In the past five years, a new generation of direct-to-consumer local disruptors has been booming in the consumer sector in China. These brands are growing at an unprecedented rate, and many have reached growth rates that are tens or even hundreds of times the industry average. They adapt and react fast to consumer trends, they’re more resourceful in leveraging platforms to explore new initiatives, and their increasing influence and marketing power are giving large international players a run for their money in the ever-fierce competition for the Chinese beauty consumers.

In the first half of 2021, Shiseido China achieved a remarkable 44% revenue growth. Shiseido’s online and offline sales both increased, in part, due to the brand’s ongoing efforts in capturing consumer trends and continued focus on brand value. Viewing China as an important source of innovation, Shiseido announced a special investment fund in August, Shiseido Beauty Innovations Fund, partnering with Boyu Capital. The investment will focus on emerging beauty and wellness brands, as well as investment opportunities in related upstream and downstream technology companies.

Recently, Tom Zhang, senior engagement manager at Prophet, and Carol Zhou, Shiseido’s senior vice president of China Business Innovation & Investment, discussed the brand’s innovation journey in the China market, insights on the domestic beauty industry and her predictions for the Chinese beauty market.

Carol Zhou

Shiseido

Senior Vice President, China Business Innovation & Investment

Carol has served as head of Shiseido’s China Business Innovation & Investment since early 2019. With China’s diversified business ecosystem as a backdrop, Carol is committed to accelerating innovation and uncovering new business models to drive growth for Shiseido on a global scale, positioning the brand as a global leader in beauty innovation.

Before Shiseido, Carol has held numerous senior management positions in multinational companies including Unilever, L’Oreal, Amway, Burberry and Marriott International, where she has built brands across regions and business domains. Carol attended New York University’s Stern School of Business and holds an MBA degree from Hong Kong University of Science and Technology.

From your perspective, what are the key trends in China’s beauty industry in the next two to three years?

Currently, China’s beauty consumers are in a phase of exploration. As consumers become more sophisticated, they will be more knowledgeable in terms of ingredients and the science behind the brands. Increasingly, customers will no longer blindly believe in marketing stories but do their own research and look toward experts with real data. We will see more brands working with medical authorities, such as research institutions, doctors and scientists to lead the development of the industry and consumers from the perspective of scientific ingredients and formulas. I see a movement toward dermatologist brands and products/services.

Next, the trend of personalization will continue to develop. Although technology and regulations are temporarily limiting, and the product experience and user journey are not yet perfected, I believe that personalization is the future direction of skincare. Everyone is unique and our skincare should be too. Many brands are already customizing their products and services with this in mind, and I see tremendous development in the future. With advancements in digital and gene tech, the future for a personalized experience and product design is limitless.

Health and wellness, propelled by COVID-19, is becoming top of mind for consumers around the world. There will be further integration of topical skincare with the ingestible to provide a holistic beauty approach for consumers.

In the face of these opportunities, how can Shiseido lead innovation?

In the two and a half years since I joined Shiseido, the strategy has evolved. In the beginning, we aimed to broadly explore new trends and opportunity areas. Now, we are doing a detailed audit of Shiseido’s strengths, and identifying the intersection of market white spaces and organizational capabilities to better seize these opportunities.

Take the aesthetic medicine category as an example. Shiseido, as an industry leader, can play an important role in the development of this field. However, we will not focus on businesses that are clearly beyond our organizational core capabilities, such as injection-based medical devices. But we can explore how to integrate Shiseido into the overall aesthetic medicine ecosystem by innovating around the subcategory of postoperative recovery with products and/or services.

“Influential innovations come from improving upon existing consumer values, leading to improved experiences and ideas.”

Speaking of personalization, it is actually deeply rooted in Shiseido’s innovative DNA. More than 100 years ago in 1917, Shiseido launched the 7 Colors Powder, a face powder product that consumers could mix and match to achieve a refined look based on their unique complexions. We are also actively exploring personalized beauty devices and services. With the ongoing advancement of technology, we will continue to optimize the experience, providing specialized and convenient smart devices and genetic-level skin diagnoses in the future.

