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ARTICLE

The Influence of Cosmetic Products Developments to The Beauty and Cosmetics Industry in Indonesia

Nusantara Journal of Current Economics and Business Ventures Issue 1: 2021 https://lekantara.com/journal/index.php/njeb

Angela Febiani Putri

Universitas Brawijaya Malang, Indonesia

Email: [email protected]

Syafira Vionika Fadilla

Universitas Brawijaya Malang, Indonesia

Email: [email protected]

Abstract Industry analysis is needed to plan and make decisions in an industry. By using industrial analysis a company can determine the level of industry saturation, its position in an industry, and identify threats and opportunities. Industry analysis also includes an indication of the average sales growth of a company. Porter's Five Forces is an analysis method that used to discover the impact of various main factors within industrial competition. Currently, the beauty and cosmetics industry in Indonesia is experiencing rapid growth, which has led the enterance of new company in this industry and producing various products. The purpose of this article is to find out and explain the influence of the development of cosmetic products on the beauty and cosmetics industry in Indonesia, there is also a comparison of the products we take such us Wardah and Make Over.

Keywords: cosmetic beauty industry analysis, porter's five forces, wardah, make over

Introduction In this century, the use of cosmetic products is a part of the lifestyle, many people are concerned on their appearance. In this case, a person's appearance is not only about how 12

Fadilla & Putri they dressed but also by observe about how their physical appearance looks. Regarding to this trend, cosmetic products raise a secondary requirement for people to have cosmetic or other beauty products to support their appearance. The use of cosmetics is universal, both women and men need cosmetic products. Therefore, many companies are competing to create various types of cosmetic products to meet these needs. With this phenomenon, the beauty industry in Indonesia has developed quite rapidly. On the other hands, it has become a trend and led into a new various range of cosmetic products who came from various brands, both domestic and foreign.

As one of the countries that has a large population with 270 million population, Indonesia has become as one of the most lucrative market segments for companies engaged in the beauty industry. According to the Euromonitor International report, Markets of the future: ASEAN in 2020, Indonesia has been stated as the fastest growing beauty market in Asia in terms of compound annual growth rate. The business potential of Indonesia beauty and cosmetics industry in 2019 is estimated at USD 6 billion and it predicted to increase by the time. It is estimated that in 2022 the potential growth can reach up to USD 48.4 billion. The development rate of Indonesia beauty and cosmetic industry shows in a positive way. According to the ministry of industry, the number of national exports of cosmetic products in 2019 reached USD 600 million which is higher than in 2018, amounts to USD 556.36 million. With this in mind, Indonesia beauty and cosmetic industry still develop over time and Indonesia has a comparative advantage compared to other countries

Graph 1: Indonesia Cosmetic Industry Market Growth (Beauty Mass Survey, 2018)

The high growth of the beauty and cosmetics industry has led to many new competitors who entering this industry. This industry is also one of the fast paced industries, moreover the life cycle of some products still on a growth stage. Both former and newest companies as well as local and multinational company play a role in this industry to compete each other by creating creations and innovations through their new launched products and its strategies. Importantly, the increasing of variety products produced by several companies natably hoped that it will increase the sales level which affect the development itself. Therefore it will require an analysis of the beauty and cosmetics industry.

Competition for companies in Indonesia beauty and cosmetics industry is currently competitivel, both by domestic and foreign companies. The competititon between domestic companies/local brands also quite hard enough. Lots of new brands from local companies that 13

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appear and compete with another big local companies. There’re some local brands in this industry, such us Make Over, Wardah, Sari Ayu, Mustika Ratu, By Lizzie Parra, Purbasari, etc. Meanwhile, here some global company in this industry such us, L'Oreal, Maybelline, Shiseido, Estée Lauder, and others.

Make Over is a cosmetic brand produced by PT Paragon Technology and Innovation, which is also a company that produces other beauty product brands, Wardah and Emina. PT Paragon Technology and Innovation continues to innovate through various platforms and they also has other advantages, for instance having affordable prices and products that continue to develop and able to compete with competitors.

This study is expected to discover how is the analysis that can be carried out the beauty and cosmetic industry through the development of existing cosmetic products.

The aim of writing this study is to determine the influence of the development of cosmetic products on the beauty industry in Indonesia.

Literature Review According to Barringer (2015), industry is a group of companies that produce similar products or services. Industry has various dimensions such as size, growth rate and overall attractiveness. In the industry there will be trends that must be considered to determine the market. Industry consists of large, medium and small companies. Industry analysis is needed to plan and make decisions in an industry. Industry analysis includes an indication of the average sales growth of the company in an industry. With the existence of information about an industry can help companies in preparing financial forecasting and company plans which include product selection, target markets, and operational plans. With the existence of industrial analysis can also make companies know the level of saturation of the industry. To determine the saturation level of an industry, it can be analyzed using Porter's five forces analysis method.

