CONNECTEDCONSUMER

CONFERENCESUMMARY

Digitalization is redefining rules in the beauty industry and disrupting past certainties and benchmarks. It is an exciting time to be a marketer, because this revolution is full of opportunities as digital offers a new way of building relationships with connected consumers, said Frederic Roze, President and CEO of L'Oréal USA.

In pursuit of digital transformation, never lose focus on what matters most in the industry: products. Only product innovation can drive and grow the market and the brands. In the end, the brand won’t be successful if it cannot connect consumers with products they cannot live without.

KEY TAKEAWAYS

1. Digitize marketing to be there at every beauty moment in the right way. L'Oréal actively cultivates strategic partnerships with the world’s leading digital platforms to ensure the brands show up in these ecosystems in the right way. For example, on Pinterest, when consumers interact with the content from L'Oréal Paris, the brand further drives engagement by retargeting them with more educational content to increase conversions.

2. Leverage technology to deliver better beauty experiences through personalization and services beyond the product. L'Oréal’s Makeup Genius app relies on augmented reality technology, in which graphics are superimposed onto real-world imagery, to let users try on various shades of L’Oréal cosmetics before buying. Worldwide the app has been downloaded more than 17 million times.

3. Develop an internal and external ecosystem of people to lead the digital beauty transformation. L’Oréal’s Women in Digital program is now in its 6th year and has created a network of more than 2,000 female-operated companies. Previous winners have experienced tremendous business growth and have collectively raised over $300 million in funding.

KEYNOTE Speaker: Frédéric Rozé, President & CEO, L’Oréal USA

BCG, on behalf of CEW, fielded an online/mobile survey of U.S. female beauty consumers. The survey referenced five connected consumer groups defined as: Founders (<20), Millennials (20-34), Gen Xers (35-54), Boomers (55-64) and Pre-Boomers (65-84).

Connected Consumer Spending• 15-25 percent of spend is transactive online, and mobile comprises 2-10 percent. • The top two online purchase channels across all age groups are Amazon and multi-specialty stores.

Other purchase channels vary by age group. For example, Boomers frequent home shopping channels versus Pre-Boomers, who enjoy department store site visits.

How is she engaging with retailers and brands?• Pre-purchasing behavior shows a generational divide. 40 percent of consumers under 55 perform

digital activities prior to the point of purchase, whereas the physical activities (sampling, free standing inserts, in-store research...etc) are done by older consumers, who also have less pre-purchase activity.

• Social media use for premium prestige beauty decreases with age. Gen Xers use Facebook the most, as well as some Instagram and Pinterest; Millennials use Instagram, retailer apps and Youtube; and, Founders use brand apps, paid media and Twitter.

KEY TAKEAWAYS• Website, mobile and social outpace brick-and-motor for expertise demand. Think about the use of

online video and if you are doing it enough to capture the attention of consumers.• The percent spent on beauty in-store is up, even with the online shift, which means that the role of the

store is relevant. Build in-store experiences that drive traffic and integrate technologies such as self-service into the physical environment.

• Seeing that 50 percent of branded searches start on Amazon vs search engines, think about the role your brand needs to play in this space. Individuals who make over $100k, spend more on Amazon, so capturing this consumer early would be very lucrative for a brand.

• As there are generation nuances when it comes to preferred purchase channels and pre-purchase decision researching behavior, develop a content/editorial strategy that targets the individual inspirations and motivations of each generation.

THE CONSUMER’S PATH TO PURCHASE Speaker: Christine Barton, Senior Partner, BCG

CHANGING THE CONVERSATION: SEPHORA’S RECENT LAUNCHES• Sephora Virtual Reality allows customers to virtually “try on” every color cosmetic in the store (including

more than 3,000 lip colors). Millions of lip shades have been tried on since launch. • Color Match technology allows the user to point at a particular color to find a perfect match.• Virtual Artist Swatching allows consumers to virtually see what an eye or lip palette looks like on skin, which

can be shared with friends on social media or via email. • In-store model (available in Sephora Herald Square)- over 80 percent of consumers report it affected their

purchase that day.• Digital Custom Makeovers- All information is scanned and sent digitally so that customer has access to list

of products used on her to purchase at any time.• Beauty Insider Community - social shopping network, which takes a social media approach to community-

building, including direct chatting. Over 800K since it launched two months ago, 60K chats started and 20K photos shared. Sephora’s goal is to leverage 25% of its community by 2020.

