Market Movers Beauty Industry: Importance of Loyalty and Retention for Beauty Brands

Al Lalani, CEO of Annex Cloud, and Maria Morais, Global Industry Principle at SAP, return to discuss how SAP has supported the beauty industry, an industry designated as a non-essential business, through its change from a physical to a digital environment due to the tumultuous conditions caused by the Covid-19 pandemic


Al Lalani:

Welcome to another discussion of Annex Cloud Market Movers. This version we call Industry Insiders, where we focus on different industries. Today, we're focusing on the beauty industry and I'm excited to welcome back Maria, who's the Global Industry Principal for Beauty and Consumer Industries at SAP. Maria, welcome back.

Maria Morias:

Well, thanks for having me. Nice to be here.

Al Lalani:

Wonderful. Maria, we've discussed fashion. Today, I'm very excited to discuss about beauty. If you can start with a little bit of an overview of your work with beauty companies at SAP and how you're helping them.

Maria Morias:

Sure. So I'm convinced that our new world is about going directly to consumer when it comes to brands and beauty brands. And brands that are approaching the digitalization by going directly to consumer are having huge gains because they have then this communication directly with their customer, as opposed to be relying only on other retailers to do that for them. And many, many brands that we know have a big enough product catalog to enable them to do this. So, that's very exciting.

Al Lalani:

Great. And in terms of the coronavirus, I mean, that's brought in a interesting challenge in many of these brands, as well as a lot of opportunity. One of those opportunities, as you mentioned, is going direct to consumer. I mean, what are these broad challenges and opportunities that you are seeing specifically in this beauty industry?

Maria Morias:

Well, the beauty industry during the lockdown period had to face the same questions that many other retailers had to face, right? And particularly because some of these brands sell through retailers, they had to consider, okay, there's not much we can do to help these retailers, right? The stores were closed. Beauty stores, fashion stores during the pandemic really, we didn't have these touch points working. And so therefore people were relying on eCommerce. Of course, for brands that already had a direct to consumer experience that was less problematic, I would say.

But what we're talking about here is the definition of the purpose of the store. The physical store, as we know it, what's the purpose of it? And beauty has an opportunity to bring an experience that goes beyond just the transaction. They have the opportunity to sell a product, but also provide the experience of how to use the product. And I think that that's really relevant for the brands that have their own stores, because there are many brands that go direct to consumer like that as well.

The role of digital also had to change. But the good side of this is that actually beauty has been doing a very good job with social media influencers. And it's probably the segment where we see more social interaction, lots of people trying the products, making evaluations of the products and talking about how to best use them. So this gives the possibility for the brands to have these extensions of their own brand, these people that advocate their products. And so that was a way to go using digital channels in a way that, that works during the periods where people were not able to go to physical places.

What is missing though, is that link sometimes from having a social media experience and then how do I buy? And here the smaller brands have an advantage because normally they have everything more connected. For bigger brands, they will need to consider to take that as an example. And I mean, I like what Coty did and how they responded to UK consumers during lockdown, a new delivery service and for its high street brands. So The Home Beauty Edit, it's the name of the initiative. It's a direct to consumer platform and allows shoppers to buy bundles that are delivered within two working days.

So the retailing prices would start for less than £20 and initially we would include hair color products and nail polish. So I think that's a good example of an initiative for a disruptive moment as what we had in the beginning of 2020.

Al Lalani:

No, that's wonderful. And as we talk a little bit about disrupting and sort of changing sort of how the industry behaves and how they connect with consumers, you like the term digital exploration. A lot of that is happening within the industry. Two aspects around this, I mean, this example you gave with Coty was wonderful. In your way, how are brands, beauty brands specifically looking at digital exploration and then point two of that question would be on the loyalty side specifically, how important do you think loyalty and retention now and loyalty programs maybe are for these beauty brands?

Maria Morias:

So in terms of digital acceleration, I think when L'Oreal came two years ago and said, "We don't want to be the number one beauty firm in the world, we want to be the number one beauty tech company in the world," this gives a big indication in the industry that something needs to change. You're not supposed to just run your business. You're supposed to do it using technology to enable you to reach more consumers in a better way at the time they need the information that they are searching for.

So loyalty of course, is fundamental because beauty brands should be rewarding their customers for the experience and not just for buying product. That's what it's enabled at the moment that you have tech as part of your strategy in your company. You are able to reach these consumers and then engage them in a narrative where they experience your products, but they're also part of a network. They're also part of seeing what's happening behind the scenes. How do you produce your products? What's your supply chain? Are there any other initiatives like, can I return my packages after I use the makeup? So many points where you can connect with consumers today that go beyond just buy now, buy two, get one free. That model is really not working anymore.

And so, one of the things I would say is in a loyalty program, instead of focusing on the people that already buy a lot from you, it would be good to start looking at the tier of customers that may not buy that often, but have the propensity to become more loyal customers. And design the loyalty program around that segment, as opposed to the segment that already buys a lot from you.

