The 1993 International beauty pageants adjudged Indians as the best, with the Miss Universe title going to Sushmita Sen and Miss World to Aishwarya Rai. The events had a strong influence on young minds, even though their exact impact cannot be measured. This was the first such experience for India, and perhaps for Asia. A spate of more such beauty laurels—Diana Hayden (Miss World 1997), Yukta Mookhey (Miss World 1999), Priyanka Chopra (Miss World 2000), and Lara Dutta (Miss Universe 2000)—and the associated media glitz awakened an entire generation to new desires.

A free and fast-growing economy, a very large market, and not many competitors, India was certainly a very attractive destination for multinational cosmetics companies. Potential growth seemed very high. Since the mid 90s, the industry grew at an average 20 percent per annum, and the growth rate is not likely to plateau out any time soon. The largest piece in the growth pie went to Indian companies. Foreign cosmetics—even with their more glamorous and superior quality image—remained minor constituents.

Despite a striking growth rate, the current size of the cosmetics market in India is approximately US$600 million, and 62.6 percent of this growth was between 1997-2004, according to Euromonitor. The growth so far has been fuelled by urban demand in mid-priced categories that account for 90 percent of the cosmetics market in terms of volume, with not just women but men as well taking interest in personal grooming.

Colour cosmetics is the fastest growing segment at over 20 percent per annum. It is currently pegged at US$60 million. Nail enamels and lipsticks account for 65 percent of total colour cosmetics sales with Lakme (formerly a brand of TATA, now with Unilever’s HLL), Tips-n-Toes (India-based), and Revlon dominating the market. It’s a very competitive segment with 80 percent penetration in contrast to overall 40 percent penetration. Revlon of the US and L’Oreal’s Maybelline lead the small premium market in this segment. As the single largest player in this segment, HLL leads the way.

In terms of both volume and penetration, the skincare products segment is the largest. The segment has seen good growth in the sale of specialized products like sunscreens, toners, cleansers, astringents, dark circle removing creams, anti-wrinkle creams, and day and night creams in the last one decade. Sales in this segment have shown a discernible shift towards premium brands.

Moisturizing lotions, fairness creams, and face cleansers are the popular items in the skincare segment and account for approximately 60 percent of volume. The major player in this segment is, also, HLL with brands like Lakme, Ponds, and Fair & Lovely leading the market with a 50 percent share, followed by J.L. Morison that markets the Nivea range of products in India, Godrej, and Revlon.

The size of the haircare market is estimated at more than US$200 million, 50 percent of which comes from the sales of shampoo. HLL (Sunsilk, Organics, Clinic, and Lux) is the market leader in this segment, too, with a 58 percent share. Procter & Gamble (Pantene and Head & Shoulders) comes next with a 20 percent market share.

Other important items in the haircare market are hair oils and cream; though, the market for hair creams is very small as only a certain section of men use it. Hair oils, used as pre-wash nourishment, constitute a major segment that is dominated by local giants like HLL, Dabur, and Marico Industries.

The prestigious fragrance industry has negligent indigenous bases and almost entirely depends on foreign brands. The market size is currently estimated at US$20 million and is mainly bought by affluent sections. An average annual growth rate of 15 percent has been estimated for this segment for the next few years. The body spray category is the fastest growing segment within the fragrance segment with an estimated consumption of 20 million cans per annum, which is projected to increase to 100 million cans by 2007.

Consumer preferences in the cosmetics market in India are largely influenced by price. Overall, indigenous products dominate. Herbal products have an edge with local brands Shahnaz, Biotique, and Lotus Herbals controlling a US$100 million share of the domestic cosmetics market. Other local brands like Lakme and Ponds control about 50 percent of colour cosmetics, skincare, and shampoo market share. On the other side, with over 20 leading global brands, penetration of foreign cosmetics constitutes only 20 percent of the market.

Stiff competition has seen the emergence of new products. From just creams and moisturizers in the skincare segment, there has been an upgrade to under-eye wrinkle removing creams, dark circle removing creams, toners, sunscreen lotions, and many more. New colour cosmetics like smudge-proof lipsticks, liquid lip colour, long-stay lipsticks, and mascaras have been introduced. These specialized products have increased the cosmetics volume and enabled companies to price the new products at a premium, driving up value growth.

But, India is a very price sensitive market, and prices of most foreign brands are fairly high. Foreign brands have focussed only on urban women in the middle and upper income groups. Industry estimates suggest that there are close to 10 million such women in India. But even this group may not fork out large amounts in case equally good cheaper options are available. Therefore, for foreign cosmetics to expand their base in India, they need to evolve innovative strategies to suit Indian preferences and budgets.

The presence of a grey market in India for cosmetics and toiletries coming from Dubai and Singapore is another threat to foreign brands since they are able to market international brands at comparatively much lower prices.

Another ground for high costs of foreign cosmetics is the large import duty. The cost of importing products is much higher than producing it in the country. India allows entry of imported cosmetics without any restrictions, but the average import tariff of 56.8 percent makes products prohibitively expensive for most consumers. Therefore, most foreign cosmetics companies selling premium brands have failed to generate sales volume.

According to estimates of industry experts and trade publications, India’s total annual import of cosmetics and toiletries and intermediate raw materials is approximately US$120 million. Imports from the US are estimated at approximately US$10 million. Countries of Europe, mainly France, Germany, Italy, the Netherlands, and Spain account for the major share, with some imports from China, Japan, and Australia.

With a view to bolster their sales, cosmetics firms have also taken to service marketing strategies such as point-of-sale advice and beauty counselling. This has shown to boost sales of cosmetics and personal care products and has driven growth. Beauty counsellors or advisors at retail outlets have been very successful in gaining attention, creating product awareness, and overcoming consumers’ lack of familiarity of the products.

Some companies have sailed on unique marketing and promotion strategies. L’Oreal markets its range of specialized haircare products exclusively through salons and beauty parlours. It is the only company in the market that has a hair colour range tailored exclusively for parlours. The company was also the first to introduce modern shampoo-based hair dyes for the Indian market. Companies like Lakme, Shahnaz, and Biotique have set up chains of salons in beauty care that also promote consumer confidence in their products.

A strong brand promotion campaign, small packs at economical rates that allow experimenting with other brands, a good distribution network, constant product innovation and quality improvement, and the ability to provide a variety of quality products are some of the major reasons for the success of most cosmetics companies in India.