The Digitization of Beauty at L’Oréal

Technology is a new way for consumers to experience beauty – but how far can digital innovation disrupt the beauty industry?

The Digitization of Beauty at L’Oréal

Companies, diversified as they can be, inevitably have adopted the trend of using digital services to simplify and bring faster solutions for their businesses and customers. The digitization journey for L’Oréal, a leading company in the consumer goods industry, has started with adopting SAP as an enterprise resource planning platform for various processes such as operations, marketers, financials, and corporate services. However, the need for digitization has extended beyond the tools required for the organizational needs as the company had to cater to the customers’ needs everywhere at any time, or else it risked losing its market positioning. “Tools and standards are changing faster than companies can react. Customers will soon be able to search for products by image, voice, and gesture; automatically participate in others’ transaction¹.” The commitment to beefing up L’Oréal’s digital activities took a very strong place inside the group in terms of investment and revenues. A strong example of the digitization effort is illustrated in the adoption of e-commerce platforms as a new sales channel which generated €1.7Bn in sales (6.5% of total revenue) in 2016 with an expected growth of +32%².

L’Oréal believes that there is a golden age for social beauty, and created distinct ‘connected beauty innovation’ to retain their consumers and recruit new ones through digitized services. Although the store experience and the behavior of a consumer inside a store is an essential factor from a brand management perspective, the digital applications are becoming a game changer. The trends and product novelties are becoming more powerful online as consumers prefer to familiarize themselves through the diverse social platforms instead of visiting physical stores. For example, the ‘Makeup Genius’ application³, launched in 2014, brought to makeup lovers a New Era of Beauty by being the first virtual makeup application that instantly applies makeup to the consumer’s face. Such an innovation has impacted the consumers’ behavior as they no longer need to visit the stores to try different products and complete the purchase, but rather use the application and complete the sales online.

Video: Makeup Genius4

Another digital innovation from L’Oréal is ‘My UV Patch,’ revealed at the Consumer Electronics Show in 20165. La Roche-Posay, a dermo-cosmetic brand in L’Oréal group, created the first-ever-consumer-friendly skin sensor connected to a mobile application to monitor the exposure to sunlight. During my conversation with the La Roche-Posay Product Manager, Hannan Lalioui, she explained that the original objective of the tool was to educate consumers in the Middle East and to help them monitoring the risk of UV rays they encounter daily. Yet, the innovation had an unexpected impact on the consumers’ behavior. Previously, consumers often visited dermatologists or pharmacists seeking advice prior to purchasing sun protection products for their lack of knowledge, and ultimately, pharmacies were the major sales channel for these products. However, the new patch and mobile application allowed the consumers to choose the right product without visiting a specialist, which created a major shift in the sales moving from the typical channel of pharmacies to the conventional retail outlets or even the online channels. Moreover, as the consumers are instantly reminded to apply sun protection throughout the day based on the sensor readings, the new behavior had a positive impact on the product sales which has increased dramatically and projected to grow at an unprecedented level of +45%. Additionally, one of the latest innovation created by the L’Oréal Group, which is a living proof of the group’s focus on digital technology, is the Lancôme’s Le Teint Particulier custom made foundation powder. The patented technology precisely matches an individual’s unique skin tone to create customized products for different consumers6.

Video: My UV Patch7

The main question remains is to what extent can digital innovation disrupt the beauty industry? How far can the industry main players continue to innovate with digital innovation application or products? Does the fact that consumers can no longer live without being connected to their phones and social media platforms remain to be the main driver for L’Oréal to continue investing in innovation and digital technology? Ultimately, consumers will always look forward to innovations and disruptions in the beauty industry, forcing the all the consumers goods brands to always find innovations and breakthroughs not only to increase their brand awareness or sales, but also to create a differentiation and market advantage among the competition.

