Big opportunities, bigger risks in booming health and beauty market

Nicholas Robbins | Tuesday, January 31st, 2023 | 13 minutes

The health and beauty industry remains one of the fastest-growing consumer markets in the world. And this growth won’t be slowing down anytime soon.

Ecommerce, social media, internationality, mass digital migration, and young consumers entering the market all contribute to this growth. But growth also fuels innovation in fraud. Let’s explore how your business can embrace these new opportunities while keeping fraud from eating away at your resources, revenue, and reputation.

Ecommerce gives smaller health brands the potential for worldwide reach

While larger brands likely made the transition years ago, smaller health and beauty startups stand to gain a lot from the move to broader online sales channels. When you’ve spent all that time developing new cosmetics, serums, and tools, you want to get it out there. But greater exposure means greater risk, and preparedness can help lead to success.

The risk of digital payment fraud

Digital payment fraud is one of the most prominent threats to the health and beauty market. If you don’t have proper prevention measures in place, criminals using stolen payment information can purchase thousands of dollars in products long before anyone notices. This can be compounded when you’re selling across apps, websites, and a host of different channels.

Expanding payment options for customers can also increase this risk. Criminals now target new digital channels and payment methods like Apple Pay, buy now pay later (BNPL), contactless payments, or even cryptocurrency to make purchases using someone else’s information. These options can pose just as much risk as traditional debit and credit cards.

Even worse, your business assumes liability for digital payment fraud. So if a fraudster were to use a stolen debit or credit card to purchase something through your website or mobile app, those losses hit your merchant account directly.

So how do you prevent digital payment fraud?

Secure payment gateways: Use robust encryption and security measures to protect card-not-present (CNP) transactions.
Real-time monitoring: Deploy systems that monitor transactions for unusual activity, automatically flagging or declining suspicious cases.
Customer education: Keep customers in the loop on purchases and inform them about the risks of digital fraud. Outline the steps they can take to protect themselves.

Fraud isn’t simple, and fighting it goes a lot further than this. We have plenty of resources to help you learn more about digital payment fraud risks and protection.

Influencers on social media can make products go viral

When popular social media influencers speak, viewers listen. Social media continues to grow by leaps and bounds. Around 60% of beauty content views on YouTube came directly from influencers back in 2018, and beauty tutorial views surged nearly 50% two years later with continued gains over time.

TikTok speaks even more loudly. A survey by StyleSeat notes that 89% of responding TikTok’ers have purchased beauty products after seeing them on the platform. Millions of #TikTokMadeMeBuyIt tags from everyday users demonstrate the power of viral promotion. That kind of reach means you can benefit from partnering with influencers to promote health and beauty products.

The risk of promo codes and affiliate links

Teaming up with influencers as part of your marketing strategy often means providing them with free product, promo codes, or affiliate links. But these tactics can introduce new avenues of risk. For example, customers may use multiple email addresses to open several new accounts for single-use promo codes. And unscrupulous partners may manipulate codes or links to siphon commissions for unearned rewards.

Affiliate or promo code abuse connected to influencers is particularly challenging to combat due to the volume of promotions on various channels and platforms. Left unchecked, this abuse can seriously eat into ROI, waste ad spend, and erode customer retention.

Promo code abuse doesn’t just come from influencers. Fraudsters work to reverse engineer promo codes and mass spam affiliate links to get unearned rewards. These actions can undermine your best-intentioned efforts at building a community instead of rewarding scammers.

So how do you mitigate affiliate link and promo code abuse?

Identify potential risk: Try to anticipate potential for abuse when deploying a new campaign, and consider what restrictions could help offset potential avenues of fraud.
Monitor campaigns: Regularly review affiliate programs and influencer performance metrics to detect anomalies that suggest abuse.
Educate partners: Work closely with influencers to ensure they understand the terms of use for promo codes and the repercussions of misuse.
Implement limits: Restrict the number of times a promo code can be used, the expiration of the campaign, or the total discount available to further limit abuse.

For more on detecting and preventing promo abuse fraud, check out:

Resellers get beauty products in the hands of customers across the globe

To help grow your business, you’ll likely turn to distributors and resellers to help move your product. Trusted distribution networks can handle a lot of the logistics. These are larger companies with the resources to offer all-in-one tools that tackle everything from storage and freight to collecting pictures of deliveries.

Resellers often know their customers well and can market your products effectively. Working with authorized resellers can help improve brand recognition and ensure the right products reach the right customers. Global access and logistics through resellers can easily become a major part of your business strategy.