KEY TAKEAWAYS• Bring digital into the physical. In-store experiences drive customer loyalty, so bringing that experience to

her wherever she is, will help build a connection to your brand. • Remember that your client doesn’t see her phone, laptop, or brick and mortar as different channels.

Offering a consistent experience, and one that moves seamlessly from one to another, is paramount. • Put the client at the center of your brand, it’s her journey and you are evolving with her.• Build an emotional connection with beauty, because that’s what makes it fun.

MAKE BEAUTY PERSONAL Speaker: Amy Eschliman. VP and GM of E-commerce, Sephora

U.S. adults spend 22 percent of their day watching video, and video ads now account for more than 35 percent of total ad spending online.

According to Google, 66 percent of recent purchasers of beauty products state YouTube allowed them to visualize the product they were going to buy. This is a powerful data point that implies that consumers today start their shopping journey learning and getting inspiration from beauty videos on YouTube, ultimately influencing purchases.

KEY TAKEAWAYS• Make the first 3-10 seconds count: 20-25 percent of viewers will watch less than 10 seconds

of the video, so start your video set up to capture the most important takeaways.• Take advantage of the video medium: Leverage the dynamic nature of video to capture the

elements of your product or story that would otherwise not be captured in a picture (different angles, texture...etc).

• Ensure the format will work across channels: The most common format ion social is a 1:1 square ratio, which will allow you to quickly leverage an asset across channels and avoid additional creative production work

• Consider pulling videos in from YouTube. This allows you to worry less about file size and storage space, and its where most people to turn to most when searching for a topic.

• Include multiple calls to action. CTAs will add a commercial element to your story and drive urgency for the “I want it now” consumer.

VIDEO IMPACT Speaker: Jessica Rotnicki, SVP North America Ecommerce, Estée Lauder Cos.

KEY TAKEAWAYS• Co-creation does not end at the product development stage. You must also leverage consumers to

create content, populate reviews, and participate in sampling, which will be a huge new opportunity for more targeted solutions.

• Allow your brand loyalists to inspire each other, and embrace influencers to open valuable discussions with consumers.

• Look for fun ways to share data. Digital games provide consumers with more incentive to give feedback.

• Mass customization is a big trend to watch. Brands like Function of Beauty and E Salon are among category leaders.

• Take a cue from Glossier’s Slack channel, and make customers feel like part of your brand as much as possible.

CO-CREATION PANELSpeakers: Doreen Bloch,CEO & Founder, Poshly; Nathalie Kristo, General Manager, Global Marketing and Business Development; Karen Moon, Co-Founder & CEO, TrendalyticsModerated by: Jill Scalamandre

TODAY’S SHOPPING CLIMATE• Social media and shopping are blurring to the point of non-existence. • One-third of 18 to 24-year-olds want to buy directly from Facebook. • Today’s consumer is part of a non-demographic, in that they change who they are and don’t necessarily

subscribe to one gender or race. • Intimacy and personalization are crucial for brands to establish with consumers. • We are now in a culture of short-termism. In fact, in 2016, 17 percent of the largest public companies in

the world changed their CEO more than in the previous 16 years. • Consumers are looking to learn more about themselves than about a brand.

TIPS FOR BRANDS• We are no longer in the business of creating a great product and selling it. Now, it’s about creating value

for people and for society, at large. Think about how to give back with programs that help shape the community/the world.

• Be transparent with the consumer, not just with ingredients but with the supply chain and even pricing. “People want to know the truth,” said Trevor Hardy, CEO, The Future Laboratory.

• There is more interest with the science, benefits and clinical impact of products. Making that accessible to the consumer will help brands connect to her.

• We are moving past the “experience economy” to the point where a lot of consumers are looking for “transformative experiences.” Consumers want to learn, and potentially become something different through their interaction with a brand.

TRANSPARENCY & TRUTHS Speaker: Trevor Hardy, CEO, The Future Laboratory

THE GENERATION OF CONTENT CREATORS• There were 24 billion selfies taken over the course of last year. Millennials take, on average

26K selfies in a lifetime, meaning about one a day.• Very fast highly automatic photographic adjustments for sharing are becoming the norm.

Real-time video and video chat are following suit. • In terms of customization, these four tenants are becoming the most important for beauty

brands: scannable, digital solutions for color-matching; selectable, giving the consumer the ability to choose among product-specific attributes, like pigments; printable, being able to mix those in real-time and on-demand; portable, so you can take the information with you wherever you go.

