Until recently beauty and tech weren’t considered complementary. But now, technology is rapidly changing the relationship between consumers and brands and is driving a massive digital transformation in the beauty and personal care industry.
Imagine what your skin would say if it could talk...
Fueled by the ever-present connectivity in our daily lives, from social networks to digital devices, modern brands are now connecting directly with consumers and building mutually beneficial relationships and experiences together that are bringing personalization to the forefront. The result? Personalized beauty has become one of the Mega Trends reshaping business as we know it, forcing many to question what it means for their companies and products in this digital era.
What is personalization?
Personalization isn’t a new idea. Prior to the introduction of modern mass production during the Industrial Revolution, custom-made products (that relied on “craft production” processes) were more the norm. In fact, customizable products are still available in many high-value industries today—think custom homes, tailor-made clothes, and the ability to select your trim and color among other select features on automobiles.
All of these make us feel special and treated as an individual. And although once reserved for the wealthy, new technologies are democratizing the ability for a broader public to enjoy the benefits of products tailored just for them.
Personalization can come in many forms
There seem to be four primary modalities for creating a personalized consumer experience, and each of these has varying levels of complexity and impact across business processes, resources, and systems; starting with marketing and the buyer journey, and moving all the way through the supply chain and manufacturing.
Each one of these models uses some type of “front-end” to interact with the consumer. This front-end can vary from the web and smartphone apps to real people, and many variations in between such as retail kiosks, online apps, and even remote beauty consulting and AI assistants.
However, how the product is made and delivered varies and generally falls within these four categories:
Customization in the factory
In this consumer, manufacturing, and distribution model, the consumer uses a front-end system to select the custom product they desire (and/or that best meets their individual attributes and beauty goals), and the product is then made and shipped to them from a factory with the ability to mass customize. This scenario is capital intensive, process and technology complex, and “order to delivery” time is measured in days to weeks. A great example of this model is Nike By You – where consumers can create unique colors and add personalized text to make one-of-a-kind custom Nike shoes.
Function of Beauty and eSalon are two examples of companies building businesses on this approach. Function of Beauty delivers personalized shampoo and conditioner formulations by connecting consumers with customization in the factory. Consumers take a web-based self-assessment, taking into account individual hair attributes and aspirational beauty goals, to make the perfect formula. Additionally, consumers can select shampoo-to-conditioner volume options, color, fragrance, and a formulation name for each one-of-a-kind bottle. Another company pioneering this model is eSalon. They have successfully integrated technology and beauty to develop a process and Polly Chrome machine that can dispense fully personalized hair dye in a bottle at high volume. Orders are taken over the web, using typical questions a stylist would ask at a salon, paired with a customer headshot for reference. The responses and image are funneled into a computer algorithm that generates a unique formula, which is then reviewed and adjusted by a real person (a certified hair colorist) to ensure the best blend before the final hair dye is mixed and shipped directly to the consumer’s home.
Customization at retail
Customization at the point of retail involves distributed mini-manufacturing sites with a front-end product selection system and a store-based “machine” to create the product. The product customization at retail is likely to be more limited in options than factory production, but the production time to create the customized product from point of purchase is measured in minutes instead of days. Further, web and smartphone apps may allow for the front-end order processing to happen anytime with a convenient retail pick-up strategy. This approach is also capital intensive, with distributed machine maintenance and support factors adding additional complexity. eSalon is also pioneering this model with their color kiosk and compact Polly Chrome machine that makes custom hair color in less than 1 minute, allowing on-demand color formulations dispensed directly at retail or the studio.
Customization at home
For immediate gratification and use, companies are developing microfactories for the home to customize various skin care products. Products like the Nuskin ageLOC Me, and ROMY Paris FIGURE Formulator give consumers the ability to make personalized products and skin care regimens part of their daily routine at home, to target problem areas, and to simply feel and look their best. Skin feeling dry – adjust the formulation for more moisturization. Sunny day—add a bit more UV protection. Need a different color foundation – no problem we can color match, recommend, and make just the color you need for a night out or that new sun tan. While these technologies are certainly possible, the cost, maintenance, and stocking of various ingredients of these home devices might be barriers for widespread adoption. Admittedly the concept sounds very appealing, but implementation of the device and technology will be a key driver for adoption.