 

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[1] Bommel, E., Edelman, D., & Ungerman, K. (n.d.). Digitizing the consumer decision journey. Retrieved from https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/digitizing-the-consumer-decision-journey

[2] L’Oréal Annual Report. (2016). Retrieved from http://www.loreal-finance.com/en/annual-report-2016/key-figures

[3] Weinswig, & Deborah. (2016). Beauty Shopping Augmented With New Mobile Apps. Retrieved from https://www.forbes.com/sites/deborahweinswig/2016/07/28/beauty-shopping-augmented-with-new-mobile-apps/#765bec4756e0

[4] YouTube, Virtually Try On Makeup | Makeup Genius | L’Oreal, https://www.youtube.com/watch?v=zbBJfrkZRDI, accessed November 2017.

[5] Boxall, & Andy. (2016). L’Oréal My UV Patch. Retrieved from https://www.digitaltrends.com/wearables/loreal-my-uv-patch-hands-on/

[6] L’ORÉAL. (2017). L’Oréal Presents Its Connected Beauty Innovations And Partnerships With Startups At Viva Technology Paris 2017. Retrieved from http://www.loreal.com/media/press-releases/2017/june/vivatech-2017

[7] YouTube, UV skin patch, https://www.youtube.com/watch?v=zbBJfrkZRDI, accessed November 2017.

 

 

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9 thoughts on “The Digitization of Beauty at L’Oréal

  1. Thanks for sharing those interesting insights about digitalization in the beauty industry Mohamad.

    The way L’Oréal has managed to innovate in an almost stagnant industry is something really admirable. Your write up reminded me of an article (https://goo.gl/6HeZD2) highlighting L’Oréal’s innovations in digitalization as well as their use of data and analytics to detect future beauty trends by survey big search engine results in the beauty area to identify what consumers were searching for.

    More frequently, we see companies realizing that investing in innovation is a lengthy and expensive process but only doing so would allow them to reinvent itself in moments of crisis. L’Oréal has been one of such pioneers in the beauty industry by setting up a Research & Innovation Center (http://sf.incubatorloreal.com) to incubate startups innovating in their space.

    As you mentioned, it remains to be seen if the public can adopt technology in the beauty industry as fast as in other areas as the intimacy of the products coupled with the traditional distribution channels can be of concern and a deterrent for some potential users.

    I look forward to learning more about this topic from our discussions in class.

    Thanks for sharing!

    -M

  2. Very interesting read MRA! To your point related to the importance of the store experience to build a brand, I would highlight that digital tools not only enable alternative distribution channels (such as direct to consumer sales via online), but can also enhance the shopping experience inside the physical stores. As an example, look at the smart beacon technology that allows retailers to send personalized messages to consumers within 50 meters of their stores. This technology allows retailers to not only invite customers passing by to enter the stores by offering them personalized discounts but also allows retailers to instantaneously share more information about the products displayed in store.

    Additionally, some retailers have introduced digital kiosks in their physical stores that allow customers to order products online in case the item is sold out in that particular store.

    All in all, I reckon that retailers should not look at digital tools as a replacement of physical stores but as tools that allow them to optimize the in-store experience.

    Useful links:
    http://www.smartbeacon.eu/

  3. Thank you for a great subject, I have already downloaded the Makeup Genius App and was really impressed by it.
    It is fascinating to see how beauty companies are trying to bridge the complexity of purchasing makeup and beauty products by using technology.

    One area that I believe L’Oreal can still leverage is customer’s personalization. Getting the customer purchase preferences by filling a survey, building a profile or even by saving the image that was taken in the app can be used to generate and collect data and assist L’Oréal in building an advisory engine, suggesting the most suitable products to consumers based on their color of skin, color of eyes etc.

    One beauty company which did use personalization as part of their offering and which was actually established by two HBS alumni is BirchBox, an online monthly subscription service that sends its subscribers a box of four to five selected items based on their profiles.

    For those who are interested in Christmas Gifts: https://www.birchbox.com

  4. Fascinating article! I think your article highlights the increasing trend of customer customization among consumer goods that’s rapidly taking over our society. While I agree that the digitization of beauty products makes great sense and provides a value-add to customers, I wonder how far can this go? Given how uniquely different human skins are from each other, how much tailoring can a company make?