Al Lalani:

No, that's wonderful. And I think focusing on that middle layer allows the beauty brand to kind of further the ability for those consumers to potentially even become advocates, thereby sort of driving that circle back. And so I really like that idea. I know you've been supporting and suggesting a lot around loyalty programs. Now, when we think of loyalty in general, from an industry perspective, after airlines I guess, if you leave that aside, beauty is probably one industry that has adopted loyalty well broadly over time.

Maria Morias:


Al Lalani:

And the part that you mentioned around the emotional loyalty or the engagement/experiential loyalty is highly important within beauty brands, as they try to differentiate from each other. As you talked about, they're trying to show sort of the life cycle of the product and so on and so forth. But what are other innovations you think that beauty brands can think about to bring their loyalty programs to even a step further in terms of engagement and experience and other ways to enhance their loyalty programs?

Maria Morias:

No, I think you're still right. Definitely beauty has been doing a good job with designing loyalty programs that go beyond a transaction. I think other industries and mainly fashion, that's what we said in the last episode, right, that they need to follow these best practices from beauty. But there's always space for improvement. And so there are so many innovations. I mean, one of the things I really like is this component of bringing it all together, right? As a consumer, I go to a retailer, I buy a brand I like, and if I'm enrolled in the loyalty program with the brand, I want that retailer to give me points, like buying that product there. And how do I do that? So I think that's the clever thing of a loyalty program that connects that B2B aspect with the B2C aspect.

So at the end of the day, consumers go into a shop, no matter which shop it is, as long as the brand is there, the brand has a way to reward me for that acquisition. And this also is fabulous for beauty brands, because it's a way for them to continue to use that indirect sales model, but at the same time reward their consumers and get to know their consumers a little bit better, not losing touch with it just because they're not selling directly. So I think that that's a game changer. That's really an important aspect of what all beauty brands in the world should be doing because I'm loyal to a brand, I may be loyal to a retailer as well, but they are not necessarily the same. I mean, if there is a loyalty scheme from a brand that doesn't consider this step, I may actually choose something else when I go to a retailer, right? If there is the option between two brands and one gives me points, no matter where I buy and other doesn't, there may be that case.

But then I like the innovations around technology as well. So Lancôme came up with a custom-made foundation machine called Le Teint Particulier. I'm not sure, my French is not that good, but I hope I was able to pronounce it correctly. So this is a foundation machine that promises to find the exact match for skin using AI. And it's available at Selfridges and Harrods in the UK. So give it a try there. Also, as we do more shopping online, and I'm a huge fan of augmented reality to enhance the experience of customers. So take, for example, Sephora's Virtual Artist, which lets customers try thousands of shades and lipstick, eye shadows through smartphones or kiosks in stores. I really like this initiative as well.

And lastly, the smart mirror by Taiwan's New Kinpo Group that can rate your skin. So mirror, mirror on the wall and then it tells me, where are my wrinkles, black spots, all of that and makes recommendations. So how beautiful is that? So technology trying to create loyalty in a more futuristic way, but the future is now, right? We're seeing these things happening and that's exciting.

Al Lalani:

Wonderful. And I think those last two examples I really like, because I think they're using sort of external techniques to enhance the ability of a consumer to choose your brand, ideally by supporting their product choices, not by directly influencing them, but at the same time, giving them an option and indirectly leading them towards your brand. And then the previous one you mentioned around getting the consumers no matter where they buy, that's instrumental now because we know back in 2008 with the last sort of recession, consumers defected significantly, especially in terms of price was a barrier. And if I'm at a retailer and I don't have the affinity built with the brand in a capacity where I can potentially get rewarded for it, there is a chance of defection again, higher than it was last year. And that brings in that.

So Maria, all amazing examples. As always, we really love speaking with you because you always bring in some real, real-world examples like you did today, at least seven or eight really amazing ones that you pointed out today. So thank you again for taking the time to speak with us and we really appreciate it. And for everyone else, if you want to see all these videos, please go to annexcloud.com/marketmovers, or annexcloud.com/industryinsiders for the industry videos. Thank you, Maria. Bye for now.

Maria Morias:

Thank you.

Featured Speakers

 Al Lalani

Al Lalani

Co-Founder, Annex Cloud

John Bartold

Maria Morais

Global Industry Principle, CX, SAP

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For more than 10 years, Annex Cloud has been the worldwide leader in technology and service solutions that transform customer loyalty experiences for organizations, extending valued customer engagements, ultimately making beloved brands. Powered by the modular, comprehensive and scalable Loyalty Experience Platform™ solution suite, Annex Cloud customers capture and use zero- and first-party data to seamlessly deliver value-based individualized experiences across the entire customer journey—from awareness to purchase to retention, loyalty, and advocacy. This one-to-one engagement helps enterprises accelerate growth by increasing average order value, repeat purchase frequency, and customer lifetime value. Annex Cloud is recognized by respected industry analysts and integrates with more than 100 market-leading technologies to seamlessly integrate loyalty across the tech stack.

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