Industry life cycle Industry life 1. Introduction At this stage, it is possible that only one single company will act as the first mover. Failures that occur in this stage occur because the company receives low product acceptance. The company will target investors and develop a selective strategy.

2. Growth At this stage, the market growth rate has increased exponentially where more and more people use products from companies in this industry. Competition at this stage is still quite loose. The low level of market penetration allows the company to pursue growth by acquiring customers by increasing promotion and marketing. Companies can differentiate their offerings with the aim of having a larger customer base and maintaining customer loyalty.

3. Shakeout At this stage the growth rate begins to slow down. Companies began to compete with each other directly for market share. Market penetration begins to experience saturation because it has reached most consumers. In the face of this condition, the company begins to seize

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4. Maturity At this stage the market reaches its maximum size and industry growth reaches its peak. The market structure began to change to oligopoly with only a few strong firms. Market consolidation also takes place, some companies can acquire competitors to strengthen their market position or merge to increase the size of the business.

5. Decline At this stage, industrial growth becomes negative. This is due to a result of changes in the external environment such as changes in technology and new innovations. The substitute product market is growing and able to divert customers.

Porter's five forces analysis Porter's Fice Forces is an analysis that can be used to determine how big and strong the influence of various external factors is an analysis of industrial competition. To find out the competition in an industry, industry competition analysis is needed. In the porter five's Force analysis, there are five forces in industrial competition which form a strategy. AHP (Analytic Hierarchy Process) AHP is a multicriteria measurement that helps to overcome problems in making decisions on quite complex problems. AHP is done by structuring problems, identifying decision-making factors, measuring the importance of factors, a model to assist companies in making decisions. According to Porter, there are five things that can be identified to determine the level of competition and market attractiveness in an industry. Attractiveness in this case refers to the profitability of the industry as a whole. The following are the factors analyzed in the Porter five force: 1. Threat of New Entrants The existence of entry barriers is a number of factors that will prevent potential new entrants from entering an industry. Low entry barriers will cause an industry to experience a decline in the level of profitability quickly because it will result in increased competition between companies in one existing industry. High entry barriers will maintain industry attractiveness for a long period of time. Examples of entry barriers include economies of scale, product differentiation, access to distribution channels. 2. Bargaining power of suppliers Strong supplier bargaining power allows suppliers to sell raw materials at high prices or sell low quality raw materials to buyers. Thus, the company's profits will be low because it requires high costs to buy high-quality raw materials. Conversely, the lower the bargaining power of suppliers, the higher the profits of our company. 3. Bargaining power of buyers This power assesses the bargaining power or supply power of buyers/ consumers, the higher the bargaining power of buyers in demanding lower prices or higher product quality, the lower the profit or profit that will be obtained. by the manufacturer company. Lower product prices mean lower revenue for the company. On the one hand, the company requires high costs in producing high quality products. Conversely, the lower the bargaining power of the buyers, the more profitable it is for our company. 4. Threat of substitutes products / services This barrier or threat occurs when the buyer / consumer gets a substitute product that is cheaper or a substitute product that has better quality at a lower cost of transfer. The fewer substitute products available on the market, the more profitable our company will be. 15

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5. Rivalry among existing competitors. This strength is the main determinant, the company must compete aggressively to get a large market share. Our company will benefit more if our company position is strong and the level of competition in the same market (Market) is low. Competition is getting tighter will occur if many competitors grab the same market share, low customer loyalty, products can be quickly replaced and many competitors have the same ability to face competition.

Research Method This research uses a qualitative research method with descriptive methods. Qualitative research is a research procedure that will produce descriptive data in the form of words written or separated from people and observed behavior (Bogdan and Tylor, 1990).

The concept of the initial stage in this research is to determine in advance the object of observation under study. Observations will be made on the object of observation that has been determined, identify problems that may occur in the object of observation. The problem identification stage will be used to formulate problems, objectives and research benefits that can be obtained from the progress of this research and the scope of the research. The object of observation that has been determined is the Influence of the Development of the Use of Cosmetic Products in the Beauty and Cosmetics Industry in Indonesia, as for the comparison of the products we take are Wardah and Make Over cosmetic products, which are products produced by the company PT Paragon Technology and Innovation.

