Can the beauty industry break its addiction to ‘Gift with Purchase’?

Beauty is a $42.9B dollar market in the United States. And Gifts with Purchase (GWPs) are considered an essential component of the promotional cycle by many beauty companies. But they come with an ugly cost.Here, we explore the environmental impact of GWPs and how to reduce waste with Data Science.

Just how essential are GWPs?

Many beauty companies rely on GWPs as a significant seasonal driver of sales. Incremental sales driven by GWPs alone for a typical US cosmetics brand can account for 4-7% of the business.

GWPs can account for 4-7% of business.

In addition to driving incremental revenues, they are often preferred over discount promotions because they enhance a brand’s perceived value – offering the consumer additional products with their purchase, rather than driving down the price of a product as a discount would.However, while there are benefits of GWPs – for consumers and brands alike – there are considerable drawbacks too. Plastic waste.

Almost all GWPs end up in a landfill.

Every year, 120 billion units of cosmetic packaging are produced, mostly for one-time use. Of these units, almost all GWPs produced end up in a landfill. This is because nearly all sample-size and travel-size containers are completely nonrecyclable.

The GWP dilemma

There is no getting away from the fact that the production and upsell of these small products leads to increased plastic waste, with a detrimental impact on the environment.

Simply stopping isn’t a palatable option.

Yet with a 4-7% impact on sales, not offering them would also have a detrimental impact on beauty brand revenues. Simply stopping isn’t a palatable option.But there are other factors to consider. While customers may seemingly like their freebies, they’re increasingly demanding more of the brands they buy from.

Sustainability is shifting consumption patterns

Sustainability is becoming a driving factor in whether consumers choose to purchase one product over another. Nearly 1 in 3 consumers claim to have stopped purchasing certain brands or products because they had ethical or sustainability-related concerns.

This shift even occurs when consumers think the more ethical competitor offers lower quality options. As far back as 2015, Mintel found that 27% of consumers would stop purchasing from the more premium but less ethical brand, in favor of a lower quality but more ethical alternative.

Beauty companies must reconcile the commercial necessity of GWPs with environmental considerations that don’t alienate one third of consumers.

Yet, despite consumers’ desires to shop more sustainably, many are still swayed by a non-sustainable product’s lower price point. Recent research from Deloitte found that one-in-two consumers are either not willing to pay more for sustainability or are unsure whether they would.Nonetheless, beauty companies must reconcile the commercial necessity of GWPs with environmental considerations that don’t alienate one third of consumers.

How can the beauty industry reduce its environmental impact?

Let’s explore a couple of options: Customization and Reduction.

1. Customization

As highlighted by the Zero Waste Beauty report, customization of products to a consumer’s need on a case-by-case basis will reduce the chances of products being thrown away. However, without the proper data and forecasting capabilities, there is no visibility on which GWP offers will appeal to consumers, and so customized offer choices may still not match demand. Opportunities to reduce waste go untouched, and brands end up raising their production costs for what was supposed to be a “small” gift to generate an upsell. Potential lose-lose.

2. Reduction

Recuction is an obvious route. Just do less. But to reduce the use of GWPs without generating a 4-7% hole in sales, brands need to understand how to compensate for that loss through other, more sustainable, levers. That’s why it is crucial that brands make the best use of their existing data. For example, with Marketing Mix Optimization (MMO), they can ensure other levers work harder while reducing GWPs, and remain competitive in a promotions-driven market.

Partnering with Data to Drive Sustainable Change

Indeed, data provides many opportunities to drive sustainable change. Here are four:

1. Minimize unwanted products in GWPs

There’s no doubt that beauty brands must focus efforts on minimizing the chance a product will be thrown out and go unused.For most companies, the requisite data to understand their consumer and place them as a focal point for all decision-making is readily available through online sales databases connected with CRM platforms. This is what customization strives for.

A data-first approach would allow customization to be strategic and more efficient.

Brands should aim to understand the answers to the following questions to design their conscious GWP strategy.

1. 1. What incremental products are customers buying to meet the spend threshold?
   2. Are they repeat customers? If so, which GWPs have been appealing to them?
   3. Do they come back to buy any of the sample items in that GWP later?
   4. What can be deduced about their preferences from past products they have bought, or their online browsing behavior?

