Personalisation at scale – L’Oreal

When a billion people use your skin care & hair care products and your cosmetics range, you need to consider innumerable textures & colours. All these consumers want products that are tailored to their needs. For L’Oreal, delivering personalisation at this level of scale meant thinking about innovation in a different way.

It would no longer mean a one solution to one problem approach. It meant tailoring the solution for individual consumers who experienced the same problem in different ways.

Leveraging industry 4.0 to achieve personalisation at scale

Industry 4.0 includes robotics, IoT, data, blockchain, VR, AR & AI. All these technologies have a place in the modern industrial framework. They can be combined and can be deployed to make manufacturing more productive and efficient.

L’Oréal not only leveraged e-commerce and recommendation engines during the pandemic, but the company also tested and implemented technologies to deliver personalisation at scale.

Initiatives and solutions

We’ve already covered L’Oreal’s Modiface in a previous blog. Some of L’Oreal’s other various initiatives are:

  • Le Teint Particulier, under the brand Lancome – a product which allows consumers to have their skin tone ‘measured’ at point of sale. A personalised concealer is then manufactured for them right there in the store. The concealer is a combination of one of each of 8,000 shades, 3 coverage levels, and 3 hydration levels. Even the packaging is personalised with information including the customer’s name. It also includes a reference ID for quick and easy reordering.
  • Custom D.O.S.E by Skinceuticals, a L’Oreal UK brand. According to L’Oreal’s tech incubator, “Custom D.O.S.E by SkinCeuticals is the first ever automated system that delivers highly concentrated combinations of SkinCeuticals’ most potent ingredients on-the-spot. Addressing the concerns of over 250 skin types, the D.O.S.E technology is first-of-its-kind because it’s able to mix active ingredients into a single serum at the point of service specifically to target the appearance of skin aging issues, like wrinkles, fine lines, and discoloration.”
  • Agile production lines – by leveraging several industry 4.0 technologies, L’Oreal has been able to manage final product differentiation later in the value chain. Stéphane Lannuzel says, “We can produce the base and then choose the colour for a lipstick right at the very last moment”.
  • Perso, this gadget personalises and customises make up for your every need. Perso relies on an AI derived diagnosis of a photo (corresponding phone app by BreezoMeter) of a user’s face to highlight imperfections ranging from fine lines to dryness. Perso then creates a final product formulated for the user’s skin, pulling from a library of ingredients.

The results speak for themselves

For the year ended 31 December 2021, L’Oreal’s brands grew by 16.1%, nearly twice that of the global beauty market. Sales was up 15.3% vs prior year, with profits up 29% vs prior year.

The group reported double digit sales growth in H1 2022 at 20.9% increase YoY.

DtC scaling – strategies to mitigate risks

There is no doubt that the pandemic accelerated growth for several e-commerce FMCG/CPG (FMCG = Fast Moving Consumer Goods; CPG = Consumer Packaged Goods) brands. However, scaling DtC (Direct to consumer) brands online is far more expensive than scaling through supermarkets.

According to Statista, 80% of sales are still happening in store. Whether that is ‘buy online, pick up in store’ or ‘buy in store’. Also, conversion rates in supermarkets range from 20% – 40% vs online conversion rates of 3% on average.

Also, as more established companies and brands enter the DtC & e-commerce space, they push up the cost of customer acquisition due to their deep pockets. According to Statista, the cost per click on Facebook in Q4 2019 was $0.81. In November 2021, this was $1.22. Compare this to supermarkets or convenience stores where significantly more consumers walk by the shelf (an impression) at no incremental cost.

So what do DtC brands need to be aware of when entering the brick & mortar space?

  • Lack of proximity to shoppers & consumers: A key advantage that DtC brands have that has allowed for accelerated initial growth vs brands by large FMCG companies is that the teams behind the DtC brands are closer to their consumers. They leverage the data from their own DtC website to understand shopper behaviour, consumption patterns and preferences, which they use to fuel their supply chain. Also, they get valuable product feedback through reviews on their platform that they leverage to improve their brand.

    Large companies/brands, in contrast, are typically at least one step removed from their consumers as they sell through retailers. So the retailers are usually the ones who get the data on shopper preferences and consumer preferences. This may not always be passed on to the ‘brand owners’.

    When entering the brick & mortar space through supermarkets & convenience stores, DtC brands face the same risk. DtC brands can mitigate this by building a strong community for the brand as this encourages brand loyalty and feedback. Also, this can be mitigated, partially, by maintaining an online presence while also selling through brick & mortar stores to remain close to their consumers and shoppers.
  • Supply chain unpredictability: As mentioned in the previous point, DtC companies are able to leverage the data on their e-commerce portals to forecast sales. However, when selling through 3rd party aggregators (supermarkets, convenience stores and discounters), they are dependent on their customers sharing this data, which is not always common. This makes it difficult to predict sales as they then do this on the basis of historical orders placed by customers. So when they receive unexpectedly large orders, they are at times pressurised into fulfilling customer orders at the cost of going out of stock on their online stores. This may result in alienating loyal consumers who have been buying the brand since launch.

    This can be mitigated by taking a data driven approach to sales. DtC brands should consider making data sharing a key part of the negotiations during the listing process. This can help anticipate spikes in demand from customers that they can be better prepared for.
  • Inability to influence order volumes: As the size of revenues that DtC brands generate at aggregators is a fraction of the revenues that large and well established brands generate, sales teams at DtC brands are less able to influence order decisions made by ordering teams at these aggregators. So in situations when these aggregators should be holding more of the brands in stock at warehouses due to higher expected demand, DtC brands most often are not able to influence order volumes which results in stock outs at stores, losing them sales and market share.

    Conversely, aggregators may order significantly higher volumes than they should, which results in overstocking at their warehouses. While this sounds like a good outcome for DtC companies as they generate better revenues, it puts them at risk of an eventual delist if they do not sell the stock fast enough or, if some or all of the stock expires/is damaged while in the warehouse. This can be lethal for small companies.

    DtC companies should consider hiring seasoned sales people who have established relationships with customers. This may help with influencing order volumes placed by replenishment teams. Alternatively, DtC companies should consider ‘owning’ inventory management at retailers to the extent that a sale is recognised only when the brand is sold to the consumer.

    Given how this may ease working capital for the retailer, they maybe more willing to concede/collaborate on other areas like data.

If you have any questions or would like more information on the above, please leave a comment or contact me on veena@salesbeat.co