While many of L'Oréal's brands are foreign, L'Oréal China’s Katia Lan says the cosmetics giant is able to connect with Chinese consumers through intangible cultural heritage.
This interview is part of WARC's Marketer's Toolkit 2022. Read more.
- Amid the rise of local consciousness, China’s national trends are shifting from its great history and assets towards lifestyle that reflects local culture, values and life.
- In China’s fiercely competitive beauty industry, traditional brands and big groups will survive, while many startups that operate on a short horizon may find it challenging.
- Customisation will rule the beauty industry of the future, with one-on-one service and unique products tailored to consumers’ skin condition and lifestyle habits.
WARC: How does L'Oréal's dedicated China Consumer Research Center help it take action in line with future trends?
Katia Lan: I have been doing brand marketing and strategy for 13 of my 16 years at L’Oréal, serving professional hair brands and premium cosmetic brands such as Shu Uemura and Biotherm. I have now been the Head of the Consumer Research Center for almost three years. It’s a newly created position but the China market and Chinese consumers contribute more than half of the growth within the group, so it has become extremely important for us to understand the future changes in this market at a time when consumer behaviour in China is shifting so rapidly.
Part of my job is to look at future trends and see where the top "wave" will hit and what that "wave" will look like. From there, we determine which direction L'Oréal will go in the next five to 10 years. These broad directions may be based on insights into consumers, advanced technology or potential competitors. As opposed to a consumer market insights department looking at changes in a year or two, my job is about looking further out, with a bigger scope and more imagination.
It's not just the beauty sector itself, either. I also look at the impact on L'Oréal’s beauty/cosmetics business of new technology or changes with the environment and resources because in 10 years' time it won't be enough for us to be just selling products. It's about how to prepare for that from now and what to consider in the short, medium and longer term. L'Oréal itself has this style of management, whether it's a domestic or foreign team, and everyone shares their views on the changes that will be coming next.
From what we can see of market and consumer changes, there are definitely things that L'Oréal can internalise, and evolve and grow accordingly. Changes in trends that cannot be internalised and used to make us evolve and grow on our own are associated with another part of my job, which is to seek opportunities to partner with external resources, not limited to beauty companies, whether they be startups or large or small companies. We even seek investment opportunities and M&A opportunities. In other words, after identifying certain general directions or goals, the question is how do we execute in the short, medium and long term, in terms of co-creation and co-building.
When I looked back at my past work in the business sector, all I could see were the daily changes, a single category, a single industry and related competitive brands. I didn’t have an overall view of the consumer. It was like directing a battle from the front lines and I focused on the information at hand without looking up to see further.
To help the modern business team, it's actually quite interesting to tell them from their perspective what the future may hold and how to prepare for it. In the future, maybe the product won't just be the product itself but it will need to be combined in some way with beauty devices or medical beauty treatments, or even with data and services. These are the things that the business teams now feel are distant and hard to imagine. So then, for example, we bring back something new from exhibitions to open their eyes and at the same time show them how it could be applied in the beauty industry, which means communicating with them through internal discussions.
Katia Lan, Head of Consumer Research Center, L'Oréal China
WARC: Having identified the megatrends that need to be addressed over the next five to 10 years, how are resources and investment etc then allocated within the company?
Katia Lan: We work with different experts to produce one big report a year, which is used to provide strategic direction to management, and we will identify some key behaviour trends and general shifts in direction within the overall picture. For example, if we see a trend towards green technology or new devices during the R&D process, we will act on that trend, starting with China and then slowly rolling it out to the rest of the world. It's only been a year or two since we started, so we are constantly experimenting and learning but there is going to be a big snowball effect, the impact is going to grow and grow. Of course, different places around the world have their own views on these megatrends and we will take all the different directions from the US, China, Europe and some emerging countries, and integrate them.
In the mid-term, we will be taking action based on these broad directions, for example, what can be done in terms of environmental trends, what technology is like now, what packaging and ingredients are available. We will do mid-term discussions and reports with colleagues in different fields.
In terms of R&D related things, there is new technology stuff, and digital and IT experts working with us, and we need to see together whether a certain technology is available and what its future potential is when we are evaluating it before putting it into use. We will share the reports with the different teams in the relevant areas, from R&D, supply chain, brands, etc, and these people will accordingly go to beauty shows, tech shows, lifestyle shows, appliance shows, etc in the short term to seek out new consumer insights. If we see something that is new or very popular, we share specific content on a regular and high frequency basis with our L'Oréal colleagues at different strategic and management levels.
WARC: As an international brand, does L'Oréal internally find it challenging to integrate China consumer insights? Especially at a time when local brands are thriving, how can international brands make more effective use of local insights?
Katia Lan: Any decision, analysis or brand dynamic issue that relates to the China market is very important for the L'Oréal International team. It's important for everyone to first understand what's happening in the China market and what Chinese consumers are thinking right now, so we regularly integrate the latest insights from various departments on the trends in consumer categories, market channels, macroeconomics, etc and provide them to the 31 brand operations teams in China so that everyone can onboard with the same information on the same platform. I do regular sharing sessions with them on different topics such as art, design, product categories, consumers or the market.
L'Oréal also has a cloud-based space like a small online library where employees can go and search for the information they need. Since the COVID-19 outbreak, we have had more internal online training, exploring more approachable topics such as consumer behaviour and new signs of consumer behaviour. For some brand-specific needs, for example, if Maybelline wants to check out youth street trends, we will specifically target that while integrating the dress habits and value behaviour of consumers at the street trend level, and then set up a separate workshop for the Maybelline brand itself.
Internationally, meanwhile, we share this information with the teams of these 31 brands in different countries through different departments at the brands' headquarters in Paris. People overseas have limitations in understanding the China domestic market. Especially since the pandemic, they cannot access the Chinese market to do data surveys, so it is very important for the China team to share the changes in the Chinese market with their colleagues abroad in a timely manner. Based on this information, colleagues overseas will then go on and make plans for the next two to three years, especially in terms of specific products launched in China, and for the way the brand is marketed here.
From top to bottom or from bottom to top, we have different ways to communicate. But while different brands and people at different levels will see things differently, the main message should be consistent.
Regarding the rise of local consciousness, this trend is actually shared by Gen Z in all countries, although China is slightly different. The trend of support for national brands and styles that we were talking about two or three years ago was related to the wider environment and leaned towards China's great history and great assets, while more recently, the national trends and national styles we are talking about are more related to lifestyles, reflecting local culture and getting closer to local values and life. So L’Oréal will focus more on connecting with young Chinese consumers in terms of consciousness and focus on how to be closer to local life and culture.
Although most of L'Oréal's brands are foreign, there are many ways for them to get closer to Chinese consumers, for example by connecting with Chinese consumers through Chinese festivals or local culture — intangible cultural heritage. We will even reach out to young sub-culture artists and fashion designers, which we define as different types of art IP. Starting this year, I am regularly looking at what cultural IP elements young people are interested in and from which areas related cultural understandings emerge, and dividing them into different directions and introducing them to our 31 brands in a catalogue-like way. The brands then approach these artists, designers or craftspeople to talk about how to collaborate.
We are really slow compared to local brands and I now hope to speed up the process in China, and make the preparation and planning process a little bit shorter. There will be more and more local IP crossover collaborations this year or next year. There is no way we can change L’Oréal's DNA as a foreign brand but I think there is still a lot of room for the brand to play with the idea of localising marketing methods and practices.
WARC: What is your view of the challenges posed by the China beauty startups?
Katia Lan: It’s all good for us. These startups represent the booming nature of the beauty industry in China and there are certainly things we should learn from them, such as being closer to the needs of Chinese consumers, having more and more timely insights, and having a more flexible and dynamic approach. With the boom in startups, the beauty industry "pie" will definitely get bigger and bigger, which also means that consumers will become more and more professional and smarter in making their choices.
In the next year or two, there will be a wave of phasing out the old and replacing it with the new. The beauty industry in China is fiercely competitive. The brands that are standing firm now are the traditional brands and big groups such as PECHOIN, JALA, PROYA, and up-and-coming brands like Perfect Diary and Florasist. The companies that manage to survive in the market are the exceptions. So while we’re seeing so many Chinese startups, I don't think there's too much to worry about. It's a bit like a lot of people jumping into a swimming pool — not all of them are going to be able to swim all that long or far. A lot of startups currently operate on a short horizon and unless they can grow with the times, it will be challenging for them.
WARC: The allocation of the group's marketing budget is usually based on the previous year's revenue or turnover, with a percentage being drawn and invested consistently. Some emerging beauty brands don't invest a lot of budget in R&D and most of the budget is spent on production and distribution channels, etc. Do you have any advice for beauty brands on how to allocate their budgets from early to mid and on to late-stage?
Katia Lan: There are many emerging brands with annual sales of below RMB 100 million and the top priority for them is to survive, so they will put a little more effort into e-commerce operations and product OEM development, which is the most important thing in the initial stage.
When they are ready for the next step and go to RMB 5-10 billion, they should consider how to create a product matrix, that is, a product set, a series or a few star products, and start to think about what kind of brand they are and start to conduct brand building. That’s what needs to be done in the medium term. When their annual sales reach over one billion, basically the brand has reached a high level of maturity and also has a certain number of consumers, so it is time to begin thinking about vertical integration, how to create your own supply chain and R&D, how to reduce expenses, how to manage the organisation better, and how to find the best professionals to manage a large-scale team. It may take decades for large domestic and foreign companies to get to stage 3 and stand on their own feet. It's not that new brands can't do it in the short term but they need to take some risks, depending on what the founder and team think, how risk-tolerant they are, and how they make use of their leverage.
WARC: The impact of the pandemic on the beauty and personal care category has been significant. What changes in consumer behaviour have you observed during the successive domestic outbreaks?
Katia Lan: We don't think the pandemic has had a particularly big impact on the cosmetics category. In the past year or two, food and daily necessities have been growing very fast but now they are also levelling off; luxury goods, especially things that are not used too often, have been very much affected. Skin care, beauty maintenance products, makeup and other beauty categories are not things that consumers necessarily use on a daily basis but they are also not things that they will only use once or twice in a week or a month either.
We have seen that due to the pandemic, the market for social consumer goods saw negative growth in 2020 relative to 2019 but China's cosmetics industry achieved positive growth and is still continuing to grow in 2021. So consumers still need the beauty industry and beauty is a category that drives consumption overall in terms of consumer goods.
L'Oréal Group sums up the general direction of the impact of the pandemic on consumer values and behaviour with four terms:
1. "Staying at home." Because of the pandemic, consumers are spending more time at home, working, attending classes or being entertained online, so we think the home will become the next big retail space beyond offline, online and mobile. In the future, with the help of technology such as 5G and AR/VR, people may not have to go out to shop or shop on their phones but instead enjoy entertaining activities and virtual shopping at home. The act of being at home is slowly becoming a retail channel in China and this will have an impact on consumer behaviour, such as gathering information and making purchases. We're going to focus on the "at-home" trend and explore its impact on the future of retail and the beauty category.
2. "The Cloud." Whether it's cloud classes, cloud entertainment, cloud livestreaming or cloud meetings, a lot of things will happen in the cloud and that will lead to one of the next behaviour traits of consumers looking for smarter, easier ways to get quick recommendations or options for whatever they do in the cloud. The pandemic is not going to go away in the medium term. So it is an important direction for beauty brands to explore how to provide easier, smarter and faster cloud-based services to consumers, as well as provide greater integration of online and offline in the cloud space.
3. "Rationality." Before the pandemic, the most important values for Chinese consumers were success and making a lot of money. After the pandemic, people are rethinking things and feeling that health and family are now more important to them, so they are starting to save money for a rainy day and spending in a more planned way. Coupled with that is the fact that consumers now have easy access to information and are becoming smarter and smarter, making their own judgments about what to buy and what not to buy, and buying only what is right for them. With this trend towards “rationality”, Chinese consumers have changed from being "price-sensitive" to seeking maximum value, so brands must amplify their value. The best sellers during the Double 11 festival will always be high-end brands because consumers feel they can get the most value by buying at this time. This value may come from the functional efficacy of the product but also from the brand itself. According to a survey conducted by L’Oréal, half of Chinese consumers' purchasing decisions relate to the efficacy and functionality of the product, and the other half is the brand's connection to social responsibility, social and other values, and consumer emotions. Especially in the beauty category, the emotional connection is slightly more important.
4. "Health." Since the pandemic, consumers have a renewed understanding of the importance of health in their lives and are paying more attention to the opinions and suggestions of experts, KOLs/KOCs and other professionals. At the same time, recognising the importance of health has led to a rise in environmental awareness, especially among the younger generation. They grew up in a period of rapid economic development but this period also caused a lot of resources to be wasted and environmental pollution. In the future, green things will become more and more important in China. Of course, Chinese consumers' awareness of environmental protection is currently probably limited to issues affecting their own personal health and safety, unlike people in Europe and America who advocate for eco-friendly and green products for the sake of society, humanity and the environment. But with time, they will catch up. The L'Oréal Group has always firmly believed that sustainability and related products are an important direction for our future.
WARC: How do you interpret the current phenomenon of young people "lying flat" or passively opting out of the rat race?
Katia Lan: Gen Z, that is people aged 18-25, grew up in a relatively safe and homogeneous environment in terms of the education system and job search channels, leading to the emergence of "involution", where people compete with one another and fight for their own interests. So it is not only consumer psychology but also the general environment and many other factors that have caused the phenomenon of "lying flat" or "involution".
In the short term, this mentality and the associated values will definitely still exist but as social values and the education system slowly become more open, a younger generation of consumers will seek more diversified development and explore their interests in a more diverse way. So I think that "lying flat" and "involution" will not be too much of a problem for the brand.
Last year, L'Oréal picked up on these two psychological signals and started discussing the ways in which we could communicate with consumers in response to these behavioural trends. We felt that it was important to understand from the consumer's point of view why they have this mindset and encourage them to stay the course; or to tell them to stop focusing on these trends, not to just follow everyone else and figure out a path of their own.
This year, we have also made a new discovery. I think that the "lying flat" and "involution" phenomena have pretty much reached the end of the road. Young people are realising that this won’t solve their problems and that they still have to live their lives and find their way. So we've seen some new signs recently that young consumers are looking for simple ways to tackle the problems and challenges in life. They tell themselves that this is the way things are and they have to just deal with it. This topic is now being discussed online but not necessarily in a negative way. For young people, it is self-indulgence and not exactly reflective of an anxious mindset. They are happy to share such ideas and feelings and seek the opinions and advice of their friends, thus finding ways to face the problems and solve them on their own.
WARC: What do you see as being the impact of this phenomenon on the different levels of the consumer market and what will be the resulting shift in the way brands reach out to young people with their creativity and content?
Katia Lan: We will focus more on these insights into the younger generation and how to understand their psychology better. In the past, we weren't close enough to Chinese consumers in terms of these new trends and when foreigners hear of them they think, "What is this? I've never heard of it before." So it has become more important for us to combine the new values of young consumers with the beauty category to generate insights.
When a new product comes out, we have to see how to use these new insights to make consumers feel that the brand really understands "me" and really communicates with them in a language they can understand and with values they understand, rather than the traditional way of 10 years ago when brands were telling "me" what to do and what to use, or brand spokespeople telling consumers what to use. Now, it's the opposite. There has been a levelling process where consumers tell brands what they want and what the brands can do for them. Brands are sharing or communicating some values with consumers like a friend would but the values have to be aligned and the emotional exchange has to be at the right frequency.
We're seeing a more cutting-edge approach, where the consumer is telling the brand what they want and deciding what they want. This approach is more common in Europe and the US, and of course it requires the whole logistics supply chain to work together from upstream to downstream and we haven't yet seen any brands in China that are really doing a very good job of it from start to finish, which may have something to do with the companies themselves or how fleet-footed they are.
Compared to foreign markets, both the multinational and local brands in China are already very close to the consumers and the market, very up-to-date and very fast. But at the same time, Chinese consumers are very smart, have access to a lot of resources and are very demanding. In short, beauty brands are moving in the direction of understanding consumer values and I believe we will see a lot of related innovation in the Chinese market in the future.
Now, up-and-coming Internet brands, as well as many of L’Oréal's brands, are starting to work with platforms like Tmall to provide the products that consumers want based on different consumer insights and to communicate the selling points of products with them, bearing in mind their lifestyles and values.
There will be more and more of this C2M approach at the retail end in the future. I think the beauty industry in five to 10 years’ time will be dominated by customisation and one-on-one service, with consumers customising products according to their own skin condition and lifestyle habits, making products that are unique and just for me. This will require linking together the whole process from raw materials to supply chain support and distribution, all the way to the retail end. We are not at this stage yet but there will gradually be new technologies that can help us solve the associated problems.
WARC: How long do you expect it will take to get to that stage? The development of logistics and supply chains in China is actually the development of the brands themselves in the local market, so what do you think is still lacking?
Katia Lan: The process of customisation over the next five to 10 years will take place in three stages, the short, medium and long term. In the short term, what we can do is to do some skin diagnosis for consumers through AR/VR technology at the point of sale, give them customised solutions and finally connect them to the product. But the product itself is not customised yet, it is just giving consumers an experience at the service point.
On the logistics end, we are now also starting to look at some smart supply chain or flexible supply chain approaches to see how to configure goods and logistics centres through AI, robots and smart algorithms, to work out how to deliver products to consumers in the shortest possible time.
On the R&D side, the L'Oréal Group abroad has already started to look into how to develop formulations from the products themselves, covering the process from product ingredient traceability and R&D, to producing products and then through to the supply chain.
In the China domestic market, L’Oréal will do this within the next two to three years. We haven’t reached the stage of customisation yet but through the use of the relevant technology, what we can achieve in the short term is to allow consumers to understand the raw materials in each of the products and how they are made.
From providing consumers with online or offline skin diagnosis at the retail end, to recommending products to them through an algorithm which coordinates logistics, supply chain and product manufacturing and distribution, I think it will take at least five years in China to link all these elements together.
At present, there are not that many groups in the beauty industry in China that have their own logistics and supply chain, and it is usually only the big groups that can reach such a scale. Most companies are using ready-made larger logistics supply chains or OEMs.
L'Oréal uses all internal resources and can integrate directly up and down vertically. Our customised device Perso will be launched through YSL beauty brand in November this year. It is about the size of a cup and it has the technological capability to tailor skincare products, lipstick colour and foundation colour based on the skin condition of the day as viewed from the consumer’s mobile phones and the colour of the clothes they want to match that day. It has three modes, for skincare products, lipstick colour and foundation colour. With this device, consumers won't have to buy 100 lipsticks. This is the first step in customising products.
WARC: How does the traceability of beauty products compare to what some food or other FMCG products are doing now?
Katia Lan: It's actually quite similar. On the one hand, traceability is about recognising the mindset of consumers who want to learn more and understand more, who want to know about how the things they eat and use are made, which is a basic safety consideration.
On the other hand, traceability is also very important for brands in telling their brand stories, increasing their professionalism and credibility, and building their brand image. When consumers learn more and trust your brand, their loyalty will grow, so traceability is a must. In the future, L’Oréal's products may all have traceability, which will build a better professional image for the brand in the long run and increase brand loyalty.
At the moment, I don't see too many brands in China actually doing traceability on their packaging. There will probably be various ways to present information about the ingredients or how the product is made in the future, whether with stickers, or with mobile and AR technology, which will become more advanced before too long.
WARC: With technology and digital, there are times when using it poorly can add to consumers' problems. So in terms of empowering products with technology to provide consumers with real convenience and a unique experience, what are some of the things that you think are particularly important for brands to focus on?
Katia Lan: Whether it's the application of technology or operations from the retail end through to the R&D end as well as the logistics supply chain, I think one of the most important guidelines is that we must always use the consumer's needs and behaviour as the starting point.
L’Oréal has some experience in this aspect but there have been times when we thought a product or concept was very good, very convenient or advanced but when we did consumer testing, we found that the product was not what consumers really wanted, or that the product's features were not what they valued most, or that use of the product is too complicated and not "user-friendly". We always have to return to the consumer's perspective to see how they react to the combination of technology and products or services. If we only launch something purely based on the perspective of the brand or the technology itself, there will be many risks and obstacles.
The three tracks of the first BIG BANG Beauty Tech Startup Challenge launched by L'Oréal China for startups in China — "Phygital Consumer Beauty Tech”, “Operation 4.0 Beauty Tech” and “Future Science” — focus respectively on consumer retail touchpoints, optimisation from production to delivery, and new ingredients and technologies on the R&D side.
We need to see how to translate these into what consumers really want. For example, in the retail track, which is most relevant to consumers, we see a lot of new technologies such as smart livestreaming and brands have to think about how to use virtual and dynamic environments to communicate with consumers when doing livestreaming. We're working on pilot projects with startups to combine technology with the beauty business to see if it can help brands with the transition and improve the entertainment impact of livestreaming. It's about making consumers more attentive to livestreaming and making it easier for consumers to understand the technology or brand development story that is delivered through livestreaming. We use internal data to evaluate the resulting differences in sales, consumer communication, brand favourability and conversion with and without the use of the technologies in question. Some technologies prove to be effective and some are rejected.
By analysing the pilot cases, we found that the presence or absence of some technologies made little difference to consumers or that they weren't being used in situations where it was critical. Then we will de-clutter and leave those that we feel are useful and will make a difference, test it again, learn from it and slowly roll it out on a large scale so that other brands can use the technology as well. It's a safer and more relevant approach.
WARC: In the process of testing and learning, did you come across any "pseudo-technologies" or "pseudo-innovations" that consumers don't want?
Katia Lan: When we were setting the direction for our development, we already saw some consumer demand. The only problem with the consumer trials was that they might find the process too complicated or not intuitive enough but they were not too concerned with "pseudo-technology" or technologies that are not essential.
Consumers are also changing with the times. For example, L’Oréal was already experimenting with virtual anchors and virtual idols last year but consumers were not at that point as receptive to the idea as they are this year. So it's a matter of timing because the whole dynamic is changing. For example, last year there were a lot of new livestreaming-related technologies but this year it seems that these things have become very common and consumers are not so impressed with their freshness. This year, we are looking more at the combination of virtual and real, as well as more professional aspects such as medical and aesthetic health consulting platforms, or how to solve simple skin problems without going to the hospital. Each year the focus is different.
WARC: You talked about working with startups to develop products other than the in-house products. Could this affect L'Oréal's positioning in any way? Many of the new brands are in a way pushing the older brands into exploring new categories. Is L'Oréal also being affected to any extent?
Katia Lan: L'Oréal has three approaches to internal innovation.
First is the integration of internal systems. We have a lot of internal intelligent systems to help all L’Oréal staff understand the market and the consumer. Only with such understanding can we generate the right ideas. That's why we need to integrate our systems first. In addition to the online library mentioned above, we also have systems that rank new trends by category based on feedback from social media as well as systems that scan e-commerce networks so that if a consumer has bought a product on JD.com or Tmall and left a comment, we can capture it and review and understand more about what consumers think, and where we are doing well or not doing well from a very granular perspective. In terms of broad trends, we are also listening to what consumers are talking about in terms of makeup trends, skincare trends, hair trends, etc. Nowadays, people use a lot of celebrities, KOLs/KOCs and experts, and we also have a database from which brands can choose influencers in a certain category based on different rankings. This helps our brands to understand the online market dynamics and make timely decisions. It is very important for internal innovation to enrich the knowledge of the internal team and let them have their own ideas.
Second is integration with external resources. In the past, product development was conceptualised and executed by the internal team itself. But now, in addition to the brand development department, we will work with external R&D units, academic units or Tmall's Consumer Innovation Centre to explore the needs from the consumer side, to understand more directly what the end-consumer today wants. One of the C2M products we work with Tmall on is our Revitalift Filler HA Replumping Cushion Cream which is widely recognised today for its strong capability to solve early skin aging problems in young people, so that even if they stay up late, they can still look radiant the next day. This insight is very up-to-date and close to the pain points of young people's needs. Recently, we launched another product especially for men based on the insights we gained from cooperation with Tmall, which is that young guys nowadays are very concerned about their skin conditio but do not want to make themselves too "girly" and do not want others to see that they are wearing makeup. So this product is actually a liquid foundation, positioned as a BB cream, which can make the user's skin look better and more refreshed. We use such a product positioning to communicate with young men and they find it acceptable, even straight men don’t feel too much psychological pressure in using it.
Third, cooperation with experts. For L'Oréal's pharmaceutical brands, such as SkinCeuticals and LA ROCHE-POSAY, we started to initiate seminars with hospitals, academic research units in universities and colleges, dermatology experts and professors, or jointly publish academic papers on cutting-edge technologies, and then communicate and co-create with experts through conferences after the papers are published. L’Oréal is able to bring some new ingredients and technological achievements from R&D and academic units to provide more commercial value and applications from a beauty perspective.
Of course, these approaches are not enough, so they also include the above-mentioned "BIG BANG Beauty Tech Startup Challenge”, which represents some directions that may not yet have been applied to L’Oréal's existing categories or products, such as medical beauty and (non-invasive) medical-like beauty, which may be applied in our cosmetics sector in the future. We will look at all of these and do some tests before slowly applying them to the commercial area.
WARC: You mentioned the example of the men's liquid foundation and this year people are talking more about the "He economy". In what ways will L'Oréal continue to tap into this insight and explore the trend further?
Katia Lan: From the point of view of the consumers themselves, the "He economy" has great potential in the future, especially for young men in their late teens and early 20s. Young men's pursuit of sophistication is related to the values of modern young people, which is that the view of gender will become more and more blurred, with less and less of a specific line dividing the two sexes. So we are going to see men placing greater emphasis on their appearance, skin condition and overall state, and when it comes to products, we'll definitely need to have male products, especially for basic beauty categories such as facial cleansing, hair washing, bathing and other products. Once men reach a certain stage of sophistication, after the basic skincare needs are met, they will look to dual-use medical/cosmetic products and even high-end cosmetics not necessarily specifically designed for men.
In response to this trend and market demand, it is necessary to satisfy male consumers who are just starting to have their own ideas and want to be more sophisticated, and provide enough basic products for them. Alternatively, for men whose needs have already evolved to a certain level or whose pursuit of beauty has entered a medium to high standard, brands are looking at how they can meet the various skincare needs of men with products of different types and categories without sticking to a single formula. The skincare needs of men and women are not so different, so instead of having every brand necessarily have products specifically for men, we are trying to be more diverse, with some brands still going their own way or offering more specialised solutions that both men and women can buy and use.
WARC: Given the multitude of digital platforms in China and the growth of social e-commerce and increased usage of private communication channels, how do you go about creating a consistent experience and maintaining a consistent message from an omnichannel convergence perspective?
Katia Lan: You are right, from the consumer's point of view, the future of marketing will not be clearly divided into online and offline but the two will be more closely integrated, following the online touchpoints in the offline channels, guiding the online interactions in the offline scenarios. Consumers who reach online are looking more for "convenience" but at the same time, there will be more diverse touchpoints integrated into the online experience, such as interaction, entertainment, communication, etc. At L’Oréal, we will first communicate this concept to the brands and employees.
Since there is no longer a division between online and offline from a consumer perspective, a brand leader will look at both online and offline and maximise the integration of their brand's resources. So in terms of organisational structure, in the past, the online and offline channels were divided into different teams but now they are basically combined, so that the person in charge can consider how to make the online and offline more closely integrated in terms of consumer touchpoints, advertising, social interactions and conversions.
Also, in terms of media, we used to do print advertising, KOL social content and livestreaming, all with different people. Now, however, we are going to integrate everything together, from media placement, choice of KOLs and content, all the way to conversion. It is a full chain. We do evaluations through the internal system at each step along the way, from the customer “getting to know you” point to conversion to allow us to spot the most optimal combination.
At the moment, it would be more effective for us if these were all integrated; we would then be more consumer-focused and more competitive with startup brands. Startup brands are smaller and can be managed by one team. Then the way for medium and large brands is to integrate the whole chain, from media exposure to people selection, to content and conversion and e-commerce operations, as much as possible, all handled by one big team.
WARC: This level of integration within L'Oréal goes beyond expectations and is really difficult to achieve at a large group level, especially when it comes to suggesting optimisation approaches from a marketing perspective to performance teams or e-commerce teams. There will always be people who don't want to deal with certain aspects of the problem.
Katia Lan: There will always be that kind of a problem, yes. But if everyone is running towards one goal and the boss has a top-down perspective and direction, then organisational restructuring is a process in which everyone can be convinced to go in the same direction together. This requires the boss to have a vision and to have the drive to act upon it.
WARC: Partnering with celebrities, including with KOL/KOC anchors, is an important marketing approach but with the implementation of some new policies placing restrictions on high-traffic stars, how will marketing for brands be affected?
Katia Lan: When I operated a brand 10 years ago, I only used celebrities. At that time, there were no KOLs/KOCs at all. For brands now, while there are various methods of managing online traffic flow, the choices are so much more diverse compared to the past, whether in terms of experts, ordinary consumers or celebrities, and there is a very careful process within L'Oréal in choosing them. Selecting different people based on different scenarios is very important, whether you want to choose a spokesperson, a guest at an event or someone who just sends an article as a recommendation. The more important it is, the more complex the vetting process is. For example, to choose a spokesperson, we have to do consumer testing and background research about the celebrity, including their politics and everyday behaviour, and afterwards we assess internally how high a risk he or she is, and only then do we go into the details of how we can work together. Usually in marketing KOL content, we also have some other criteria, the most basic being what can and cannot be said.
While there is more choice of brands, there are also different levels of risk assessment, including whether consumers like them and whether consumers fit the brand etc. As long as the collaboration is in line with our internal standard process, the risks are not too high. Of course, there are also times when we might unexpectedly hit a bad situation because brands have no way of predicting everything that might suddenly happen with celebrities or KOLs. So instead of using just one person, we are now diversifying the use of celebrities or KOLs for our campaigns and content marketing to spread the risk. Unless the person has been with us for a long time, such as Gong Li, who is the brand's lifelong spokesperson.
WARC: With stricter data policies in place this year, both at the government level and on the platform side, how will this affect the transition of the partnerships between brands and platforms? And with that in mind, will L'Oréal be using more zero party data and first party data, and what kind of approach will it take to measurement and marketing attribution?
Katia Lan: In terms of trends, the beauty company of the future will be a data company and whoever has the most data will win. With the impact of 5G and AI, possession of data is what makes things happen. So for L’Oréal, maximising the first-hand effective data is the most important thing. We will do a lot to encourage the creation of ties to the consumers in order to communicate directly with them. Of course this won't affect the partnerships with the platforms and we will maximise the transformation of data for internal use in our own way and in discussions with the platforms.
Data and data confidentiality are both very important to us and strict regulation will not affect us much. L'Oréal's internal data management departments will continue to expand how they approach protecting consumer data. We now have a lot of skin testing data and consumer facial diagnostic data that is not available to suppliers, which maximises consumer privacy and also maximises our own access to consumer data. L'Oréal also uses some AI intelligence to understand consumers better, such as trying to overlay the profiles of consumers who buy our products from different brands, so that we can understand more comprehensively what consumers need, project their buying habits or the next products they are likely to buy, and see what we can introduce to them. We now have a team dedicated to database optimisation, analysis and mining.
We must be even more stringent than the government policies, otherwise we will be easily affected when the policies change.
WARC: Consumer perceptions of sustainability are not yet at a level where it is considered a social responsibility. How can L'Oréal make this aspect more accepted by its audience through specific products and marketing actions?
Katia Lan: First of all, L'Oréal is a very environmentally-conscious and sustainability-focused group, having set up this vision and strategy several years ago. In the last year or two, we have rewritten this vision as "L'Oréal for the Future".
First, we are using green technology in research and development. We used to take materials from animals but using these resources is not sustainable for several reasons, so we are now seeking more natural synthetic ingredients and raw materials, and using biodegradable materials that do not burden the environment.
Secondly, at the supply chain end, we will look at how to use green energy for mass production and how to make our factories energy-efficient and low in carbon emissions. Currently, L’Oréal's two factories and all offices in China are carbon-neutral, and starting one or two years ago at the domestic supply chain end, all product boxes and paper box outer packaging use green packages without seals. We deal with hundreds of millions of packages each year, including our e-commerce sections, so the amount saved is huge. Many domestic brands will use plastic outer boxes for their products for safety and security but L’Oréal Global has begun to explore paper packaging to replace plastic packaging, as well as looking at how to make product carton packaging both safe and experiential, reducing the number of layers of inner boxes and plastic, and replacing them more with glass bottles or environmentally-friendly, recyclable plastic packaging.
Again, at the consumer end, we do a lot of work to communicate and lead people to an awareness of environmental friendliness and sustainability. For example, one can find cosmetic bottle recycling bins at the counters of almost all L'Oréal premium cosmetics brands. Each of our brands has its own battle in terms of social responsibility, identifying a theme in their field where they want to do more for society and the environment. For example, if Biotherm, a water-related brand, wants to speak about protecting water resources, they launch a campaign with green organisations at home and abroad to protect marine life and reduce plastic pollution.
L’Oréal Paris wants to help women be more successful and confident. In foreign countries, their campaigns are more related to eliminating gender discrimination, empowering women and giving women more space. We will gradually have more brands combining different themes and communicating them to consumers.
The Chinese government is slowly changing in terms of going green or helping women to grow and environmental protection policies are changing very fast. The government has also proposed that China hit a carbon emission peak by 2030 and be carbon-neutral by 2060, which is a huge project, so we think that both the government and companies need to drive consumers to go green together. Our survey found that Chinese consumers have a different awareness and sense of social responsibility towards environmental protection than foreign consumers.
In foreign countries, this awareness comes naturally and evolves from the bottom up, from the individual; in China, it is top-down and consumers expect companies and governments to do something about it. For them, product packaging is a plus but the most basic product functionality cannot be affected. L'Oréal Group will be ahead of the relevant government policies on sustainability. What Chinese consumers want in the future is for brands to offer products that are effective and suitable for them but also to do things that are socially responsible and valuable. If brands don't have the most basic elements in place, just this so-called social responsibility and greenness, Chinese consumers aren't going to go for it.
WARC: What would L'Oréal do if sustainability goals conflicted with short-term corporate profits?
Katia Lan: We will focus on environmental protection. What we do today is based on the basic principle of meeting the legal norms of the local market.
On top of the national standards, we also have to comply with the group's norms and currently, L'Oréal's internal environmental and carbon emission standards are even higher than China’s national standards. Only when these principles are met will we do something to make money.
Of course, it is very costly to do it that way but if long-term interests are sacrificed for short-term benefits today, it will hurt us in the long run. So we are willing to sacrifice short-term benefits to prepare for long-term requirements. L'Oréal Group will take a more long-term view and focus on the group's strategic approach first, and profit is not a big issue for us.