Julep, a formidable venture-backed cosmetics company that designs, produces and sells its own products in the nail polish, skincare, and makeup space, is an innovator in the space in that it no stranger to the power of real consumer insights and the internet.
Recognizing that new product launches carry high risk and high costs, some of which include excess inventory and waste, Julep founder Jane Park recognized that for smaller companies who can’t bank on such “blockbuster successes” that define the beauty industry, the huge marketing expenses for ads and shelf space are a huge deterrent. To increase the likelihood of success among its loyal followers and potential new consumers, Julep has incorporated elements of crowd-sourcing product-development from its earliest days.
Traditionally, consumer goods companies rely on lengthy consumer surveys, market reports, and experience/intuition as they launch new products. Then, they make a predetermined amount of those products, release it to distributors, promote it, and hope they fly off the shelves.
In contrast, in its early days, at least, Julep sold mostly online and did not have to worry about the supply chain logistics and costs associated with brick and mortar retail space. Consequently, in 2013 alone the company released 311 new products—more than 10x as fast as traditional beauty companies. In harnessing this ability to innovate so quickly so inexpensively, Park says it is only possible “if you are guessing right every time, and the only way to guess right every time is to communicate with the customer.”
Enter “Idea Lab,” which presented new products to women once a month. Of note, IDEO was the collaborative brains behind an innovative mascara wand that was a hit among consumers. Participants can even submit ideas of their own. Users can post comments of their own free will, but Julep features certain products where users can voice their opinion.
In incentivizing participants, participants can submit their own ideas and have them featured to other users to gauge popularity and production potential; Julep then works closely with some of more popular submitted ideas to bring the idea to market. Brand loyalty and the community experience drive traffic and revisits, spurring interaction with other community members and the Julep brands.
A big risk, however, is the loyalty and actual behavior of the voters—will they actually buy the product? However, for consumers the upside is great—they can have a say in the production of products that matter to them, and the quick turnaround of innovation within Julep means more options than conventional beauty makers—and that’s a lot of value creation.
On the value capture side, Julep obviously reduces inventory costs by selling products online and by featuring products up-voted by its own users, they reduce the risk of releasing unpopular products that will not sell. By allowing users to comment and interact with eachother, the company leverages network effects to draw and keep users on its platform. By releasing products that are likely to be a hit with consumers, Julep can capture a substantial sales—particularly as it combines and online and offline model with high end retailers such as Nordstrom and Sephora.
The growth potential of this business is huge, especially as consumers become more comfortable in interacting with brands online and look to the internet for makeup ideas (e.g., countless Instagram and Pinterest pages that solicit opinions on looks). Investors are also bullish on the idea of crowd-sourcing in the beauty space, as Julep has over $56M in funding to date. Consumers are increasingly interested in a more customized experience and will choose high-quality products that cater to their demands and price points.