On The Luxury Conversation, we write about business in China from a range of perspectives – from those discovering the market through to experts. Shiseido is at the latter end of that spectrum, seeing the power and future of the China beauty market with clarity: at the start of the year they set up a new innovations centre of excellence outside Tokyo, to be based in China for the first time.
At the tip of Shiseido’s innovation spear is Carol Zhou, SVP and Head of China Business Innovation and Investment. Often seen speaking at inspiring events, Carol brought a diverse range of leadership positions to Shiseido, from Unilever to L’Oréal to Amway, Burberry and Marriott. We took a moment of Carol’s valuable time to talk beauty in China, looking at 2020 and beyond.
Beauty in China is certainly an area of rapid innovation, in terms of experiential marketing, O2O retail, new technologies in products and so on. How far ahead can a corporation feasibly plan in such a fast-paced environment?
We created the China Business Innovation & Investment team almost a year ago, as our CEO Mr. Uotani believes that China will become the world’s innovation hub in the near future. The Chinese consumers are not only driving consumption but also the trends. Thus, our team is based in Shanghai instead of by our headquarters in Tokyo. We need to be where the consumers are – to understand them, to create new values that will improve their lives. Shiseido was founded as Japan’s first western style pharmacy in 1872. It has over 147 years of history and is a national brand in Japan. Outside of Japan, it is viewed generally as a traditional beauty and cosmetics brand. But beauty to us is not just skin deep. It is much more holistic, from inner to outer, connecting our daily habits, lifestyle, and level of well-being.
Today, Chinese consumers are now the growth engine of much of the world’s luxury spending, due to a fast growing affluent middle class and younger consumer base. The younger generations, in particular, have their own points of view and are expressing them through exploration of different brands. Years ago, the Chinese consumers were looking to the West for trends and new ideas. Today, Chinese consumers are re-inventing their own expressions and point of views. They embrace newness and experiences over discounts, which challenges brands to keep up with the lightning pace of changing tastes and preferences.
Our normal way of introducing innovation and products to the market takes anywhere from 24-36 months. In China, we are aiming for 6-8 months from concept to first engagement – that’s the China pace that we need to plan for. My team looks across all points of the consumer journey, connecting all of the dots and every aspect of the consumer experience to deliver new value. It includes a continuous feedback loop, where customers can comment, evaluate, and be part of the co-creation process. By working with local start-ups and partners, we hope to design and continuously optimize these decision journeys.
Creating this China Business Innovations & Investment team involved personally interviewing over 70 candidates, leading to a diverse team of talents with backgrounds in MNC brands, consulting, investments and start-ups. I think I have the best team to achieve the ambitions for the company.
What are you seeing in terms of regions of city tiers, relevant to consumer preference and behaviour? How do you create strategies for such a diverse country?
Niche is big in China. China is a tremendously fragmented market. Due to diversity in lifestyles, consumer preferences are also increasing. Even if you are talking about a small percentage of consumers, due to the sheer size of the country, it can be significant. I was born in Guiyang (in Guizhou), in a third-tier city in China. It has a more relaxed pace of life than in first-tier cities such as Shanghai or Beijing. The consumers there have more leisure time, to go shopping, spending time with their families and so on. They prefer in-person experiences and purchase more at bricks-and-mortar stores, whereas consumers in Shanghai may prefer e-commerce mobile purchases due to convenience and lack of time. Thus, you need a range of strategies for different regions. In the past, you lacked data on people, so you created brands for the masses. Now you have data on every individual, her or his likes and dislikes, and you can give them what they are looking for at each moment, and even predict what they will want through AI and data. The integration of online and offline technology has kept things fresh and exciting for consumers in China. When you open your Taobao App, you will see a very different page than someone else, all based on your own preferences. In the near future, wouldn’t it be great if your offline experience can also mirror this experience and provides you with the assortment that you are seeking in person for a holistic engagement?
Is there ever a danger of confusing the consumer? Of course, Chinese consumers love the new, they love tech and gadgets – but how do you balance innovation with efficacy and consumer understanding?
The question comes down to: are we delivering true value to the consumer, and is it what they care about? Chinese consumers’ growing spending power has given them more choice, which leads to more demand for quality, and higher sophistication toward brands and experiences. They are no longer passively buying but actively researching and choosing better quality products and services. They are quick adopters in anything new and are willing to try anything once. However, this doesn’t mean we just want to innovate for innovation’s sake. Companies are all talking about facial recognition, AI make-up and so on, however, do these technology really solve a problem or consumer need? Or are they all just starting to look the same and provide no true value?
It’s important to first ask the question ‘what role do you want this product to play in the consumer’s journey?’ Is it, for example, a diagnostic instrument to empower a beauty advisor to better evaluate their client’s skin condition, a tool given away with a product to enhance product usage or a stand-alone device with its own unique cosmetic benefit? It’s about unlocking new value at different touch points in the consumer’s experience. That’s what you need to ask first, before jumping on a bandwagon of buzzwords. For me, fundamentally I want to create real value that we know the consumers care about and that will improve their lives. That’s the over-arching strategy that prevents us looking only at tech and innovation for the sake of it.
Does your innovation and ‘end-result’ segment consumers based on age demographics? What do you find as distinct in preferences for the Chinese generational differences?
We have over 30 brands in China, ranging across various price points from mass to prestige. Their consumer base spans across all segments, while each brand’s unique value can speak to multiple segments at once. There is no longer this monolithic Chinese society. The proliferation of different interests through lifestyles, habits, travels, have led to a truly diversified China. The consumers in northern Shenyang would have a very different needs in terms of skincare than consumers in southern Guangzhou, due to the factors I have listed above. Through the internet and travels, their views and opinions are also changing and becoming fragmented. We also have the generations – post 70s, 80s, 90s, 00s. Gen Z, or post 95 generation in China, makes up around 170 million people and contributes about 13% of total household spend, more than anywhere in the world – 3% for the UK, 4% for the US. They are more willing to spend for brands that allow them to express themselves and enhance their quality of lives. More than a quarter of them believe it is important to have a unique view on style and creativity. Thus, we are looking into personalisation and customisation services and experiences as a way to satisfy this generation’s appetite for exclusivity.
What’s being done in terms of innovation at the Centre of Excellence?
The China Business Innovations & Investment office was established in January of this year serving as a hub to promote innovations in existing businesses and new business development responding to the market trends in China.
We want to work with the local start-ups and companies to accelerate the development and implementation of innovations in existing businesses, as well as new business development in cosmetics and other new business fields. All companies talk about innovation differently; it’s not an one size fits all. For Shiseido, at over 147 years old, we want to be around for another 150+ years. Thus, innovation is crucial for us to transform our business and to ensure that we have strategies to compete and prosper in the future.
We will open the world’s first Shiseido Beauty Innovation Hub in the centre of Shanghai in January 2020, outfitted with a testing lab space to bring in consumers, KOLs, hosting start-ups and workshops and conduct concept pilot testing.
A typical Japanese value is to achieve 100% perfection. But in today’s China, you may be 80%-90% ready, get it in the hands of consumers, allowing the consumers and the market to tell you how to improve or complete it. It’s an iterative process, and we can learn fast and adapt quickly. Disruption and uncertainty is ingrained in Chinese history. Embracing ambiguity is part of China’s DNA. In an age of constant disruption, China is poised to become the innovation centre of the world. And my team wants to be a part of the journey and create some breakthrough innovations in this dynamic market.