The risk of resale fraud

Sometimes fraudsters hide amongst good resellers. Instead of working with you to get your goods out into the world, they try to make a profit without driving customer loyalty or helping to build your brand. Your chosen resellers are unlikely to be the only ones out there with their hands on your health and beauty products. Once you sell to a distributor or reseller, you’ll have little to no say in who gets the goods beyond that point or what they do with it.

Criminals may sell goods stolen through digital payment fraud or directly from supply chains at exceptional discounts. And that’s not counting the cost of knockoffs or counterfeit goods, which can seriously hamper your reputation if not handled quickly.

Fraudsters are known to dilute or alter products. They may sell expired, opened, or damaged goods. Customers who purchase health and beauty products from unauthorized sellers face a bevy of risks that can unfairly come back to hurt your brand.

So how do you tackle resale fraud?

Track and trace: Implement serial number tracking to follow products from sale to secondary markets.
Partner with marketplaces: Collaborate with online platforms like Amazon to flag and remove listings of stolen or counterfeit goods.
Enhance customer verification: Integrate advanced verification processes for distributors and high-value transactions to deter fraudulent purchases and digital payment fraud.

There are paths other than resale available for global distribution. However, being a direct sales company comes with its own set of related risks and opportunities. See how we help protect direct sales:

Health and beauty subscriptions offer a wealth of opportunities

The cyclical nature of health and beauty sales lends itself well to subscription services, as buyers need to replenish products on a regular basis. A customer might buy a luxury handbag once a year, but they need to buy face creams, serums, and formulas regularly. Subscriptions may become a recurring, regular source of revenue for your business.

Customers who are happy with the product gain brand loyalty and continue to renew. Careful tracking of subscription purchases and add-on sales can provide great insight, giving you an advantage when it comes to fulfilling the health and beauty needs of each subscriber.

The risk of first-party or “friendly” fraud

Friendly fraud occurs when customers dispute legitimate purchases with their issuing banks, which can result in costly chargebacks for merchants. This type of fraud can be accidental or intentional. It accounts for a significant amount of all fraud losses.

Perhaps a customer's subscription box goes missing, or supply chain issues cause delays. Maybe the item arrived damaged, or it's just not the right color. While these problems definitely warrant customer service contact, they rarely warrant a chargeback. Yet some customers choose this option anyway, meaning you unfairly sacrifice revenue.

Subscription-based and recurring billing are magnets for friendly fraud. Customers may forget that they signed up for a subscription. Maybe they didn’t realize they purchased a subscription. Or they may have buyer's remorse and don't want the subscription anymore.

So how do you handle friendly fraud?

Communicate clearly: Make it easy for customers to view subscription dates and upcoming charges.
Simplify cancellations: Provide an easy and straightforward process for customers to cancel their subscriptions.
Use regular reminders: Alert customers a few days before payment processing or recurring billing with email or app notifications.

Unlike with criminal fraud, you can fight friendly or first-party fraud chargebacks. In many cases, you should. We can show you how.

Glowing reviews can drive even more sales volume

As more customers get their hands on your products, you’re likely to see a host of reviews pop up in online marketplaces. Everything from your product packaging to item quality and customer support can come out in those reviews. Strong reviews can help sales surge.

Reviews can be a double-edged sword; however, as not all customers share their honest experiences. Your brand depends heavily on its reputation. Fraudsters are keenly aware of this and may push to see how far you’re willing to go to avoid a negative review.

The risk of return or refund fraud

Even implied threats of negative reviews can be a sign of refund fraud. Fraudsters claim your goods are damaged, low-quality, or otherwise not as advertised. Some may be simply trying to get products for free or looking to resell them. Others may seek a refund for items they only planned to use once or have depleted.

Such scams can tie multiple types of fraud together while eating directly into your bottom line. Fraudsters of this type may continually create new accounts. When they’re caught, they move on to another account. This allows them to perpetrate the fraud at scale.

So how do you combat return or refund fraud?

Set clear policies: Refund policies must be clear and strong enough to prevent exploitation. Personal use items such as creams and serums may have specific refund request time limits or percentage use requirements.
Require proof: Mandate photographic evidence of damaged goods before processing refunds. Take photos of all returned items.
Use data analytics: Use all available data to identify patterns that identify fraud, including account, device, geolocation, and previous transaction histories.

Refund fraud can easily become a major pain point. Find out more about how we combat refund fraud in groundbreaking ways.

Want to learn more about protecting your business?

Kount can help. We’ve developed solutions for health and beauty industry professionals worldwide. We understand what it takes to fight fraud in this constantly evolving and often-trending space. Keeping fraudsters at bay ensures your organization can focus on what really matters — building customer loyalty and increasing revenue.

Check out how our solutions help health and beauty companies like yours.

Request a demo