The U.S. Shampoo Market: A Competitive Profile

Porter associates high market share with cost leadership strategy which is based on the idea of competing on a price that is lower than that of the competition. But, customer-perceived quality-not low cost-should be the foundation of competitive strategy, because it is far more important to long-term competitive position and profitability than any other factor. So, a superior alternative is to offer better quality vs. the competition. In most consumer markets a business seeking market share leadership should try to serve the middle class by competing in the mid-price segment: and offering quality better than that of the competition: at a somewhat higher price to connote an image of quality, and to ensure the strategy is both profitable and sustainable in the long run. Quality, however, is a complex concept consumers generally find difficult to comprehend. So, they often use relative price and a brand’s reputation as a symbol of quality. The U.S. Shampoo market is very competitive and consists of a large number of brands. Most brands are sold at supermarkets, drug stores, discount stores, and department stores. However, many premium and super-premium brands—called salon brands—are sold by beauty salons. The salon shampoo segment had captured 11.4% of market share in 2008. Most of the shampoos covered in this study are general-purpose shampoos—with the exception of five anti-dandruff and two psoriasis brands. Almost all are aimed at women. However, three are for men, one for babies, and four for kids. One characteristic of this market is the proliferation of bottle sizes that ranged all the way from 1 to 42 oz. These can be classified into three broad size groups. By far the largest is the medium group (11.6-15.4 oz) with a market share of 52%; next is the large group (22.5-25.4 oz) with a 17% market share; and small (8-11.5 oz) with a market share of 14%. We tested two hypotheses: (1) That a market leader is likely to compete in the mid-price segment, and (2) That the unit price of the market leader is likely to be somewhat higher than that of the nearest www.scholink.org/ojs/index.php/jepf Journal of Economics and Public Finance Vol. 4, No. 2, 2018 181 Published by SCHOLINK INC. competition. Employing U.S. retail sales data for 2008 and 2007, we found that Procter and Gamble’s (P&G) Pantene, the overall market leader, was a member of the mid-price segment for both years—and for all three bottle-size groups. However, the results did not support the second hypothesis. This is because the runner-up happened to be P&G’s Head & Shoulders anti-dandruff shampoo: a type of specialty shampoo that is generally priced higher than general-purpose shampoos. Another notable result is that we found strong support for the notion that relative price is a strategic variable. Finally, we discovered four strategic groups in the industry.

Most shampoos are sold at supermarkets, drug stores, discount stores, and department stores. However, many premium and super-premium brands-called salon brands-are sold by beauty salons (and also by other stores). These can be divided in two groups: corporate-owned, and independent (Figures 3 and   4).
In 2008 the market share of all salon brands was 11.4% (Note 7).
Most brands covered in this study are general-purpose shampoos-with the exception of five anti-dandruff ( Figure 2) and two psoriasis (Note 8) brands-and almost all are aimed at women.
However, three are for men, three for kids, and one for babies.

Hierarchical Clustering as the Primary Instrument of Statistical Analysis
We have used cluster analysis as the prime statistical tool in this study. As suggested by Ketchen and Shook (1996), we have taken several steps to make this effort as objective as possible.
First, this study is not ad-hoc, but is founded in a theoretical framework as laid out below.
Second, we are fortunate that we were able to get sales data for our study for two years. Thus, this data provided a robust vehicle for subjecting cluster consistency and reliability to an additional test.
Third, we wanted to use two different techniques-KMeans and Hierarchical-to add another layer of cluster consistency and reliability. However, we found that the Hierarchical analysis proved to be superior in meeting that test. So, we did not consider it necessary to use the KMeans technique.

Theoretical Foundation for Determining Number of Clusters-And Their Meaning
As already stated, a major purpose of this paper is to identify the market share leader and determine the price-quality segment-based on unit price-it is competing in.
As mentioned before, an important question in performing cluster analysis is determining the number of clusters based on an a priori theory. Most consumer markets can be divided in three basic price-quality segments: premium, mid-price, and economy. These three basic segments can be extended to five: with the addition of super-premium and ultra-economy segments (Datta, 1996). Therefore, three represents the minimum and five the maximum number of clusters (Datta, 2017(Datta, , 2012).
An equally crucial issue is to figure out what each cluster (e.g., economy, mid-price, and premium) really means.
Perhaps a good way to understand what each price-quality segment stands for in real life is to look at a socio-economic lifestyle profile of America. It reveals six classes. Each class is associated with a price-quality segment typified by the retail stores where they generally shop: each a symbol of their lifestyle (Datta, 2011) (Note 9).

Guidelines for Cluster Consistency and Reliability
In addition to laying a theoretical foundation for the number of clusters, we set up the following guidelines to enhance cluster consistency and reliability (Datta, 2017(Datta, , 2012:


In general, there should be a clean break between contiguous clusters.


