Accuracy Talks Straight #1 – Industry insight

Customisation and personalisation in the beauty sector | 8-minute read

Jean-François Partiot
Partner, Accuracy

Abel Perea Burrel
Senior manager, Accuracy

Klemens Lemarre
Associate, Accuracy

The personalisation of beauty is much more than just simple marketing innovation

Marketing and innovation have always been key success factors in beauty and personal care companies. This is even more so the case today in an environment where the consumer has access to a much broader offer and greater information thanks to the internet.

Historically, marketing and innovation cycles were mostly product-centric, focusing on the continuous improvement and upgrading of product ranges and brands. However, this marketing routine has been brutally disrupted by new growing consumer expectations. Indeed, marketing and innovation have now become customer-centric to feed the need for natural products on the one hand and more personalised products on the other.

We know that growing concerns for the environment and organic products are structural.

But when it comes to the customisation and personalisation (hereafter C&P1) of beauty products, to what extent should we consider this as a major structural trend or just a marketing gimmick to please millennial consumers?

We firmly believe that the customisation and personalisation trend will significantly reshape the beauty industry as it directly drives brand differentiation and business economics.

Below we will detail how and why.

The C&P trend is driven by customer expectations and enabled by technological innovations

Graph 1. Drivers and enablers of the C&P trend

Three drivers generated by customer expectations

Need for customer-centric products        
The growing appeal of customised and personalised beauty products reflects a change in the expectations of consumers, notably in mature markets saturated by a standardised offer and overconsumption.

Ethical considerations        
C&P enables consumers to select the ingredients used in the products (trend to offer sustainable, vegan, cruelty-free or organic products).

Need for inclusion and diversification     
Customised beauty makes it possible to fulfil customer needs that are not addressed by mass-market products (e.g. Afro-Caribbean haircare, women with darker skin tones).

Two technological enablers

The growing convergence of the online and offline worlds and the increase in BtoC are paving the way for the development of customised beauty.

Scientific advancements and the rise of new industrial technologies
The combination of scientific and technological advancements offers a unique opportunity to obtain consumer data, analyse it and understand consumer needs in order to create fully tailored beauty solutions. The significant strategic value of consumer data is greater than ever for beauty and personal care companies.

The combination of these two enablers materialises through five main solutions or ways of operating that companies have implemented in their C&P strategies.

1. High-tech beauty

In the wake of personalisation through algorithms, several major players are developing high-tech beauty products providing customers with a complete personalisation experience. These companies use artificial intelligence, augmented reality or even 3D printing to be at the forefront of beauty technology.

To illustrate, L’Oréal presented a new device at the 2020 Consumer Electronics Show called ‘Perso’, which is expected to be launched in 2021. This device creates high-end personalised skincare, lipstick and foundation products.

The product operates in four steps: (i) a personal skin assessment is conducted thanks to the ModiFace technology (artificial intelligence); (ii) the user’s local environmental conditions are then assessed by the device thanks to geo-location data; (iii) the user is able to customise the product formula for specific wants or needs; and (iv) eventually, the device produces the cosmetic product taking into account all of the required parameters.

2. Personalisation through algorithms

An increasing number of beauty and personal care players offer personalised cosmetics created by algorithms. Customers usually answer a questionnaire or undertake an assessment to ascertain their needs, whether it be online or in store. Answers and/or results are then analysed by algorithms to determine the product formula that best matches their individual characteristics.

For example, the French brand IOMA offers personalised skincare cosmetics based on an online questionnaire or an in-store skin assessment. An algorithm will automatically recommend the ideal formula from more than 33,000 possible combinations. Information on consumers such as skin assessments enrich IOMA’s skin ‘Atlas’, a database which summarises, compares and samples skin data to develop new skincare solutions.

3. Face-to-face consultations

In order to find the most appropriate cosmetics for each individual, some brands have put in place face-to-face meetings with experts to help customers create personalised products tailored to their specific needs.

As part of its Technology Incubator, L’Oréal launched Color&Co, a direct-to-consumer brand specialised in personalised hair-colouring kits, in 2019. Its value proposition lies in a ten-minute free video chat with a specialised colourist, who creates a personalised kit adapted to the customer’s wants and hair specificities, which have been described previously in a short questionnaire. The product is then directly shipped to the customer’s door and contains everything needed for the customer to dye his or her hair at home. Face-to-face consultations therefore provide consumers with personalised cosmetics that aim to answer the growing demand for inclusion and diversification.

4. Mix & Match products

Several brands are currently offering ‘Mix & Match’ products, which allow customers to make a choice between all available components and to build customised products matching their own expectations.

