How Marketplace Models Are Driving Growth in Beauty

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At The Business of Beauty Global Forum 2024, the second edition of the annual event held at Stanly Ranch in Napa Valley, California, industry leaders, founders, retailers and investors were brought together to discuss how marketplaces are an increasingly dominant channel in the retail mix.

“A major concern with direct-to-consumer brands from the jump was that you were going to cannibalise the demographic you were selling to if you consider a marketplace,” said Front Row’s marketplace partnership VP of brand strategy, Alex Carmody, in her opening remarks on stage in conversation with BoF’s associate director of content strategy, Alice Gividen. “But, post-Covid we know that Walmart, Amazon and other major marketplaces are where customers are spending time, making marketplaces a key stepping stone.”

Indeed, more than 35 percent of all online purchases are made on a marketplace, according to Wunderman Thompson research — a figure that could reach 60 percent by 2027. This shift forms part of an increasingly complex e-commerce landscape. How customers engage with brands in 2024 has been transformed by multitasking across channels, creating a 32-hour day for the average American — with 13 hours spent using tech and media, according to Activate Consulting’s Technology and Media Outlook 2024 report.

While the marketplaces that are designed to benefit from this consumer behaviour are growing, digital marketing costs, economic uncertainties and logistical pressures have driven up the cost of doing business— impacting the effectiveness and profitability of wholly DTC business models. Meanwhile, TikTok has experienced rapid ascension as both a key social platform and a search engine in its own right.

As a global commerce accelerator, Front Row supports its partners in areas such as brand strategy, digital marketing, content creation, business intelligence and end-to-end retail management across major marketplaces. Its clients include Rare Beauty, Sephora, Ouai, Kosas, Glow Recipe, Summer Fridays, Youth to the People, and Dr. Dennis Gross Skincare.

Below, BoF shares Carmody’s key insights on how marketplaces can be utilised as a route to core consumer cohorts.

Create feedback loops from marketplace data

AC: Customer behaviour on marketplaces is completely different to what we see and track in a brick-and-mortar beauty retail space. One reason is because customers are coming on to marketplaces and not just purchasing beauty products. They are purchasing apparel, items for their home — anything you could think of in addition to beauty products. So when we look at shopping habits on these marketplaces, we have a holistic view of consumers which can help beauty brands really get to grips with their audience demographics and test new cohorts too.

Within Amazon, Walmart and other major marketplaces, the insights we can pull from review data is hugely unique and valuable. It’s where brands can discover, for instance, if consumers are using your product in a different way to its intended use and can act accordingly. This kind of insight is another example of the stepping stones towards growth — Amazon makes a bit more sense if you consider it as a supplement to your existing D2C presence rather than something that will cannibalise that channel.

Leverage AI offerings to create commercial shortcuts

AC: What we’re starting to see within marketplaces is the chance to apply artificial intelligence — there are many different avenues you can go down in order to utilise it. For beauty, where seeing and testing products in-store has always been so key, there is a lot of opportunity to help customers learn more about products remotely.

Gen-Z and Gen Alpha are bypassing Google and going straight to Amazon to directly search for brands.

What excites me are the shortcuts that AI can create. AI-generated models, for instance, which could personalise the shopping experience to ensure products are [accurately] shown, which marketplaces are testing right now. Another example is, if a brand is looking to build up their Amazon or Walmart businesses, they can use AI to create optimised listings from scratch to generate more cut-through and build their brands. Beauty businesses should be asking, “how can I scale my business more quickly by utilising this technology? And what can work for my customer base?”

Consider marketplaces as search engines

AC: TikTok is an interesting example of how social content is directly connected to those major marketplaces. Gen-Z and Gen Alpha will encounter a product on TikTok and while they will do some research on DTC websites, they are bypassing Google and going straight to Amazon to directly search for the brand. As a result of that shift, we’ve seen an increase in branded searches within Amazon as well as Walmart of more than 86 percent.

This is a marked shift away from the height of the pandemic, where customers were looking more broadly at skincare and beauty concerns, rather than leading with brand search.

Amazon makes a bit more sense if you consider it as a supplement to your existing DTC presence.

This shopping behaviour should also be considered within the early stages of brand [marketing]. Take influencer marketing, for instance. Beauty brands have to play in that space — but, even then, we should be thinking about who is the perfect fit for driving customers where we need them to go? If we know consumers are bypassing Google and heading to Amazon — how does that impact influencer marketing? What kind of ads are going to resonate with that customer?

Embrace evolving partnership models across marketplaces

AC: There are significant innovations happening within partnership models being offered across marketplaces. The biggest platforms out there have done significant research to understand why they struggle to onboard premium brands onto their platforms. The result of that research has been offerings like Amazon first-party versus Amazon third-party relationships, which give brands more flexibility over how product is sold. There are also now developed subcategories for pretty much every area of beauty to entice brands to play in these spaces.

One area of growth is leveraging marketplaces to engage a cold audience from another retail channel. If people are adding beauty products to cart and not checking out, we can look at customer data to understand why that might be happening and work to actively re-engage them as they spend time across marketplaces. When brands segment out their demographics, we see less resistance to marketplaces — it becomes a much more controlled experience. And marketplaces today are increasingly asking how to put their brands first because so much education is being done off-channel.

This interview has been edited and condensed for clarity.

This is a sponsored feature paid for by Front Row as part of a BoF partnership.