Nutricosmetics (beauty foods) is another area that we are focused on. Japan’s healthy lifestyle and a balanced diet are highly renowned around the world. Shiseido can dial up this advantage and share with Chinese consumers our innovation based on superfoods and functional ingredients.

The evolution of China’s digital ecosystem can be described as boundless. How do you view the opportunities and challenges faced by brands?

The digital ecosystem undoubtedly provides fuel for brand incubation and innovation, but it also brings about a crisis of “involution.” Many brands have a “cash-burning” marketing strategy, hiring influencers to promote the brand, giving away massive discounts. The focus is purely on marketing, while the product quality and true consumer value are secondary. The result is a bunch of products with similar benefits and features, almost the same ingredients and me-too packaging. The growth is often purely driven by new customer acquisition, and when the cash runs out, the consumers will not return either. This vicious cycle makes it more difficult for the brands to reach profitability and create any long-lasting value.

To truly gain a foothold in the market, brands must clearly define their unique value propositions – what is the “WHY.” This is the problem that many emerging brands face today.

What advice do you have for these brands?

I believe we need to return to the fundamentals and think about what is truly unique about the brand. Why do they exist? The value of a brand must go beyond purely marketing tactics.

Shiseido’s ability to have lasting success is in large part due to our dedication to creating the best quality products to meet consumer needs. This dedication to “craftsmanship” is why we don’t blindly follow market trends, but rather think critically about how we can further refine our products. Although we may not always be at the forefront of trends, we have found the right pace to create a timeless brand.

In leading international beauty giants to drive innovation in China, how do you balance “China speed” with global collaboration?

Based on my own experience in the global headquarters, regional headquarters and China business units of various brands, the tension between them is inevitable. An international brand must have consistency and a global strategy. Then the regions (China) will execute this global vision with local adaptation and interpretation that suit the local appeal. Oftentimes, local regions will complain that they need more local decision-making autonomy, while global headquarters want to maintain more control. The conflict, if managed well, can be healthy. Clear and constant communication allows local teams to coordinate with headquarters in a more streamlined manner while educating headquarters on local market situations. It also allows the teams to improve their critical thinking and decision-making abilities.

How do you promote a culture of innovation within Shiseido?

First, I need to start with my own team. I believe it is very important to create a more inclusive, open and flexible working environment and experience. In addition to more flexible working hours and locations, I strongly encourage the team to learn from outside their fields, to learn more about the world outside of their areas of expertise. Sometimes, finding a team is like finding a romantic partner – you need to seek mutual understanding and complementary attributes.

To me, innovation or any critical agenda needs to start at the top. Therefore, I need to make sure my management team understands and believes in the local innovation culture and mechanism as much as possible, in order to have a greater impact and more effectively promote innovation internally.

Lastly, based on your experience, what do you think are the most common “innovation pitfalls” that brands should avoid?

A common misunderstanding is that true innovation is always something breakthrough, from 0 to 1. But in fact, more influential innovations come from improving upon existing consumer values, leading to improved experiences and ideas. Always remind yourself what is the true consumer value and the “WHY” behind it.

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Necessity is the mother of innovation. And the ‘coronacoaster’ we’ve been riding has given birth to blue Skype thinking as businesses have stepped up and strapped in. As always, the winners have been the most innovative in responding to changing market dynamics and consumer needs – putting momentum behind ideas that create the most sales energy, scaling production when the time is right, demonstrating cultural resilience in sometimes plummeting conditions and showing agility through the loop-de-loops of competition. 

As we step off the ‘coronacoaster’ and onto (what we hope is) a new Roaring 2020s joyride, it’s critical that businesses innovate in ways that leverage how echoes of the pandemic will remain endemic in the future. The post-demic perspectives we’ve provided aren’t necessarily prophecies, but they are informed by recent Prophet thinking (and doing). Some are old trends that have been potentiated by the virus. Others are new to the scene as a result of the virus. 