For example, Guerlain launched ‘Rouge G’ in 2018. It is a customisable lipstick offering customers the possibility to choose their lipstick colour from 30 available shades and to select their favourite lipstick case from 15 different proposals. Therefore, Mix & Match solutions enable consumers to express their own individuality and can be used as a means to better retain customers through a co-creation process.

5. Chatbots

Chatbots have been increasingly used on company websites and on social media in order to provide customers with a more tailored approach to service. Indeed, chatbots usually direct a consumer towards an item that he or she might enjoy. They occasionally work together with augmented reality technology, which enables customers to try beauty products virtually before buying them.

By way of illustration, French makeup retailer Sephora launched a smart beauty bot, Sephora Virtual Artist, allowing customers to try on a wide range of makeup products instantly (lipsticks, eyeshadows, eyeliners, etc.) by uploading a selfie into the corresponding app. Having benefitted from a customised user experience, customers can then purchase their favourite products directly on Sephora’s mobile website. These five solutions differ in terms of the initial investment required, the complexity of their implementation and the degree of personalisation (see graph below).

Graph 2. C&P solutions in the beauty and personal care market

Successful C&P operations should lead to more profitable business economics

Beauty companies expect C&P to generate a large positive economic contribution, which should improve their profitability significantly and structurally.

Capture retailer margins via disintermediation

The personalisation business model is based on building a direct relationship with the consumer. This is revolutionary for beauty companies as personalisation tools and platforms enable them to circumvent traditional retailers and capture their distribution margins. Indeed, the trade-off between incurring additional distribution costs and saving profit from retailers is beneficial to them.

Invoice a price premium

C&P mechanisms also provide significant potential for price premiums: consumers perceive the value of customised and personalised products to be higher. The analysis of several product samples representing various C&P solutions reveals that the applicable price premium increases with the degree of personalisation offered. On average, the price premium charged for these products is found to be close to +50% of the reference product (see graph 3).

Graph 3. Premium charged analysis on degree of personalisation

These price premiums further take into account business model and cost structure adaptations required to shift from a mass-market to an individual on-demand business model. To fully capture the underlying value of the C&P trend, beauty companies would have to invest in solutions up front and may also incur higher production and distribution costs.

Increase consumer base, enhance loyalty and increase purchase order frequency

The shift from product centricity to customer centricity and thus tailored solutions for customers is based on the increased quantity and spectrum of data provided by final customers. The data collected goes beyond the traditional direct contact details (email, phone number, home address, birthday, etc.) as customers are required to input their individual specifications, such as skin tone, product preferences (colours, shades, etc.), product expectations, appetite for natural products and more. Providing truly individualised solutions to customers has a positive impact on customer acquisition and loyalty and further increases barriers for the customer to leave and use other brands.

Further, the availability, subsequent analysis and use of this precise consumer data provides an opportunity for beauty companies to develop and implement their own BtoC business models. This not only makes it possible to bypass traditional retailers, but also makes it possible to implement personalisation-based subscription models. Such models are already being implemented in the beauty space with, for example, ‘The Dollar Shave Club’ and even in other FMCG sectors with, for example, Nestlé’s ‘’, a personalised pet food subscription concept. These models enable companies to increase consumer purchase order frequency by automating the ordering process.

A successful C&P strategy can double the LifeTime Value (LTV2) of one client

There is a lot of value to be created by addressing the C&P trend driven by the points mentioned above, that is, capturing retailer margins via disintermediation, benefitting from price premiums (see graph 3) and enhancing consumer loyalty and therefore increasing purchase order frequency (see graph 4).

Whilst price premiums may seem to be the most evident source of value, we found that consumer acquisition & loyalty, as well as disintermediation are the key drivers of lifetime value linked to the business models focused on C&P.

Additionally, beauty companies will be required to make initial investments and organisational efforts to foster innovation, build industrial capacity, and develop and maintain digital BtoC platforms. These investments may seem expensive from a business perspective at one point in time, but the opportunity cost of doing nothing may prove to be more expensive: beauty companies may lose relevance in the eyes of the customer and subsequently lose sales and market share.

Graph 4. Impact of the personalisation and e-commerce on LTV

Ultimately, the C&P trend is not a marketing gimmick but a major economic repositioning of the industry. By transforming their business models, beauty companies can leverage on this trend and create significant lifetime value.

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1 Lifetime value (LTV) corresponds to the monetary value of a customer relationship, based on the present value of the projected future cash flows from the customer relationship.

2 Whilst customisation refers to specific changes performed by an end-user to adapt a product to his or her specific needs, personalisation is done by the system itself, which will identify customers and provide them with content matching their own characteristics.