Curating products globally
What do consumers really care about? Do they care about customized product—or are they really asking for help finding the best product for them? Three of these four trends focus on creating customized product, while this fourth trend takes a different route—finding the right product for you from a subset of existing products. This business model is more dependent on supply chain and brand relationships than it is capital intensive. The fundamental question is: do customers need the unique benefit and satisfaction of truly customized personalized products that necessitates the capital expense to deliver on that promise, or are there enough products available globally that an appropriate product already exists?
StichFix and Birchbox are building successful businesses around curation of products. P&G is also developing omnichannel strategies to help consumers better understand their skin characteristics and more easily find a product that is most likely, best for them. Interestingly, companies like Birchbox, StichFix, Amazon, and others who help curate are free to curate product from any brand, while the P&G solution only curates from it’s own brands. Companies like L’Oreal will have many global brands to choose from and may have enough selection to satisfy most consumers. Like any modern shopping experience, the time from order to delivery is measured in days (or one day) as opposed to minutes in the home or retail scenario.
So why are we only now just seeing this excitement around personalization in beauty and personal care?
In short, modern digital technologies and devices are only now making it possible by changing the cost and scalability equation, and allowing brands to better understand consumers wants and desires, and engage them directly in the personalization process.
Until the recent digital era, mechanized mass production and distribution methods afforded efficiencies unattainable with “craft production”, essentially pushing customization to high margin markets or niche areas where centralized large-scale production techniques were not cost competitive. Advancements in digital devices, automation, robotics, artificial intelligence, and IoT have made personalization and customization in mass markets possible by making it more scalable and cost efficient.
Radically new in the beauty sector, and driving a massive digital transformation, modern digital experiences and devices are changing the buying process between consumers and brands, allowing companies to bypass traditional retailer channels and engage directly with consumers in novel ways. Today's forward-thinking brands have a direct relationship with consumers, allowing them to gather a tremendous amount of information about their customers to better understand them. When coupled with advanced production and distribution possibilities, consumer data and insights from this two-way conversation are allowing companies to better tailor products and services on-demand to accommodate specific individuals, or groups or segments of individuals; and are empowering consumers to better dictate what they want, where they want it, and when they want it. With the advent of low-cost sensors, beauty companies will not only have your demographic information and buying habits, but know intimate details about your skin and health giving them the ability to further refine products and services designed just for you, and/or designed by you just for you.
As a brand, why should we care about personalization?
Taken to the limits, personalized beauty means products and experiences can be hyper-customized (bespoke) to each individual's attributes, personal preferences, and unique biological response (skin/hair type, microbiome, genetic signature, etc..). Not only can your consumer find the right product or have a hand in designing it themselves, but their individual response to the product can be tracked over time and fed back into AI and social platforms to recommend new products or formulation changes that can be dynamically refined as they move through the beauty regime.
Beyond this commercial vision of personalized beauty, research by Deloitte suggests that people want it. In fact, humans have always wanted to feel special and unique – and personalized products and services is a way of achieving it. Not only are they willing to pay a premium, but they’re willing to wait longer to get them. This preference for personalization is represented across young to older demographics alike, and in different product and service categories, from clothing and beauty products to lodging, entertainment, and health and wellness. Interestingly, the desire increases in the more expensive and fashion related consumer categories, suggesting a growing influence between perceived value and personalization. Overall, personalization allows additional opportunities to create a differentiated offering, build customer trust, and improve consumer engagement as consumers feel more valued and recognized.
Personalization also means an easier buying experience. AI can use the consumers’ digital footprint and personal data (online shopping, browser history, product questionnaire, etc.) to generate insights that simplify the buyer experience and curate or customize the product for the individual. Instead of having to choose between a myriad of products that don’t exactly work, smarter systems intelligently work in the background to curate the best product in a process that is far simpler than searching through hundreds of products, reading reviews, watching Youtube vlogs, and hoping your money has been well spent.
