but are cheaper. Research demonstrates that consumers do not believe either claim. In 2012, the Integer Group conducted a study in the United States and the United Kingdom, testing consumers’ beliefs when it comes to private label personal care products, which shows that 65 percent of participants prefer a brand, stating that they have incredibly high stakes when it comes to skin care. They are less inclined to believe that private label compares to brands. Again, the perception is different for other consumer goods, such as fashion.

The Risk Factor
Your brand and reputation are your stock in trade; professionals build their communities’ trust over many years and work hard to earn and maintain that reputation. It takes little to tarnish a personal or business reputation. If a product grows mold or causes a rash, the brand name on the label suffers. If it is a line the spa re-sells, the spa will give their money back or replace the defective product, recommending a more appropriate product. Any time the businesses’ brand name is placed on a product label, a defective product damages their brand.
The aesthetician or doctor selling the private label product has no control whatsoever over any step of manufacturing and does not even know the percentage of each ingredient, or the manufacturing process. This is taking a significant risk and relinquishes control over their biggest asset: their own brand. In other words, if something goes wrong, the brands may incur irreparable damage.

Profitability of Branded Skin Care versus Private Label
Buying cheap and selling high is attractive, and private label offers significant margins in percentage. But does it bring more profit dollars in absolute value? Proponents of private label say that private label manufacturers save money and put this money into the product. They allegedly save on advertising and argue that brands spend a lot of money advertising their products. Not so. Manufacturers of private label experience the same advertising costs as brands because they advertise to the professional. How would they find clients otherwise? Not from word of mouth because aestheticians do not disclose who their private label suppliers are. Private label manufacturers say they save on packaging materials because private label packaging is not as fancy. The difference in price in packaging between a high end box and a typical private label box is less than 10 cents, even less than that for a tube. Most likely the product is inexpensive to the spa because it has fewer actives, no unique actives, simple formulas, lower quality of actives, and contains smaller percentages of actives to keep costs down. The percentages are not disclosed. The consumer becomes uneasy when told that the private label product is as good as the brand, but cheaper because of less advertising and packaging costs. They do not relate to unattractive packaging. They love the new ergonomic bottles and airless jars that dispense the exact quantity of product needed for each use, dispensing up to the last drop of product without waste and prevent bacteria from entering the cream. When products look less appealing, consumers buy less. Consumers who have purchased very high end products in retail stores or online may recognize quality more so than professionals who have never used those types of formulas. If a consumer buys private label because they trust the professional who advises them and do not like the results or relate to the packaging, they lose trust. They may buy less from the spa or not come back at all. I have seen spas’ retail sales drop significantly and profits suffer within a few months of switching to private label. Service sales drop as well.

Customizing Private Label Skin Care Products
If you want to customize private label products by improving the formula or getting custom packaging, understand your manufacturer’s capabilities and willingness to accommodate your requests. Not all manufacturers have machines and components required to fill tubes or airless bottles. Product development and testing fees can be very high, ingredient and packaging minimums can cost tens of thousands of dollars per product, and your volume may not use up the ingredient inventory before the ingredient’s expiration date. The minimums required may require large and costly inventory that may not sell before the products’ expiration dates. Then consider marketing and merchandizing design and production costs. Factor brochures, pictures, website, point-of-purchase signs and displays, samples, and so on. Unique design is very costly and few designers develop outstanding designs. Homemade or low cost marketing items do not appeal to buyers. Furthermore, the learning curve is significant. It is like learning a new profession, and this route can be very time consuming for busy aestheticians.
When selling a brand, the manufacturer takes on all costs: product development, inventories, testing, compliance, liability, marketing, and more. Spas and skin care professionals benefit from significant margins. The margins in dollars are actually larger than what the manufacturer gets.
Careful analysis in taking all factors into consideration supports that carrying branded lines instead of private label is more profitable and significantly safer.

Catherine Atzen, MBA takes a progressive approach to skin care and product ideation. Her inspiration stems from her upbringing in a 'green' French spa town and the creativity of the San Francisco Bay Area where she resides. A talented product developer, she recently launched the newly formulated ATZEN line chosen for the Academy Award's celebrity gift box. Her products are favorites among Hollywood celebrities, and Atzen serves as skin care advisor to many Hollywood stars. She also developed the LymphMed® device for lymphatic drainage. Atzen holds an MBA from UC Berkeley, California, an MBA from Columbia University, New York, a CIDESCO diploma, and is NCEA certified.
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