    This was essentially the same question I posed at the end of my article where Adidas was leveraging technological advancement to customize shoes to their customers and even launching specific shoe – lines for specific cities. While I personally enjoy customization, from a company’s viewpoint, this is a huge disruption from their manufacturing process as factories can no longer batch production (or at least batches are a lot smaller and much more infrequent). It would be interesting then to see whether the benefit of digitization and supposed increase sales in tailor-made beauty products does outweigh the overall loss of streamlining your manufacturing process by producing products in masses. This would be a key question big firms like L’Oreal as well as Adidas will need to grapple with.

  5. This is a really interesting post! Beauty products are fairly high consideration purchases because consumers care a lot about not just product quality (since the product is going straight on your skin) but also how the product actually looks in use. Now with the majority of purchases shifting to online, it’s great to see companies like L’Oreal thinking creatively about how to bring that decision making process online as well with product reviews and apps like the Makeup Genius. In a competitive space like the beauty industry, initiatives like this are really important in helping companies differentiate themselves from the many other brands out there.

  6. Really interesting post! Bloggers/vloggers are another increasingly important player in the beauty industry. I’m curious how L’Oreal could incorporate them into new digital innovations. Shoppable videos are becoming more common, but I think that they could push it even further. A number of bloggers are coming out with their own apps and there is potential to incorporate one-click shopping (or one word, perhaps you watch a video blog and tell Siri or Alexa to buy it for you in the color that’s best for your skin)….I am personally excited to see how the beauty industry continues to innovate.

  7. Thank you MRA for a great post! I enjoyed reading it. Many beauty companies are also using this digital disruption to gather data on customer preferences and predict future beauty trends – as a potential way of competitive advantage. However, I reserve some skepticism about the application of digital disruption to an industry such as beauty. As we see in the Dove beauty campaigns, there is a trend towards “natural beauty”, the idea that we don’t need excessive accessories added to our face. It’s beautiful in its true colors. This digitization app, if not done carefully, can potentially affect the public image of beauty companies such as L’Oreal. In the image in the article, the app is using our face as a base to apply colors and altered features to. What message is this sending to customers (e.g., teenagers who are learning the concept of beauty)? Very interesting points you brought up. Look forward to the discussion in class.

  8. Great post! Beauty products are typically emotional purchases. In the past, consumers relied on makeup artists or knowledgeable sales people to figure out what products work best for them. Now, the digitization of the beauty industry has made the purchase of beauty products more transactional. Consumers still rely on knowledgeable people, but consumers now turn to beauty influencers on YouTube and Instagram instead of the sales people. I’m excited to see how this will unfold over time. Thanks for a great post!

  9. Thanks for a great post!

    I found the efforts to use digitization to drive mass customization particularly interesting in the context of the beauty industry considering both how diverse individual customer needs are (every person in the world has a unique face) and how many segments of the population have been traditionally “excluded” from the beauty industry.

    One interesting parallel is in hair care, where the majority of CPG companies have historically focused on products that appeal to major mass market segments (e.g. fine hair) due to the scale required for the traditional CPG-to-retail supply chain. In the new age of digitization and direct-to-consumer, a number of startups are innovating on how to design shampoo and conditioner unique to each person’s hair type and hair goals (e.g. https://www.functionofbeauty.com/). To me, it seems like companies like this are focusing their value proposition on consumers whose hair differs from the mass segments served by the traditional supply chain, in order to grow the market rather than steal share.

    I believe products like the custom color skin foundation would have a similar proposition in the market and grow the beauty industry in a diversified way. I agree with @Ketty Lie that initiatives like this carry a major risk of adding so many SKUs that manufacturing becomes inefficient. However, as the beauty industry faces global skepticism in the aftermath of campaigns like Dove’s Campaign for Real Beauty and the rise of “natural beauty” trends, I wonder if opening up the market to new consumers is the only way to ensure growth.

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