There are compelling reasons personalization should be a part of strategy and business differentiation for most modern brands and there are a number of companies trailblazing new business models centered on personalization. Many of the most innovative technologies are being developed by aggressive startups building the business and operations model from scratch and later forming strategic partnerships or being acquired by global brands.
- Modiface (acquired by L’Oreal) creates augmented reality beauty apps.
- Neutrogena Skin360 and SkinScanner, developed in partnership with New York-based company FitSkin, allows personalized skin analysis using an iPhone + simple device accessory.
- MATCHCo (acquired by Shisiedo) is a makeup app that scans your skin for custom foundation recommendations using a standard iPhone camera and processing power.
- Beauty 3.0 AI + Ar is a technology platform that offers on-demand beauty consultations, product recommendations, and skin sensing for a personalized smart beauty solution.
- Mira.AI - is an ecommerce platform for personalized content recommendations using insights from the web and an AI engine to engage, curate, and recommend products.
What are the challenges to personalized beauty?
For many beauty and personal care companies, the move to personalization and made-to-order customized products runs counter to their dominant model of standard products designed and marketed for high-volume production and distribution. Companies like Unilever, Beiersdorf, P&G, L’Oreal and other large beauty brands have built global enterprises deploying mass production processes and standardization of products on uniformization of prescribed aspirations and tastes. Personalization on many levels requires rethinking how these companies do business. And even with modern technology, there are still large cost and operational implications when moving from high-volume mass production of uniform standard products to more the more agile business operations and supply chains necessary for made-to-order physical products.
The data related to consumer interest in personalization is open for interpretation also. Consider a recent Deloitte study which reported that on average, 36% of consumers had a preference for personalized products and services (beauty products and health & wellness categories averaged roughly 30%). One can look at this data in two ways: 30% of consumers are interested in personalization, which as a news headline might seem like an impressive trend. To the contrary, this also means, 70% of consumers didn’t express personalization as important in their buying decision. As companies rush to embrace personalization there should be considerations in strategy to make sure this 70% and their current customer base isn’t alienated in the process.
As a result, forward-thinking companies considering embracing personalization as a strategy are well advised to think of this new technological approach as a spectrum with different degrees of benefit and complexity depending on a number of factors.
The Spectrum of Consumer Personalization
It is useful to think of personalization as a spectrum of possibilities with varying degrees of benefits and tradeoffs depending on where you target on the spectrum. Generally speaking, at one end you have personalization through purely digital approaches coupled with standard mass-market products built on uniformization of needs across defined segments, that leverage large-scale production and uniform processes, shared distribution channels, and proven business models that benefit from economies of scale. At the other end, you move into personalization of physical products and all that comes with – making and delivering hyper-customized, made-to-order offerings that leverage digital technologies and experiences to capture individual wants and aspirations. Given large cost and operational implications to achieve personalization at scale in its different forms along this spectrum, likely the best strategy for most companies is going to fall somewhere in the middle, and for larger global companies it will likely be different for each brand, product line, category, or geography within the company's portfolio.
For simplicity, it is helpful to group the personalization spectrum within three major approaches, that are not mutually exclusive:
In this approach personalized curation is about finding and recommending the right product for the customer from available mass produced products. Implementation can live in the digital space and run in the background requiring no input from the customer. Amazon’s e-commerce recommendation engine is a great example of curation in its purest form—features like: ”Customers also shopped for”, “Frequently bought together”, “Recently viewed”, and “Best selling in category” are highly effective at understanding mass-buying patterns and personal data from online shipping profiles and browser history to recommend products. On the other hand, companies like StichFix and Birchbox are bringing a more personalized experience to curation by hand-selecting mass produced products to individuals’ tastes, budgets and lifestyles.