• Body modification is moving towards the futuristic, as implants, chemical biotracking, sensor tattoos, are becoming more prevalent. Sometimes they are aesthetic and sometimes they are functional.

• Some companies are beginning to look at aging as a disorder, using bio genomic techniques to regulate cell metabolism, growth and death. A focus of these companies is to extend the human life by 30 to 40 years by reducing natural breakdowns of systems that support us as humans. Example: Crispr, which is essentially Photoshop for faulty genes.

KEY TAKEAWAYS• The lines between reality and the virtual world are blurring (think: World of Warcraft, which is

a $10 billion business). As such, virtual/digital assets (ex: costumes, weapons, etc), which are bought and sold online are becoming more relevant. “Turns out we really care how we look, even inside virtual worlds,” said Anthony Koithra, Partner, BCG Digital Ventures.

• Remember the future is fuzzy, not all tech propositions are worth investing in.

BEAUTY: BEYOND THE HORIZON Speaker: Anthony Koithra, Partner, BCG Digital Ventures

CONSUMER BEHAVIORS• 67 percent of Pinterest users are checking the app in-store for inspiration. To that end, Pinterest is

offering consumers a way to take photos in-store, then be matched with a product immediately.• Google is also looking to integrate shopping into video content so the consumer can go back and

forth. • Mobile-first should be a priority. 80 percent of Pinterest interaction is happening on mobile. Shorter

videos (6-second creatives) offer a chance to deliver a brand message quickly.

KEY TAKEAWAYS• Continue putting consumer at center, offering a frictionless brand journey through devices and brick

and mortar. • Prioritize mobile-first assets. In one day a person consumes 300 feet of content via a news feed (the

size of the Statue of Liberty). This is what brands are competing against, so its critical to create mobile-first assets that are shot vertically, are short and tell the brand story well.

• People are watching videos to relax and unwind, so be part of that moment for a consumer with branded content, presented in an organic way. The first five seconds of your video are absolutely critical, and keep in mind the situation people are in when they are observing content (i.e. will sound be on or off for user).

• Organic reach means getting engagement, paid reach means requesting a specific action. Both are important, and not mutually exclusive.

• Targeting to micro-tastes is becoming more of a focus.

BUILDING DATASpeakers: Vikram Bhaskaran, Head of Market Development, Pinterest; Flynn Matthews, Global Insights Lead, Home & Personal Care, Google; Karin Tracy, Head of Industry, Beauty/Fashion/Luxury/RetailModerated by: Jenna Menking, Founder and CTO, Crosswalk

The beauty industry tends to be a bit narcissistic, but to be ahead of the consumer it’s critical to look at outside disruptors and small companies in order to have a competitive advantage. Shiseido focuses on three key areas: how the brand connects with the consumer emotionally and holistically, as opposed to only focusing on product or solving one problem; how and why the company disrupts at a moment in time and how exactly the disruptors work. Some examples of exciting disruptions from outside industry companies are:

Capsule – A very simple concept of delivering RX products throughout NYC in 2 hours, this platform solves an emotional problem as it reduces the stress around picking up the product and also provides a 24/7 chat for consumers to ask questions they may otherwise be embarrassed to bring up at pharmacy. There’s opportunity in the beauty industry to create a similar model, as some people may feel intimidated to go to a makeup counter and ask questions of a makeup artist.

Virtual Reality – A number of doctors are using VR technology to reduce pain and anxiety by engaging a person in a calming 360-degree visual. This concept connects rational benefits with emotional stimuli, which is powerful, and the beauty industry should take note because consumers are going to remember how a product made them feel, not the benefits of it. Many brands are lacking in this area, but having a combination of rational benefits with a very strong emotional connection, will create a consumer loyalty.

Data Collection - An Australian fashion designer recently used a data system to source and create the trends he released to reduce his time and improve delivery. Although Marc Rey, President/CEO, Shiseido Americas, doesn’t believe that brands should deliver consumers what they are expecting, he does acknowledge that there a case for the use of AI and data collection to improve products. Still, there needs to be the right balance so the consumer can be part of the creation, but still surprised. The industry should discover new ways to gather insights and find stats about consumers to improve delivery.

Final Thoughts - “The only thing I know is that I don’t know,” said Marc. “I like the idea of uncertainty because it makes me wonder if there is another way to do it and it’s a strong stimuli to rethink what we [as an industry] do all the time.”

FUTURE FOCUS Speaker: Marc Rey, President/CEO, Shiseido AmericasModerator: Trevor Hardy, CEO, The Future Laboratory