L’Oreal: Transforming beauty with technology
L'Oreal integrates digital into the heart of its business model to reinforce its edge in the beauty market.
From bricks to clicks
The L’Oréal Group is the world’s largest cosmetics and beauty company. Since 1925, the group built a strong portfolio of brands and positioned them through traditional magazine covers and TV ads, pushing consumers to walk in retail stores, try and buy their products.
Since then, L’Oreal has become arguably the most digitally innovative beauty company in the world. Armed with the mission to integrate digital into the heart of its business model to reinforce its edge in the beauty market, L’Oreal has undergone a major transformation over the past few years. [1]
Beauty and digital media: a perfect match
In 2012, foreseeing their future challenges, the company launched its “Connected Beauty Incubator” based in the US, a division within the company’s research division dedicated entirely to technological innovation and industry disruption.
L’Oreal carefully studied their consumers and learned early on that that their target market was constantly connected, underwent a research process including many touchpoints, and was turning to video content to search for beauty solutions and see products come to life. [3]
It is hard to change the nature of beauty products, but reaching and engaging consumers became a great opportunity for innovation. In 2015, digital rose to over 25% of media spending, while e-commerce sales worldwide grew 37.8%, becoming 5% of sales worldwide and as high as 20% in markets like China. [4]
How is L’Oreal transforming beauty?
Structure
As most consumer packaged goods companies, marketing, sales and product development divisions had been largely distinct silos within the company. The first step towards integrating digital in the business model was redesigning the organization to align objectives. Also, approximately 1,000 employees with digital capabilities were recruited in the past 4 years.
Perhaps the major step towards their commitment to digital was appointing their first Chief Digital Officer in 2014 as a member of the company’s executive committee. This role aimed to lead digital strategy and innovation across divisions and brands, ranging from content marketing, personalization and data, and e-commerce. [1]
E-Commerce
L’Oreal is rolling out e-commerce for their brands with different strategies depending on the target market. In countries where digital is more developed, they team up with local e-commerce leaders, for example with Alibaba and Tmall in China. In other markets, e-commerce is being developed using distributor partners and brand sites. [5]
Data and product development
As they expand their digital capabilities, L’Oreal has created robust mechanisms to extract and analyze consumer data. What content do consumers search and watch? What are they more interested in? What interactions trigger other actions and/or sales? In 2014 for example, the company analyzed Google search trends and discovered that in the middle of the “ombre” hair color trend (where women colored their hair lighter from the mid-shaft to ends), consumers were trying to find ways to do this at home with hair color products, and lacked an application tool. L’Oreal was quick to respond and take this new technique to consumer’s homes, launching a L’Oreal Paris “Ombre Kit” which was a great success. 50% of purchases came from consumers new to the hair color category! [6]
Enhancing the purchasing experience
In 2014, an outcome of L’Oreal’s “Connected Beauty Incubator” was a beauty app called Makeup Genius. The app transforms the front facing camera of iPhones and iPads into a virtual mirror where users can virtually try on different beauty products. This development implied using very complex technology to map facial expressions and be able to overlay products like lipstick or eyeliner onto user’s faces, and was very disruptive in the industry! It became a great success with over 11 million downloads worldwide.
In addition, the app allows consumers to scan products in-store, see the details in the app, experience how they would look on themselves, and finally complete the purchase through the app at any time, avoiding lines in congested stores and improving the overall shopping experience.
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Overall, we can say that L’Oreal has been very successful adopting digital as a core element of its business model, mainly by transforming their organizational structure, renovating their product development process and enhancing interactions with customers through e-commerce and in-store experience. Furthermore, it is constantly recognized as a leader and disruptive innovator in the industry. It is expected that in the future much of L’Oreal’s growth will rely on digital initiatives, and they are certainly already working in their many next big ideas!
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[1] Telegraph UK, How Technology is transforming beauty http://www.telegraph.co.uk/technology/news/11744292/LOreal-How-technology-is-transforming-beauty.html
[2] GCI Magazine, “L’Oréal Ups Commitment to Digital with New Chief Digital Officer”
[3] Think with Google, “Five truths about beauty shoppers” https://ssl.gstatic.com/think/docs/five-truths-beauty-shoppers_infographics.pdf
[4] Key Figures, Digital – L’Oreal 2015 Annual Report https://ssl.gstatic.com/think/docs/five-truths-beauty-shoppers_infographics.pdf
[5] L’Oreal Website, “The potential of e-commerce” http://www.loreal-finance.com/en/annual-report-2015/e-commerce#article-digital-tooltip-1
[6] Think with Google, “L’Oreal Paris uses search to build brand love” https://www.thinkwithgoogle.com/case-studies/loreal-paris-builds-brand-love-with-search.html
Nicole – this is a very interesting read. As a loyal L’Oreal customer through the years, I was unaware the extent to which they have embedded digitization in their strategy, which you’ve laid out here holistically. Amid my excitement, I tend to be wary of apps that have tried (and typically failed) to capture “trialability” – such as Makeup Genius – of the shopping experience that lead to purchase decisions (makeup, clothes, haircuts, etc.). From the looks of it, if L’Oreal launched the app in 2014 and have only disclosed download metrics since, as opposed to in-app purchases or some metric of engagement as a proxy for sales conversion, I’m skeptical they have truly cracked digital transformation of the trial-to-sell stage of their distribution operating model. My hypothesis as to why this doesn’t work *yet* is that a lot more variables factor into the consumer decision making process that remain to be captured by apps like these: color impacted by real-world lighting conditions, texture, scent, and packaging in the case of makeup. I would be very interested to see, however, if Makeup Genius version 2.0 could solve for this digitally – that would really be revolutionary!
Interesting article! I was surprised to hear about L’Oreal’s dedication to become digital, since I only knew about their e-commerce presence. I, however, have a similar reaction to Amira above – I’m not quite sure they have cracked the nut on digital transformation yet. I agree with Amira’s points as to why, but I also think a big factor is because of how “sticky” the beauty industry is for most product lines. For most products, I almost always just reorder the existing brand and shade that I am currently use, and only rarely am interested in exploring new products through something such as the Makeup Genius. I wonder how they could get more traction to this product, perhaps through discounts or promotions if you use the product.
This was very interesting, Nicole! Up to this point, beauty has seemed, to me, to be one of the slowest industries to incorporate digitization into its business model. While it is clear that beauty brands have innovated continuously using digital technology over the years in the production of their products, the customer experience of purchasing beauty products has remained the same. The Make-up Genius app that L’Oreal has created seems like the exact solution to this problem. However, like Amira, I am concerned about the feasibility of the app to do what it is claiming to do. I would love to know whether L’Oreal consumers find more value in using the app than in purchasing make-up “the old-fashioned way”. Is L’Oreal using the Make-up Genius app more as a marketing tool or is it truly meant to be a practical way for consumers to select make-up?
Very good post! I enjoyed reading about the responses L’Oreal has had to the changing digital landscape and that they are a pioneer in their industry. I too echo the above comments and wonder how much impact their app has had on sales–I imagine it has definitely helped people to become much more educated about what L’Oreal has to offer at the very least.
I wonder if L’Oreal has opportunities to involve other digital technologies such as VR and augmented reality into apps that allow you to physically “try on” makeup rather than just seeing an image. I think they could do some really cool things with that, since the application of makeup and beauty products is so experiential.