Currently, many beauty companies adopt contract manufacturing for product production. Generally speaking, big brands chooseOEM(Custom processing) Cooperation, which emerging brands likeODM(Corporate-wide product development) collaboration. What are the advantages and disadvantages of these two processing models for beauty brands? In terms of beauty product OEMs,ODMDoes the factory model mainly focusing on OEMs mean that the company's cooperative customers are mainly emerging brands, leading to weaker customer stability and a higher risk of losing high-quality customers? If such risks exist, how should enterprises improve?
Frost & SullivanFrost & SullivanWang Yixiao, a consumer industry analyst at Frost & Sullivan Greater China, was interviewed At the forefront of entrepreneurship Interview, to jointly discuss the aforementioned topics.
At the forefront of entrepreneurship
Q
Currently, many beauty companies adopt contract manufacturing for product production. Generally speaking, big brands chooseOEM(Custom processing) Cooperation, which emerging brands likeODM(Corporate-wide product development) collaboration. What are the advantages and disadvantages of these two processing models for beauty brands?
For beauty brands, adoptingOEMThe advantages are mainly reflected in brand building, cost control, market flexibility, and more. Leading brands in the beauty industry have adoptedOEMModeling and contract manufacturing can implement strict standardized control over product components, quality, and production standards, ensuring that products align with the brand's image and philosophy. Additionally, since the brand is only responsible for product design and development without bearing the costs of production facilities, more resources can be invested in product research and development as well as marketing, thereby further expanding the market influence of both products and the brand. Moreover, adoptingOEMThe brand operator of the model can adjust the order volume according to consumer demand, respond quickly to market changes, and effectively control sunk costs.
But at the same time,OEMThe model also has disadvantages such as supply chain risks and technology leakage.OEMIn the model, the production process of beauty products is highly dependent on contract manufacturers, and unstable supply capacity from these manufacturers can directly affect the product supply chain. Additionally, when contemporary factories serve as production suppliers for multiple brands, there is a risk of technology and design leakage in beauty products.
On the other hand,ODMIn this mode, the customized needs of beauty brands can be met. After conducting consumer research and fully tapping into user demands, beauty brands can provide product customization services through contract manufacturing to help emerging beauty brands create differentiated products. At the same time, emerging beauty brands adoptODMThe model can save a significant amount of capital and time invested in early research and development, design, and production facilities. It can quickly launch products and seize market share.
But for beauty brands,ODMProducts developed and designed by manufacturers carry the risk of homogenization, making it difficult for brands to highlight their unique features. Additionally, since both the design and production processes are handled by contract manufacturers, brands have relatively weaker control over the final product.
Q
For some emerging beauty brands, if they started early withODMThe model is used for production. In the later stage, as brand influence and scale increase, will there be a greater preference to build their own factories orOEMIs the product produced in a model-based manner? What is the reason?
As brand influence and scale grow, beauty brands may gradually move towards self-production orOEMThe model is used for product production.
With the gradual development of beauty enterprises and the corresponding increase in product output, self-built factories or the adoption ofOEMModels help beauty brands exert more direct control over the production process, enhancing strategic flexibility, including rapid development of new products, adaptation to market changes, and execution of long-term strategic plans. In addition, having a self-operated factory or adoptingOEMThe model can also assist beauty brands in precisely defining product specifications and quality requirements, allowing them to manage their supply chain more flexibly and reduce dependence on a single supplier.
Q
In terms of beauty product OEMs,ODMDoes a factory focusing on models mean that the company's cooperative customers are mainly emerging brands, leading to weaker customer stability and a higher risk of losing high-quality customers (emerging brands are unstable in development; after growing in scale, they may change processing models)? If such risks exist, how should enterprises improve?
In the initial stages, startup beauty brands are more likely to useODMThe services of leading brands, due to their relatively long market entry time, often possess strong industrial chain resources, financial capabilities, and reserves of R&D talents. As emerging beauty brands grow and their market positioning improves, they may choose to shift towards self-production orOEMmode, to achieve higher product quality control and cost-effectiveness.ODMFor contract manufacturers, they can make strategic adjustments in aspects such as expanding service scope, strengthening brand building, and improving technical capabilities.
ODMTo reduce the risk of customer churn and quickly respond to market changes, factories need to provide flexible production scales and diverse product options, especially offering customized design, R&D, marketing, and other value-added services to meet the needs of different types of customers and become partners for the growth of beauty brands. Secondly,ODMFor contract manufacturers, investing in advanced production equipment and quality control systems is very necessary. The improvement of technical capabilities can ensure that product quality can meet the requirements of product upgrades and updates by beauty brands. At the same time,ODMManufacturers need to build a professional brand image and enhance customer trust.
* This interview was published in At the forefront of entrepreneurship Reporter: Hu Fangjie, original title: Creating multiple beauty bomb products with one hand, but BAVI Co., Ltd. still faces challenges
