The global beauty industry is growing fast—from 2020 to 2021, revenue has jumped from $483 billion to $511 billion, and is expected to exceed $716 billion by 2025. Companies looking to carve out their share of this rapidly growing market will need to turn to data-driven strategies for marketing in the beauty industry.
Two main drivers of these rapid revenue gains are the increase in eCommerce purchases in the industry and consumers’ willingness to spend more on higher quality products. Putting that in terms of the individual business, marketers should strive for more digital acquisitions of new customers while paying attention to how much each customer is willing to spend—on a single purchase, or over their lifetime with your brand.
eCommerce beauty companies make shopping easy.
The impact of that on the industry will be significant—by 2023, the online share of the beauty and personal care industry in the United States is expected to reach 48%. So, what’s a marketer to do to appeal to and attract online beauty aficionados?
Acquiring a competitive advantage and new eCommerce clients digitally is all about using data and technology effectively. For example, Retina helped our client Madison Reed—a beauty and hair product company that operates both online and in brick and mortar retail locations—measure the return on digital ad spend (ROAS) by calculating an important metric called customer lifetime value (CLV).
Customer lifetime value measures the amount that any one of your clients will spend with your brand from their very first purchase until their last one. Knowing which of your customers will be big spenders over time and what they have in common can help you focus your marketing budget on new clients who are similar to them using technologies like Facebook’s lookalike audiences.
Social media advertising is a key channel for the eCommerce beauty industry—disruptor-turned-giant Glossier made the 5th top spot on 2PM’s DTC Power List, and the brand credits this channel as the main reason for its success. Competing effectively for traffic from social media ads takes more than just throwing your budget at a wall and hoping your new clients stick around. Especially as the social media advertising space becomes more competitive, understanding your niche and targeting them directly is essential to your success.
Customer segmentation can help you find your niche—or niches.
Segmenting your current client base in terms of CLV is a great way to discover who your biggest spenders are, and it also can spotlight which of them are in danger of churning. Another profitable segment of your customer base you might want to be aware of are loyal clients who don’t require much attention to keep coming back.
On the other hand, it’s also helpful to understand which of your customers ultimately aren’t profitable for your business to try and acquire. For example, clients who only purchase when incentivized with a discount or customers with low CLV don’t necessarily bring in enough revenue to justify targeting them with expensive advertising campaigns and promotions.
Once you’ve arrived at all of these segments, use them directly in your digital marketing strategies as lookalike audiences for bringing in new clients who are similar to your most valuable audiences. Don’t forget to set up exclusion criteria for lookalike audiences similar to customers who have only made one purchase as part of a promotional discount, only to never return to make another purchase again.
Remember, modern consumers are willing to spend more on high quality products, which can drive up the average total cost of individual purchases and bring up your revenue in the process. Try digital marketing campaigns that focus on quality targeted towards your most loyal customers, and you may find that the revenue gains from campaigns like this one will result in much higher ROAS than other less strategic campaigns.
Track CLV:CAC ratio to measure your success in your efforts to target your best new customers.
Ultimately, when using your customer segments to attract new customers, there’s one metric that’s especially important to keep in mind. That’s CLV:CAC, or the relationship between customer lifetime value and the cost to acquire a new customer. When this metric is on the rise, that means your new customers are bringing in more revenue to your brand in relation to how much you’re spending to acquire them in the first place. Check out our case study with Madison Reed to learn how we helped them raise their CLV:CAC ratio—and by how much.
Acquiring a competitive advantage and new eCommerce clients digitally is all about using data and technology effectively. If you’re curious how you measure up to your competition in terms of the average lifetime value of your customers or CLV:CAC ratio, download our infographic report that highlights an analysis of the leading beauty industry leaders today.