Beauty and Skincare Retail Markups in India: A Guide

Have you ever wondered why luxury skincare products are so expensive ? It is not because these products are expensive to make but primarily because of the multi-tier retail system which exists.

Retail Price of Product (~100) = Cost of making the product (`20) + Packaging (`5)+ Company Overheads, Marketing, Margins (~25-30) + Retail Markups (`45-50) 

The biggest price of the product is retail markups (which are the commissions charged by online marketplaces like Amazon or offline retailers like Shoppers Stop) which can end up being over half the value of the final price paid by the consumer. 

Unfortunately, in cases where companies sell through their own website, while there are no retail markups, they tend to maintain price parity with their products on the third party retail shelves, thus resulting in almost no price savings for consumers.  

The cost of the actual product is typically less than 20% of the final price. 

This structure also results in a number of misaligned incentives which causes brands to engage in all types of dubious behavior 

1. Cheaper/Lower Quality Ingredients - The brands tend to work backwards from the price which they can charge to the consumer, rather than ensuring that they put out the best product. For example, if a brand feels that INR 600 is what it can charge a consumer, then they will budget INR 120 for the product and then try and find ingredient grades which can fit in that budget.

This is also the reason for the widely spread phenomenon where brands market the product on the basis of multiple ingredients, but the concentration of most of these ingredients is so small that it has no effect. 

2. Marketing Hustle - The main differentiation for the brands ends up being marketing, as genuine breakthroughs in R&D are rare and far in between. This has resulted in every small, incremental gain in a formulation being touted as the next miracle product. Many brands end up bringing fancy ingredients which do nothing but sound good [24k gold, which is inert, is a prime example]. Many start bringing random combinations of ingredients, just to put out something different. 

The net result of this is a glut of undifferentiated and non effective products in the market, which in many of the cases are overpriced and filled with cheap ingredients. We, at Formulary Maison, have completely flipped the model to tackle these challenges. 

Our membership based, direct to consumer model ensures that the retail markups are eliminated. This allows us to offer the highest quality products (which can be benchmarked with luxury brands) at affordable prices. 

We also limit the products we sell. We believe for most people, four products - Vitamin C, Hyaluronic Acid, Retinol and sunscreen can take care of 99% of the skin’s needs. This is the foundation of our CHSA routine. Apart from this, we only do products which provide specific solutions [for example, Niacinamide serum for shrinking visible pores or a sweat resistant sunscreen for people who engage in rigorous outdoor activities]