The anchor clusters-the top and the bottom-should be robust. In a cluster-analysis project limited to a range of three to five clusters, a robust cluster is one whose membership remains constant from three-to four-, or four-to five-cluster solutions.
 Finally, we followed a step-by-step procedure to determine the optimal solution. First, we start with three clusters. Thus, the bottom cluster obviously becomes the economy segment and the top cluster the premium segment. Next, we go to four clusters, and tentatively call them: economy, mid-price, premium, and super-premium. Then we go to five clusters. If the membership of the bottom cluster remains unchanged from what it was in the four-cluster result, it clearly implies that the ultra-economy segment does not exist. Next, if the membership of the top cluster also remains the same from a four-to a five-cluster solution, then the top cluster becomes the super-premium segment. This means that even in a five-cluster solution we have only four price-quality segments: economy, mid-price, premium, and super-premium. It implies that either the premium or the mid-price segment consists of two sub-segments (Table 1).
In addition, whenever possible, we have tried to seek external evidence to validate the results of cluster analysis. For example, many companies identify on their websites a certain brand(s) as a premium or luxury brand. Another case is that P&G clearly says it does not compete in the economy segment (Datta, 2010b).

Testing Hypotheses
 II-That the market-share leader would carry a price tag that is higher than that of the nearest competition.  Oz

Medium Bottle-Size
In Table 1 we present the results of 2008 Hierarchical cluster analysis for 11. 6-15.4 Oz: by far the largest bottle-size group with a market share of 52%. This analysis is restricted to 37 brands with overall sales over $1 Million. However, the unit price of Head & Shoulders is $4.86, which is much higher than the $3.95 for Pantene.

Results of Cluster Analysis
So, Hypothesis II, which says that the unit price of the nearest competition to the market leader should be somewhat lower, is not supported. The obvious reason for this is that Head & Shoulders is an anti-dandruff shampoo: a specialty type that is generally priced higher than general-purpose shampoos.
Other highlights of this study are (Table 1):  All four members of the super-premium segment are salon brands.

Contrary to Head & Shoulders' membership of the mid-price segment, anti-dandruff shampoos
Denorex and Selsun Blue occupy the premium segment.
 Unilever's top brand, Suave finds itself in the economy segment along with Unilever's Alberto VO5. Finally, we examined 8-11.5 Oz, the smallest segment (14% market share) with the smallest bottle size.
For both 2008 and 2007, the results were similar to those for the other two bottle-size groups.
Unlike its larger sisters, this segment is dominated by salon brands populating the super-premium and premium segments. This strategy seems to be based on the notion that a small bottle size blends much better with a high premium price than a large bottle.

The Role of Ultra High Prices and Salon Brands
During this analysis we came across an interesting development that deserves attention. In Table 1   Its global sales were $65 Billion in 2017 (Note 11).
P&G's was a clear market leader of the shampoo industry with a market share of 29.6% in 2008 (Table   3), that included two major players: the market leader, Pantene (15.6%), and runner-up, Head & Shoulders (11.8%) ( Table 2). It also had two minor players: Aussie and Gillette.
In 1995 P&G was awarded the National Medal of Technology: the highest the U.S. government bestows for accomplishment in technology (Note 10).
In 1987 P&G launched Pert Plus: a two-in-one shampoo that combined both shampoo and conditioner.
By 1990 it had become the top-selling shampoo in the U.S. with a 12% market share. Eventually, however, the company sold it to Helen of Troy in 2010 (Newman, 2011 independently-owned salon brands with a market share of 2.2% ( Figure 4).
As we have mentioned before, there has been a great increase in the income of the upper class, and a significant rise in the income of the upper middle class. So, the reason the big companies are raising their presence in the salon market is, because it is the luxury market where the action is likely to be in the future.

Supermarket Shampoos
Paula Begoun (2004), author of "Don't go shopping for hair-care products without me", offers the following comments (Morales, 2005):  There is no need to go to a salon store to get great products. One can find them in a drug store at a fraction of the cost.
 It is not necessary to buy a special shampoo that prevents color from fading, because regular shampoos can do the job just as well.
 If one likes big, bouncy hair, one can use a volumizing shampoo. But the boosting ingredients can build up, so one should not use this shampoo every day.
 Expensive does not necessarily mean better, and one should spend no more than $6 on a shampoo.
 "There is absolutely no difference between expensive products and inexpensive products, and I say that unequivocally".
Laura Waters (2017), Principal Enterprise Fellow, University of Huddersfield, conducted a study for BBC. She found that all shampoos contain ingredients that are similar. She collected samples of unwashed hair from two Ph.D. students. Then she discovered that all samples, regardless of the kind of shampoo that was used, or its price, "were equally clean after washing".
Waters says there was no difference between samples from a mid-range shampoo, and one with a price tag of £40 per bottle. However, she cautions against buying the very cheapest brands.
Consumers often think that shampoos with a thick texture are better than thinner one. However, Waters points out that there is no difference between the two. try to get attention, and the best way to accomplish that is through physical appearance (Datta, 2010c).
As stated above, women often see their hair as a reflection of their identity. Thus, physical appearance is critically important to them. Although many women may be proud of their physical appearance, it is not unreasonable to argue that the primary stimulus for this constant focus is driven by their basic need of seeking "esteem from others" (Datta, 2010c).
For example, in the 2008 U.S. presidential campaign Hillary Clinton had to spend an hour and a half every morning to get ready: doing her hair, putting on her makeup, and thinking about what to wear. In contrast, it took Barack Obama at the most 20 minutes to put on one of a dozen identical dark blue suits, a white shirt and a red tie (Datta, 2010c).