Customizable offers might be necessary to appeal to the whole consumer base, but a data-first approach allows the customization to be strategic and more efficient. It is no longer a risk of production costs, but rather a data-backed solution for reducing waste and lifting sales.Beauty brands that take this approach stand to win twice over. First by increasing the chances that the GWP is used, and second, that it will lead to a full-size purchase in the future.

2. Focus on profit over volume

Taking it a step further, brands can adopt a profit-centric view on their promotional cycle versus volume.To do this, it is essential that beauty companies stop thinking about GWPs as a seasonal moment. Instead, think about them as a customer moment to drive long-term customer value.Without turning away from the promotional nature of the beauty market, companies can optimize profits and environmental impact by understanding the best frequency and qualifier thresholds of GWPs.

Companies can maximize profits and environmental impact by understanding the best frequency and qualifier thresholds of GWPs.

With DTC channels on the rise, brands can look for clues from a customer’s first purchase and invest in developing their journey with the brand early on. This is where a GWP can lead to a long-term increase in sales and brand equity, as properly engaged customers will return to purchase full-size items. But it’s also about understanding where a GWP isn’t necessary, and other levers can be deployed to lead to the same purchase.Running tests in small representative markets helps to create an offer that does this effectively. Answering questions like:

1. 1. How frequently should GWPs be offered and to whom?
   2. When can the most incremental sales be driven?
   3. What is the overall emissions impact from the production and sale of GWPs?
   4. What level of qualifying dollar threshold is the most effective in driving profits vs volume?
   5. What size of gift and how many products are necessary to drive a customer base to purchase?

The answers will not be the same for any two brands.Beauty brands that focus on profit and the contribution of GWPs effectively will maintain their competitiveness in the market. They will still participate in the promotional cycle and maintain an active customer base, but in a much more powerful way – prioritizing long term value and the environment.

3. Compensate incremental sales with more sustainable marketing levers

In addition to a profit focus, or tackling the need for GWPs as a point solution, brands can begin to think more broadly about the environmental impact of their marketing – from product concept to end user habits – through measurement and optimization.Indeed, the tools to do this already exist and can be adapted accordingly.By design, Marketing Mix Optimization takes account of a multitude of factors to ensure the best possible outcome according to various constraints. It’s not a huge leap to add emissions through the production and supply chain into your MMO.

It’s not a huge leap to add emissions as a KPI into your MMO.

This allows brands to follow the threads of environmental impact for each product and the product mix, and to rebalance marketing levers towards impact reduction while compensation for profits through more sustainable levers. As a result of how MMO works, this can be a transitional process.Ultimately, by understanding the direct and indirect impact of emissions from marketing drivers, including GWPs, brands can better steer their business through multiple KPIs.

4. Optimize Production and Distribution

Finally, it is imperative companies consider how to reduce waste caused by over-production and inefficient distribution.The central question brands must answer here is: how many GWPs should be produced and how should they be distributed nationally and amongst retailers?As more brands lean into customization, forecasting which products will have a higher demand amongst consumers and where this demand is becomes essential.

It is imperative companies consider how to reduce waste caused by over-production and inefficient distribution.

By understanding demand at point-of-sale, companies can rework their product strategy and forecasts to predict and produce the right volumes for each gift and distribute effectively for the best chance of sale.They stand to win by both reducing waste and costs.And while brands lack visibility of the distribution of GWPs to the end customer in traditional channels, there are opportunities to partner more closely with retailers to unlock routes to environmental goals.

The Bottom Line

The world is becoming more sustainability focused. And it’s about time.As it does, it is essential for corporate strategies to evolve to stay relevant. For long-term success, companies must continue to meet their consumer’s demands from both angles.

It is essential for corporate strategies to evolve to stay relevant.

Even with this shift towards sustainability, the reality is that customer expectations persist and GWPs remain essential to promotional cycles.Companies must advance their approach and help consumers to reconcile their desire for doing “good” with their consumption patterns. To do this effectively, it’s necessary to lean into innovation through data-driven solutions and measurement. And switch to a cycle of sustainability.

Want to read more?

Check out:Article:Fashion industry: Four ways data science can simultaneously deliver environmental & commercial quick wins for the fashion industryWhite Paper:Sustainability: Tackling industry’s most pressing, burning platformOr to talk more on this topic, contact us via the form or connect with the authors on LinkedIn: Sona Abaryan,Angela Reiss, Angela Loyola