INDAGARI

Customized, individualized, personalized. Many companies have touted these buzzwords, though none have embraced them quite like made-to-order personal care companies Formulate, Function of Beauty, and Prose. Founded in the mid to late 2010s, these companies set forth to revolutionize the hair care and skin care industries by delivering products specifically formulated to each individual’s needs.

In the decade since, Prose has emerged as the clear market leader. It successfully appeals to consumers who value bespoke formulations and are willing to pay a premium for such services. The company continuously articulates its value proposition - most recently releasing results from a sponsored trial that demonstrates the outperformance of custom hair care compared to ready-made formulas.¹

Prose is betting that evidence-based marketing will appeal to its target customer base. In contrast, Function of Beauty leans into traditional distribution via Sephora and Target while Formulate invests in communicating complete customizability and superior manufacturing. But who is successfully convinced by these messages and able to repeatedly invest in premium products? As this market evolves, understanding the consumers at this critical intersection will be a key ingredient in the winning formula.

Growth Strategies

In the last two years, Prose has steadily grown its share of the DTC customized formulation market. In January 2022, it controlled 63.4% of the national market. By March 2024, Prose had won 88.6% of the market. The DTC company is particularly dominant in the South Atlantic and West South Central markets², where their share of the market is now over 90%.

Function of Beauty maintains ~10% of the national DTC market share. It has also pursued on-shelf strategies by launching in Target (December 2020)³ and Sephora (August 2023)⁴. The lack of movement in the customer overlaps between Function of Beauty and its retail partners pre- and post-launch suggests that the on-shelf endeavor has not driven customers to Function of Beauty’s DTC platform. Instead, the strategy may be diversifying sales channels and reaching new audiences.

The Customer Base

The differences between Formulate, Function of Beauty, and Prose extend far beyond their growth strategies.

Prose’s customer base is significantly wealthier than those of Formulate and Function of Beauty. As such, they are less price sensitive and more financially able to afford premium products - contributing to Prose’s vertical-leading customer retention. Prose’s customers may also be more receptive to upsells such as luxury hair brushes and scented candles, both currently offered by the company.

The distinction between the customer bases is even more evident from their spending behavior and brand affinities. Prose’s customers grocery shop at Whole Foods and Trader Joe’s, stores associated with higher income consumers. Of the three DTC brands, Formulate’s customers are the most likely to shop at Walmart. Sam’s Club is frequented by Formulate and Function of Beauty customers at nearly double the rate of Prose customers.

Beyond groceries, Prose’s customers indulge in more expensive activities. They tend to fly more, booking with major US airlines at 2x - 3x the frequency of their competitors. Prose’s customers are also more likely to shop at legacy luxury retailers like Nordstrom, while Formulate and Function of Beauty customers are much more likely to spend at brands like SHEIN and platforms like TikTok Shop.

The Prose customer’s tendency towards premium extends into other facets of their shopping behavior. The Prose parent, for example, is more likely to shop at newer kids brands like Primary Clothing, Lovevery, and KiwiCo.

The Rise of Science-Backed Products

While consumers remain open to bespoke formulations in personal care, it is not a universally embraced concept. In 2022, customers of Formulate, Function of Beauty, and Prose were on average 7.0x more likely to purchase from Care/of, a personalized vitamin subscription service, than the general US population. Between Q1 2022 and Q1 2024, however, the overlap of customers spending on both categories decreased by 60% as consumers soured on DTC custom supplements.⁵

At the same time, customer overlap with probiotics company Seed has increased by 109%. Similarly, overlap with Nutrafol, a hair and skin supplements company, has increased by 81%. Beyond selling supplements, both companies offer consumers evidence from multiple clinical trials demonstrating the efficacy of their products.

Current Formulate, Function of Beauty, and Prose customers are also increasingly utilizing services such as Hims&Hers (107% increase in shared customers over two years), whose core offering include prescription-strength, customized products.

As Millennials and Gen Z preferences evolve, so too will the appeal of brands and services. The formula for success is not a static one, but rather, one that is customized for the environment and adaptable as tastes change.

Footnotes:

• 1. CEW Daily: Prose’s Clinical Data Shows Custom Hair Care Outperforms Ready-Made Formulas.
• 2. The South Atlantic region is defined as states DC, DE, FL, GA, MD, NC, SC, VA, WV. The West South Central region is defined as states AR, LA, OK, TX.
• 3. happi: Function of Beauty Enters Target.
• 4. ModernRetail: Why Function of Beauty is developing specific product lines for retailers.a>
• 5. Care/of subsequently announced that it was ceasing operations on June 15, 2024.