The formulation of problems and research objectives are obtained from literature studies using books, journals, articles, and other supporting media. Then the comparison between container products and make-over in the cosmetic industry, this section will discuss the formulation of Wardah's cosmetic marketing strategy obtained from the matrix and mapping of Porter's Fice Forces. Analysis and interpretation after the data processing process is carried out, then the data interpretation process will be carried out which will be accompanied by analysis, evaluation and improvement that can be carried out.

Results and Discussion Of the 5 aspects of strength in competition, what Porter means consists of customers, suppliers, threat of new entrant, threat of substitute products or services, intensity of competitive rivalry. I try to divide it into 3 categories, namely strong, moderate and weak intensity.

Wardah product analysis Bargaining Power of Buyers The greater the bargaining power of customers, the more effort must be spent to retain customers. This is directly influenced by the number of alternative products or similar brands in the market. If we look at the survey results, similar products in the category of face powder and lipsticks have a similar profile, that is, each market is followed by at least 10 similar products that are strong. This can be seen with only 15% market share of Wardah cosmetic products that have been able to become market leaders. So there are at least 7-8 products that have strength to be reckoned with. Another factor is that the opportunity for buyers to get a cheaper price from Wardah product items is very possible. Another aspect that illustrates this competition is the ratio between the number of buyers and brands / products in circulation, if multiplied by the potential volume of purchases, it will become a fairly large market potential

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per unit time. Then do the sorting of favorite products based on data to see the effect of the product on purchasing decisions. There is an effort / cost that must be spent by customers to change products compared to the cost of reaching new customers. Assuming that it only relies on the number of brands circulating in the market, I think the intensity of this aspect is very strong, meaning that there is high competition.

Bargaining Power of Suppliers This aspect covers all aspects of the company's operations in producing product items, including: how many raw material suppliers, how many are the best suppliers, how does the effort / cost compare to find new suppliers with the cost of suppliers to find subscriptions new, are there any substitute materials for supplies that are currently used, are there other industries in the form of concurrent industries, using the same raw materials (both materials and quality standards) which make the supplier's bargaining power even stronger. Since there is no data availability, I assume that the bargaining power of suppliers is moderate.

Threat of new entrants Thing that needs to be answered is whether the barrier to entering the business is high (difficult) or low (easy). This aspect provides an illustration, whether the business they are engaged in is leading to perfect competition (a decrease in operating margin to zero), where everyone can enter the business. Based on this, it can be seen as follows:

In terms of investment, it can be said that this business can be categorized as moderate, from the sub-aspects of know-how and regulatory standards it can be said to be very high, from the Branding sub-aspect, the barrier is very high, from the sub-aspect of channel access distribution is assumed to require complex planning. Based on this assessment, the difficulty level of the barrier for newcomers is very high.

Threat of substitute products or services For lipstick products, there are substitute products, namely the presence of eyebrow embroidery or lip embroidery which can replace the use of lipstick. However, because this aspect is still very expensive compared to the price of a lipstick, the threat is still low. For face powder products, there are substitute products, namely foundation (cream toning), BB cream, CC cream, and concealer that can replace face powder. Referring to the lipstick and face powder items, I assume the use of foundation is an alternative to face powder, so the intensity is still moderate.

Rivalry among existing competitors. Based on the results of the analysis, it can be seen that Wardah has competitors from other companies' trademarks, both local and foreign brands. The existence of this is a big enough threat to this product. However, Wardah itself is a product that has a fairly large halal tagline and is well known in Indonesia, so the number of markets is still quite large. This gives Wardah a competitive advantage over other company brands.

Analysis of Make Over products Threat of new entrants. New entrants product will bring an innovation and a new strategy for Make Over. Through a lowering prices strategy, reducing costs, and providing new value propositions, Make Over has to manage these challenges in order to maintain their competitive advantage. Strategies

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Fadilla & Putri taken by Make Over to overcome the threat of new entrants include innovating products and providing new services also launching new products that are able to attract new and old customers, building economies of scale so that it can reduce fixed costs per unit, conducting research and development on a regular basis to produce other new products, apply high standards for their products, build a high and good brand image. In addition, the distribution channels owned by this product are quite wide, such as through online and offline sales through stores and partners spread throughout Indonesia. Make Over also introduces its products through TV ads, magazine ads, endorsements, and also social media advertisements. With these things, Make Over is still superior compared to other comers.

Bargaining power of suppliers To expedite the production process, it is necessary to have raw materials from many suppliers so that the production process is not disrupted and also to get the appropriate price from suppliers that are deemed sufficient. Therefore Make Over does several things to overcome this, which consists of building an efficient supply chain with many suppliers, conducting product design experiments using different materials so that if the price of a raw material rises, the company can shift to using other raw materials.

Bargaining power of buyers Buyers certainly want to get the best offer for a product at the right price. In addition, buyers also want promos or discounts that are given every time they purchase a product. To overcome this, Make Over has taken several strategies such as building a large customer base because this can help reduce buyers' bargaining power and provide opportunities for companies to streamline their sales and production processes, then innovate to produce products quickly due to product launches. new products will make consumers more interested in purchasing new products at affordable prices.

Threat of substitute products or services When there is a new product or service can meet the needs of customers who are similar in different ways, such as the embroidered lips to replace the product of lipstick, eyebrow embroidery to replace the function of an eyebrow pencil and can save users time with the replacement product. So there are several strategies that Make Over has taken to overcome these problems, including understanding the core needs of customers, orienting themselves to services and products, and providing various product variations that have similar functions such as producing lipsticks with matte, glossy,finishes and satin.

Rivalry among existing competitors This competition has an impact on the level of long-term profitability of an organization as a whole, therefore Make Over operates competitively to increase its level of profitability. Several things are being done to overcome this, among others, by building sustainable differentiation, and collaborating to increase market size.

Analysis of the beauty and cosmetics industry as a whole: Threat of new entrants Beauty and cosmetics industry is a competitive industry and thus attracts new entrants who are trying to grab market share. This causes a decrease in the profitability of existing companies. There are a number of entry barriers in this industry, such as high economies of scale by the existing companies, the capital required to establish is quite high, the presence 18

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of a strong brand identity, to gain access to distribution is a medium level barrier, access to inputs required for manufacturing is not too difficult.

Bargaining power of suppliers The number of suppliers in this industry is large. There are many manufacturers of products that are needed by the industry. There is low input differentiation. There are certain diversion costs and the threat of future integration also exists. The existence of input substitution and the impact of input on low costs. Overall, the bargaining power of suppliers in this industry is low.

Bargaining power of buyers / consumers (bargaining power of buyers) Increased competition and product availability make buyers in this industry have high strength. They are not in a position to influence product prices. This makes it difficult for the company to maintain long-term profitability. It can also force companies to lower product prices because buyers can easily switch to other brands.

Threat of substitute products or services Threats to the replacement product is quite low even though now there are a lot of choices of beauty products and cosmetics using high technology, but there are still many consumers who choose to use a product that is known to many people or conventional for security reasons.

Competitive rivalry within the industry The level of competition among competitors in the beauty and cosmetics industry is quite high. Because competitors can come from domestic and foreign companies that offer similar products with various kinds of innovations.

Conclusion Wardah Cosmetics does not carry out overall cost leadership first, but instead concentrates on the market segment that has been targeted from the start. Through a very unique product differentiation, halal cosmetic products, the target segment to be entered becomes clear. The differentiation used by Wardah Cosmetics is supported by good marketing communication, namely: pure and safe, beauty is closely related to the purity and safety of the products used. In the long term this will have an effect on the health of the skin, so that the result is a beautiful inner beauty that will appear. After the initial successful stage, Wardah expanded the market segment by communicating "the general concept of beauty, namely: beauty belongs to all". There are 2 things that are done, namely: communication as a "beauty expert" to strengthen public trust to continue to use Wardah products; second is the pricing strategy. This price / price war strategy is carried out to be able to enter a wider market segment. So in general, the strategy formulation used is: the initial stage of differentiation, after becoming a leader in the market the next stage is to increase the market segment. In my opinion, Wardah has not implemented an overall cost leadership strategy, because he is still studying the economies of scale from the level of production as well as the economies of scale from the level of distribution. while for make-over, there is a stage of being aware of the Make Over product or consumer brand awareness or the audience is already aware of the Make Over brand. As well as the component of brand recognition, researchers have found that consumers or audiences are familiar with the brand.

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In other words, by already knowing about the Make Over brand which is one of the components that underlie the awareness of the brand is already in the minds of consumers. then in its development is not impossible for Make over and Wardah will be able to going international and compete with each other in the cosmetic industry. In addition, with many newcomer companies that offer beauty and cosmetic products with a variety of innovations that are growing can affect the beauty and cosmetics industry to further experience growth and development.

Limitation of the Study  Explanation of the cosmetics industry  Cosmetic industry comparison between Wardah and Make Over brands, using Porter's Fice Forces analysis

Declaration of conflicting interest The authors declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article

Funding Funding used in article writing is Rp. 0,- All data for writing is obtained from the internet.

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