Powerful newentrants or big amount of them may bring profit potential of the industry down,for example to decrease the prices or to increase the quality and productdifferentiation. “Entry barriers are advantages that incumbents have relativeto new entrants” (Porter, 2008). New entrants tothe NOC industry can be not only freshly emerged cosmetic start-ups, but alsostrong players of neighbor categories. As far as industry is recognized asprofitability attractive, big classic cosmetic brands may allocate budgets andresources into natural line development, same as organic food brands andmanufactories, that have advantaged access to supply. High brandidentity and economics of scale of existing players is the first barrier of theindustry.
That means that firms that are already established on the market havelower supply and production costs per one unit, which they can spread over moreunits being produced and sold. Due to big marketing budgets and time advantage,existing brands occupy targeted niches and market segments.Lack of centralizeduniversal regulations is second challenge of the industry. Legitimate naturaland organic companies are forced to fight for customer with many pseudo-naturalproducts.
Moreover, whole reputation of the NOC products quality may sufferfrom not honest strategies of competitors. This barrier is strongly connectedto the next one, which determines lack of product understanding by customers.Huge variety of “green” labels and absence of a single European association for organiccosmetics is confusing for the target audience. “There are more than 50 labelswith regards to product quality in this segment, but there is no leading label,and this makes natural cosmetics a bit weak. Consumers are sometimes confusedabout what is natural and what is organic, and there are translation mistakestoo. In German speaking countries, natural products are defined by beingorganic, but in the UK, natural means nature-inspired”, said E.
Dambacher in theinterview to Jo Allen for the article Germany: Inspired Leaders (Allan, 2017). The lack of regulation, and the fact thatthere is no leading label, means that it is even more important for brands inthis market to have a very clear positioning. “This is now the leading pointfor consumers when they are deciding if a brand is authentic and reliable. Theylook at the brand image before looking at the ingredients”, continues theexpert in the interview for the magazine (Allan, 2017). The progressand standards developments by European-wide organizations, such as NaTrue andCosmos would help to take this defectunder control.
Access todistribution channels was also one of the problems for developing firms a fewyears earlier, while not only pharmacies and bio markets were holding the dominantshares, but also retailers started bringing out their natural labels. „Thenatural & organic cosmetics market is far from saturated. Demand andfulfillment of demand are increasing, but rarely do consumers find attractiveshopping locations that meet their expectations”, claims E.Dambacher during herspeech on the Natural & Organic Cosmetics Conference 2016 in Berlin (Naturkosmetik Branchenkongress, 2016).
Nowadays small niche brands migrate toonline trade, following audience shopping preferences and avoiding distributionbarriers.Costs and prices are also significantfrom market restraints analysis. Supply cost and switching cost of materialsprovider is high for firms and short shelf life of the product reflects on thefinal price.