When more information about the consumer is needed (such as distinguishing physical characteristics from images or diagnostics of skin, hair, face, etc.) curation systems can leverage additional technological approaches and inputs to enhance performance. Smartphone or computer cameras are common examples that work for many basic curation systems but have real performance limits due to variability in hardware across different devices, and environmental factors like lighting and repeatability of orientation of the picture. To address this challenge, performance can be improved with no additional hardware by leveraging additional standard features and sensors on a smartphone, as demonstrated by our AI concept app, Reflexion. In other cases, where better fidelity of measurement is needed or the use case demands it, simple hardware accessories or purpose-built dedicated diagnostic devices may be necessary – both Neutrogena Skin360 and Sephora Color iQ system are examples of this. In the end, the approach taken will depend on the business and insights needed, and the attractiveness of the approach will depend on how the system is architected and implemented; as an example, we see a spectrum of technical approaches that can be applied for skin diagnostics products.
In this approach customizable products can be mass produced, but the customer selects from limited options or features to customize the product to their individual preferences. Implementation can leverage proven mass manufacturing and distribution methods that benefit from economies of scale, while concurrently offering the ability to personalize the product to the customer with additional complexity to manage made-to-order features. This requires input from the customer to select the features – a process that can be enhanced through real-time diagnostics and AI systems that not only understand the customer and anticipate their preferences and selection, but can also help them track improvements and adjust formulations over time.
In this approach the customer is brought into the design process from the beginning to help co-create one-of-a-kind products with the business. It is an interactive two-way conversation that requires input from the customer in the customization process to determine features, specifications, ingredients, and more. Personalized services such as online consultations and interactive questionnaires help customer and business arrive at the best product together. AI and smart diagnostic technologies also help enhance this approach. Function of Beauty and Prose are examples of beauty companies developing custom formulated products for hair care around this model.
Corporate personalization strategy considerations
Larger Brands have created manufacturing and supply chain systems for highly uniform products. Moving to personalized products will require an entirely new approach for how the entire business operates and the resources needed to deliver on the personalization vision.
Business strategy and operating models need to be reconsidered and adapted to more agile approaches and systems. It means changing core processes from design through delivery, and building a connected supply chain that can deliver at scale. This is why new start-ups have an advantage over established brands and why acquisition is such a popular and necessary path.
“Reinventing” a company to bring it into the digital era is no small task or free from risk, let alone reorganizing it to deliver highly personalized products on-demand when the dominant model revolves around high-volume standard products and mass distribution. Exploring personalization is not an all or nothing strategy, but rather an exploration of fundamental consumer desires and aspirations and how to address them in a more personalized way. Achieving these goals can be done incrementally, allowing companies to experiment with personalization to learn more about their customer reactions and market demand, and doing so without damaging the brand.
Brands who explore a multilayer strategy, that spans from pure digital experiences to more logistically and technically complex investments around customer-led personalized physical products, can create a framework for personalization strategy and develop a roadmap to smartly guide companies on a journey of delivering better solutions for an ever-changing consumer expectation. We have helped a number of companies successfully navigate this journey in technology innovation and business transformation.
Digital technologies and experiences are massively transforming the beauty and broader consumer market. Companies are transitioning from selling products to selling a more holistic experience, and with constant pressure to innovate and stay ahead of the competition, the development of revolutionary personal care products and services for cosmetics, fragrances, skincare and beauty products alike will transform the industry. Coupled with trends in social media influence, new technology advancements, and digital native consumers, this transformation is driving a heightened focus on personalization and made-to-order products. This trend is already in place with significant start-up and acquisition activity. However, like any new market disruption, the jury is still out on which model will have the staying power to remain viable over a longer period of time. This transition could take 5-10 years to mature as new generations of consumers with different world views and experiences enter the market.
While we can’t predict where personalization will ultimately land, we can infer that every major company is looking at personalization and what it means for their business and market position, and how investments in technology can attract new customers, provide more delightful and meaningful experiences, and create products that deliver better results.
As a result, personalization is not a one-size-fits-all for many larger brands and companies. The approach that each company embraces within this personalization approach will depend on their unique business. It will be a bespoke approach, tailored to each company's individual goals, market opportunity, capabilities, and resources.