How the GST is making it hard to stay pretty


Consumers will just have to change the way they shop for products and adopt a new strategy to their beauty regimen.

So, it has been almost 18 months now and I thought I’d revisit a touchy subject that’s probably still a sore point with many – the GST.

No, that doesn’t stand for Great Sale Today. On the contrary, sales have been anything but great these days for the retail sector, no thanks to the implementation of the Goods & Services Tax along with the not-so-encouraging economy and political scene.

Staying beautiful can be a beast of a feat really, what with rising prices and stagnated wages.

Beauty enthusiast Ai Leen, for instance, says the GST price hike has definitely affected her beauty expenses.

“I invest heavily on skincare and facials on a monthly basis. But ever since GST kicked in, my entire skincare regimen has changed. I used to buy skincare products and go for facial treatments which ranged from RM200 to RM600. Having to pay extra on each item, even if it’s just 6%, works out to be quite a bit collectively and eats into my total household expenditure,” says Ai Leen, who has recently switched from a high-powered managerial post to a part-time consultancy job.

Women are adaptable creatures though and have adjusted to the new beauty landscape. “After GST, I opted to substitute certain products with a cheaper brand, and decreased the number of facials as well as the type of facials I go for. I no longer colour my hair as often and go for more DIY hair treatments instead of salon treatments,” she adds.

Beauty companies are caught in a bind as well as they have no choice but to adjust their prices due to higher costs, weaker ringgit exchange and decreased profits. Some prestige brands have found themselves losing out to cheaper brands which are less tied up in advertising and marketing costs which are often passed on to the customer.

One trick some companies may have resorted to could be to keep to old prices, but cut down on quality and quantity.

Take, for example, some of the hawkers in Penang who still sold their Assam Laksa and Char Kway Teow at old prices, but halved the ingredients. Foodies found themselves having to buy a second, if not a third bowl, just to fill their stomachs! That being the case, I would much rather fork out an extra 50sen and be assured that I’m still getting the same value for money.

According to a Wall Street Journal story (WSJ) on How Companies Can Get Smart About Raising Prices, this approach doesn’t work (especially for brands) as most of the cost of typical packaged good is tied up in packaging, transportation and other aspects of production – not in the product itself. As a result, lowering the quantity is unlikely to preserve a company’s margins.

It also warns that “people who feel that they’re being cheated or tricked can be very angry customers. And these days, social media gives them an easy way to publicly voice their anger”.

On a positive note, research has shown that consumers not only respond to price levels, but to how fair they think it is. If they think that the increase is tied to profit-taking or to other hidden motives, they’ll consider it unfair. Conversely, they are more likely to accept the increase if it’s tied to higher costs, added WSJ.

For one newbie FMCG cosmetics brand, GST turned out to be a boon of sorts.

“Since we’re new in the Malaysian market, it wasn’t so hard to establish a new price range as we don’t have that many loyal customers yet. The GST has kind of worked out for mid mass brands as some consumers have turned to brands such as ours as alternatives,” explains its brand spokesperson.

WSJ also suggests that it’s better and easier to raise prices when introducing a new product as that usually means improvements and new features can justify new prices.

What’s interesting is that online opportunities have also grown, opening doors for more players and brands to enter the market as beauty borders are no longer so clearly demarcated. Established brands are also courting customers with promotions and discounts on social media, without footing extra for in-store advertising.

So yeah, mainstay skincare products which we used to buy may have become a little pricier, but it’s not all bad as it’s also spawned a whole lot more choices for consumers and introduced new names which we otherwise would never have bothered to try.

One company that has managed to defy the odds is Korean group AmorePacific, which despite GST or whatever the market has thrown at them in the last couple of years, has still managed to enjoy tremendous growth.

Riding on the popularity of K-beauty and the weakness women have for Korean dramas, their products are flying off the shelves, and giving conventional French and American brands a serious run for their money.

How will they fare when the hallyu love affair is over?

Well, if a product is proven to be effective, reliable and the quality beyond reproach, and there’s constant innovation to keep the momentum going, there’s no reason why the Koreans can’t be the beauty industry leaders which the world will look to in future.

 

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