Need for Self-Esteem: Affordable Luxuries
We have just talked about the need for esteem from others. Now it is time to discuss the self-esteem need. One avenue for achieving this objective is through personal enrichment. One way to accomplish this is via self-indulgence (Datta, 2010c).
One example of this is driving a high-powered sports car. Another that most people can relate to is to indulge in "affordable luxuries".
Pressured by an increasingly hectic schedule, many busy, stressed-out members of the middle class are allowing themselves the indulgence of small "affordable luxuries": such as, a $4.50 tall Starbucks latte, a $10 six-pack of Heineken beer, a gourmet take-out dinner, and so on (Datta, 2010c).
Another example that is particularly relevant to this study is L'Oreal's famous ad slogan "Because I am worth it" (Datta, 2010c).
As we have reported before, women often see their hair as a reflection of their identity because it is both "personal and public", and a symbol of their beauty and femininity. And this may be the impetus that may be inducing even some middle-class women-especially working women-toward splurging money on salon brands.
One concrete example is the U.S. Beer market. As many Americans began to travel to Europe in large numbers in the 1970s, they became fond of European beer. Thus, the upper middle class played the primary role in giving rise to two transformative events in the U.S. Beer industry: the birth of the import and craft markets (Datta, 2017).
Similarly, Americans visiting Paris, home of L'Oreal, are likely to have learnt a lot about the latest developments in cosmetics and hair care from the number one cosmetics group in the world: L'Oreal.

Luxury Salon Brands Status Goods
We have noticed earlier, that the salon shampoo segment had captured 11.4% of market share in 2008 that amounted to $159 million. While some middle-class women may be using salon brands, as we have mentioned above, such a big market cannot be explained alone by the notion that "I am worth it".
As we have mentioned above, one reason why salon brands cost more is for their superior fragrance, shine, usability, and extra conditioners. Another is that some may have organic or natural ingredients. Thus, this may be an important factor contributing to the high prices of salon brands.
Drucker says status goods are those for which high price itself is an integral part of their appeal. He identifies liquor and perfume as examples (Datta, 2010b).
We would like to suggest that super-premium-and beyond-or luxury shampoo brands should also be added to that list.
For 2008 the U.S. Shampoo sales were $1.4 Billion.
The main objective of this study is to test two hypotheses: (1) that the market-share leader would be a member of the mid-price segment, and (2) that the market-share leader would carry a price tag higher than that of the nearest competition.
Employing Hierarchical cluster analysis, we found that P&G's Pantene, the market leader, was a member of the mid-price segment for both years-and for all three bottle-size groups.
However, the results did not support the second hypothesis. This is because the runner-up happened to be P&G's Head & Shoulders anti-dandruff shampoo: a type of specialty shampoo generally priced higher than general-purpose shampoos.
To determine the consistency and reliability of the results of cluster analysis, we found bivariate correlation of unit price rank data of each brand for 2008 and 2007 to be significant at an amazing 0.01 level-for all three bottle-size groups.
An important conclusion that one can draw from such a remarkable result is that management in the U.S. Shampoo market must have been treating price as a strategic variable, as we have suggested.
We compared the results of this study with similar studies of the U.S. Men's Shaving Cream Market, and the U.S. Beer Market, and found the results to be very similar, indicating a pattern emerging for consumer markets.
Bivariate correlation between net sales and promotional sales was significant at 0.01% level for both years, implying that promotion played an important role in the industry.
The shampoo market has been dominated by unisex products for a long time. However, there is now a clear trend toward shampoos for men.
Women often see their hair as a reflection of their identity, because it is both "personal and public", as well as a symbol of their beauty and femininity. So, physical appearance is critically important to them: and the primary stimulus for this constant focus is driven by their basic need of seeking esteem from others.
And then there is the need for self-esteem. One avenue for achieving this need is through personal enrichment, and one way to accomplish it is through self-indulgence. An example that is particularly relevant to this study is L'Oreal's famous ad slogan "Because I am worth it".
And this may be the impetus that may be driving even some middle-class women-especially working women-toward splurging money on salon brands.
Economic inequality in America has been going up unrelentingly, squeezing the middle class for more than four decades. In contrast, there has been a large increase in the income of the upper middle class.
And it is this class that is driving the growth of the salon brands.
We suggest that the luxury salon brands be regarded as status goods, such as liquor and perfume, for which high price itself is an important part of their appeal. That is why large companies are gobbling up salon brands: because it is the luxury market where the action is likely to be in the future.
Finally, we discovered the following four strategic groups in the industry: