{"id":30134,"date":"2018-11-12T22:52:16","date_gmt":"2018-11-13T03:52:16","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/shiseido-how-a-150-year-old-responds-to-digital-transformation\/"},"modified":"2018-11-12T22:52:16","modified_gmt":"2018-11-13T03:52:16","slug":"shiseido-how-a-150-year-old-responds-to-digital-transformation","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/shiseido-how-a-150-year-old-responds-to-digital-transformation\/","title":{"rendered":"Shiseido: How a 150-year-old responds to digital transformation"},"content":{"rendered":"

Direct-to-Consumer Brands Challenging Traditional Players<\/strong><\/p>\n

Over the last decade, direct-to-consumer brands have appeared in several industries and are now growing rapidly. Even the beauty industry, traditionally dependent on in-store trials and offline purchasing, this is also the case. Companies like Glossier, Birchbox and Curology now represent 10% of the market and are growing 4 times faster than traditional players. [1]<\/p>\n

Instead of an engaging offline experience, they have data. These newcomers use artificial intelligence and data analytics to deliver individualized products and personal recommendations, making up for their lack of brick and mortar. Glossier uses machine learning to customize user experience to increase conversion. ModiFace matches a user\u2019s selfie<\/em> to over 200,000 images to recognize shapes and colors and then allows the user to change hair colors and test different makeup products. [2]<\/p>\n

Shiseido\u2019s Response to Digital Transformation<\/strong><\/p>\n

Shiseido is one of the most traditional beauty companies in the world. Founded almost 150 years ago in Japan, Shiseido\u2019s cosmetics and skincare brands are sold in 120 countries and it is the 5th<\/sup> largest cosmetics company in the world. [3] Beauty shoppers, especially younger generations are shifting to online channels and searching for personalized products and engaging digital experiences. In China, e-commerce represents 25% of Shiseido\u2019s business, with an expected increase\u00a0to 40% by 2020.<\/p>\n

In \u201cVision 2020\u201d, Shiseido emphasized the company\u2019s focus on growing the DTC \u00a0channel and capturing and leveraging consumer data to improve CRM. [3] As part of this effort, Shiseido is partnering and acquiring beauty tech startups with existing data analytics capabilities and traction with millennials. In-house, it is developing its own technology and building in in-house data and digital capabilities.<\/p>\n

The launch of <\/strong>Optune<\/strong><\/em><\/p>\n

In late 2017, Shiseido announced Optune [4]. The system scans and captures information on a user\u2019s skin conditions regarding various attributes (e.g. hydration, tone, level of oils, oxidation) and environmental factors (e.g. weather, pollution, humidity). It then recommends a personal skincare kit, with specific ratios of active ingredients most suitable for that person. Users continue to track their skin condition while using the products and feed the information back to Optune, which adjusts recommendations based on progress for each skin type.<\/p>\n

Acquisition of MatchCo and Giaran<\/strong><\/p>\n

In early 2017, Shiseido acquired MatchCo. The app allows users to scan their skin with a camera, then it crosses the pigmentation information with a larger database and produces an individualized foundation that matches user\u2019s tone of skin exactly. [10] In order to expand data-driven personalized recommendations to all products, Shiseido acquired Giaran at the end of 2017. The app uses predictive modeling, machine learning and computer vision to identify skin tones, develop virtual makeover and recommend products. [8]<\/p>\n

Shiseido Venture Partners and Open Innovation Scheme<\/strong><\/p>\n

\"\"<\/a><\/p>\n

As part of Shiseido\u2019s Open Innovation initiative, the company launched a US$26 million fund in 2017 to invest in beauty tech startups. Shiseido supports the ventures with financial support and with industry and business expertise, while employees can be involved in the startups\u2019 operations in order to develop an entrepreneurial mindset. The first company to receive funding was Dricos, which analyses a user\u2019s biometric and anthropometric data to develop individualized supplements with the recommended nutrients. In August 2018, the fund invested in FiNC, a healthcare startup that provides preventive services using artificial intelligence. [7]<\/p>\n

