The Dirty Little Secret of the Cosmetics Industry Revealed!

Truth In Aging called out a very small cosmetics company for overcharging for a serum. They found the exact same ingredients from another small brand for half the price. And they let out the industry’s “dirty little secret,” Private Label.

Since sarcasm can’t be detected in print, I need to point out that the “dirty little secret” part is dripping with it.

I think that Truth In Aging should have done a little more research before slapping down this tiny company. And they need a better understanding of Private Label as well as the costs associated with product formulation.

Private Label? Is that like Members Only (heh remember those jackets)?

Private Label is essentially when a cosmetic company purchases and fulfills their products from an outside lab. The products are branded with cosmetic company’s logo and information, and to consumers it does not appear to come from any source other than the company they are purchasing from.

Because the costs for R&D are astronomical and many companies–from well known brands to tiny start ups–need the Private Label manufacturers to curb the outsized costs of product development and fulfillment.

Private Label can mean many things depending on your budget. You can work with the manufacturer to create a custom blend, which is pretty expensive but guarantees that the product is uniquely yours. Or you can purchase whatever stock blends they carry, clearly a much cheaper option.

Back to the bruhaha

I don’t know either company involved in this little bruhaha, or this particular product. That they use Private Label, or that they use the same Private Label source, is purely speculative. However, I found a Private Label source offering the formulation  found in both the products. And I found other brands that are using the formulation. And if TIA found the 100% markup shocking between the two brands they cite, they should have done a bit more sleuthing. I found the same formulation retailing for $80.

So, what’s the deal?

My best guess: packaging.

Most Private Label companies offer their own consumables for bottling. Or you can send them your own containers to fill, which is subject to additional charges for all sorts of testing. They need to ensure compatibility between the product and the packaging.

Repackage and your liability goes up

This particular Private Label company apparently also sells their product in wholesale containers. Companies buying from them could repackage on their own. By not having the original manufacturer bottle the product for them, this opens up the cosmetic company to law suits should something go horribly wrong. Companies that do their own packaging must carry their own insurance as a safeguard. And liability insurance on cosmetics products is damn expensive. When the Private Label company packages the product, the liability is remains with the Private Label company doing the packaging.

Was the $25 price outrageous?

The median price for this formulation appears to be in the $20 – 25 range, so I don’t think the “overpriced” company was trying to screw over their customer. Often Private Label companies give a “suggested retail price” based on whatever costs the cosmetic company is incurring.  Since the norm was in that range, my guess is the company went with the price suggested to them. All of the bottling with the products that fell in that range were rather unique, and did not look like standard “Private Label” issued packaging, which would bring the cost down.

Incidentally, I do feel like the $80 bottle was overpriced, but that’s not the company that was called out publicly.

The $25 product that Truth In Aging cited did not have product images available, so I could not see the packaging. But based on TIA’s original (and favorable) review of the product, it would appear that this company offered something unique–they put the serum in two smaller bottles rather than one large.

Why would they package this in two bottles? Oxidation.

The main active ingredient in the formulation is Vitamin C, which is highly unstable and oxidizes quickly. Vitamin C, even in ester form (and this formulation uses both), will turn a brownish color when exposed to air. By packaging in two separate bottles, this company is at least attempting to minimize the oxidation process. Oxidation does not necessarily impact efficacy, but it certainly would lead consumers to toss out the product when it discolors. My best guess is that they is trying to curtail that, as well as the costumer complaints and bad word of mouth that accompany tossing a product into the bin.

Back to the price gouging question

It does not appear that TIA tried to contact this company to get to the bottom of the situation. There are endless of factors that go into product pricing beyond the cost of the product itself.

And while TIA may be doing a service to their readers by finding the same product at a cheaper price, I don’t think it was terribly fair to call a company out as a price gouger. In my opinion, just about every company that sells any product is guilty of that. I would have loved to see a response from any of the companies TIA called out for “duping” consumers with Private Label.

Private Label is done by many well known brands

TIA treats Private Label companies like a big old cystic zit on the face of the cosmetics industry. However, several of the top niche brands in the market come out of Private Label labs. (And I am not talking about the celebrity lines either–the famous industry faces behind these companies aren’t cooking up formulations in their kitchens!) One of the largest personal care manufacturers in the US offers a Private Label service.

How do I know?

I have been researching Private Label companies off and on for the past two years. For smaller spas and estheticians, Private Label is becoming an important and viable option for cost effective retail products. Cosmetic companies that once sold exclusively to spas and salons are expanding into the mass market. These companies often sell their products at a discount to large retailers, which allows the large retailers to discount to the consumer with no effect on their bottom line. Smaller companies cannot financially compete with what is essentially the WalMart-ization of the beauty industry.

Competition is healthy, and important

Private Label is not the scourge of the beauty industry. Are there shoddy labs out there? Sure there are. But there are some seriously kick ass labs out there as well. With the right lab, Private Label can yield some spectacular products.

Plus it keeps competition going with the big brands by offering aspiring brands a cost effective opportunity to bring products to the market– and this competition is healthy and it matters. Over the past 10 years, these large brands went on a buying spree and snatched up a lot of the boutique products that were gaining market share. Without competition in place, your choices on products would be limited. And less competition means more opportunity for the biggest players to raise their prices.

I decided to withhold the brand names cited in TIA’s original post. If you are curious, you can find the names on their site. I don’t feel comfortable calling any company out in a public forum without knowing beyond a reasonable doubt what they are or are not doing in terms of their formulation and pricing. And, frankly, price is ultimately based on what the customer is willing to pay. There are clearly consumers out there willing to pay $350 for Cream de la Mer, and more power to them.

And with that, I leave you with this Dirty Little Secret. Enjoy!

Tagged as: selling beauty