Not a competitive advantage \u2013 yet.<\/strong><\/p>\n

Shiseido is not the only company investing in augmented reality, deep learning and in their own venture fund for startups. L\u2019Oreal has a digital team of 1,700, acquired augmented reality company ModiFace in 2017 and has its own accelerator program. Estee Lauder partnered beauty technology startup Perfect Corp, also focused on augmented reality. LVMH launched a program to support beauty entrepreneurs called La Maison des Startups<\/em> [6]. So far, Shiseido has invested in companies and proprietary technology focused mainly on online experiences. However, the technologies currently available to support these innovations in beauty are still far from being realistically able to mimic offline experiences. Also, user interest and adoption rates for AR and VR in this market are still very low. The company should potentially consider technologies that enhance the offline experience, such as apps for sales reps to help customers with recommendations. Also, as any company that aggregates and analyses consumer data, they should be cautious about protecting user\u2019s privacy.<\/p>\n

Given the current scenario, are these traditional companies placing too many bets early on? Will the customer experience in the beauty market always be predominantly offline?<\/p>\n

(736 words)<\/p>\n

 <\/p>\n

1) McKinsey Consumer Packaged Goods, \u201cWhat beauty players can teach the consumer sector about digital disruption\u201d, April, 2018, https:\/\/www.mckinsey.com\/industries\/consumer-packaged-goods\/our-insights\/what-beauty-players-can-teach-the-consumer-sector-about-digital-disruption, accessed November 2018
\n2) \u201cL\u2019Or\u00e9al buys ModiFace\u201d, March 2018, https:\/\/www.gcimagazine.com\/business\/marketers\/acquisitions\/LOreal-Buys-ModiFace-477090603.html, accessed November 2018
\n3) Shiseido Investor Relations, https:\/\/www.shiseidogroup.com\/ir\/, accessed November 2018
\n4) Shiseido Japan, News Release, \u201cShiseido Releases a New IoT*1 Skincare System, \u201cOptune,\u201d that Delivers Personalized Skincare\u201d, December 2017, https:\/\/www.shiseidogroup.com\/news\/detail.html?n=00000000002331, , accessed November 2018
\n5) Bruce Einhorn and Lisa Du, \u201cBeauty giant Shiseido snaps up technology startups to draw young shoppers\u201d, April 2018, https:\/\/www.japantimes.co.jp\/news\/2018\/04\/18\/business\/corporate-business\/beauty-giant-shiseido-snaps-technology-startups-draw-young-shoppers\/#.W-pESpNKhhB, accessed November 2018
\n6) Mintel, \u201cThe Beauty Consumer Report\u201d, February 2018, http:\/\/academic.mintel.com.ezp-prod1.hul.harvard.edu\/display\/860255\/, accessed November 2018
\n7) Shiseido Venture Partners, https:\/\/www.shiseidoventurepartners.jp\/en\/, accessed November 2018
\n8) Deanna Utroske, 8 Nov 2017, \u201cShiseido Americas acquires AI tech company Giaran\u201d, https:\/\/www.cosmeticsdesign.com\/Article\/2017\/11\/08\/Shiseido-Americas-acquires-AI-tech-company-Giaran, accessed November 2018
\n9) Shiseido-MatchCo, “A New Age of Personalization and A.I. for Beauty”, January 19 2017, https:\/\/www.gcimagazine.com\/business\/marketers\/acquisitions\/Shiseido-MatchCo-Herald-A-New-Age-of-Personalization-and-AI-for-Beauty-411206225.html, accessed November 2018
\n10) The Harbus, April 25 2018, \u201cInterview with Marc Rey, CEO of Shiseido Americas\u201d, http:\/\/www.harbus.org\/2018\/interview-with-marc-rey-ceo-of-shiseido-americas\/, accessed November 2018<\/p>\n","protected":false},"excerpt":{"rendered":"

With online DTC newcomers already taking up a considerable market share, traditional beauty giants try to stay ahead. Shiseido invests in data and digital research and machine learning for product development, acquisitions of AI startups and launched their own Venture Fund – but is it enough?<\/p>\n","protected":false},"author":11155,"featured_media":30156,"comment_status":"open","ping_status":"closed","template":"","categories":[2116,186,346,344,4519,94],"class_list":["post-30134","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-augmented-reality","category-beauty","category-machine-learning","category-product-development","category-skincare","category-startup","hck-taxonomy-organization-shiseido","hck-taxonomy-industry-beauty-and-cosmetics","hck-taxonomy-country-united-states"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/rc-tom-challenge-2018\/","yoast_head":"\nShiseido: How a 150-year-old responds to digital transformation - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/shiseido-how-a-150-year-old-responds-to-digital-transformation\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Shiseido: How a 150-year-old responds to digital transformation - Technology and Operations Management\" \/>\n<meta property=\"og:description\" content=\"With online DTC newcomers already taking up a considerable market share, traditional beauty giants try to stay ahead. 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