So, pour yourself a stiff quarantini and let’s have a malaproper look at nineteen ways COVID-19 is shaping the future of innovation.

1. Birth of Distance 

Space has always been a luxury (especially in service categories), but social distancing has made it a necessity. Expect new environmental innovations that create psychological space as well as physical distance. Expect more in the way of exclusive boxes at events, private dining rooms in restaurants, etc. and other innovations so there is less ‘stranger danger’ from others in one’s immanent domain. 

2. Heal.thy 

There’s nothing like a global disease outbreak to get people to think more about ‘thy’ own health. Expect to see more innovation that plays to real or perceived health and healing from angles ranging from ancient homeopathic wisdom to lab-based neutraceuticals. Even naughty categories like alcoholic beverages are tapping into this trend through watered-down alt liquids and lower proof points that feel healthier to consumers.

3. @Home 

People have been increasing the amount of time they’ve been spending in their homes for some time now (Faith Popcorn coined the term ‘cocooning’ 40 years ago), but the pandemic has created a step-change in making more bodies homebodies. People want to continue to feel at home (especially in times of crisis), so expect to see more demand for home comfort innovations in the coming decade – creating a sense of ‘home sweet home’ instead of a feeling of house arrest. 

4. Mask.aura 

Masks were the fashion accessory of 2020 – and mascara was the beauty product of the year because eyes are visible above the mask. Think about other innovations that help consumers look (and feel) their best in times of potential lockdowns and coverups. What innovations can help consumers manage their self-presentation aura? 

5. Ment.all 

The stresses and strains of being locked up during lockdown are making all types of people more mindful of their mental health. We expect more neurons to fire in this direction as the decade progresses. Innovations that help people manage their day-to-day mental health and/or take their peak performance to a limitless level are a no-brainer. People are going mental for apps, like Happify, to train their brains for positivity. 

6. Mod.u.larity 

Companies and consumers alike need an innovative way to deal with public policy capriciousness. Modularity is part of an ever-adapting answer. Goods and services that serve us well should have the option of being switched on and off and/or sized up and down on-demand. Driving less today? Your insurance bill stays in first gear. More people in your business tomorrow? Your cleaning service rolls in harder and heavier. 

7. Pan.skilling 

The pandemic has required companies and consumers to upskill and reskill in a panoply of ways. The next generation of innovators will be pan-skilled in a way that flexes with agility. We expect new forms of learning innovation to help organizations and individuals to develop these pan-skills. 

8. Part.icipation 

Many companies have experienced mixed results with highly collaborative innovation approaches. We are consistently seeing more effective results by focusing collaborative participation on the most important parts of an innovation process instead of dragging everyone through the end-to-end journey. Think about it as a ‘minimum viable participation’ model to accompany ‘minimum viable product’ design thinking. 

9. Phygital 

Phygital fuses the best of the physical world with the best of the digital world. More advanced phygital experiences are increasingly being demanded as a result of our enhanced sophistication with the digital world under lockdown. The best phygital innovations deliver the 3Is — immediacy, immersion and interaction. The PS5 is becoming more phygital through the augmented haptics it delivers while a gamer is immersed in a digital world. The Nike flagship store in NYC is a phygital temple designed to navigate with your phone – If you like something you see on a mannequin, just scan it and someone runs it over it to you. When it comes to phygital innovation, just do it. 

10. Pivotry 

To ensure a steady stream of dollars in a fluxed-up decade, businesses need to pivot on a dime. Be prepared to rapidly innovate into spaces that are close (enough) to your core competencies and are reachable with a sensible stretch. The way dine-in pivoted to take-out, fast fashion pivoted to masks and ‘essential retailers’ started selling dubious essentials that consumers couldn’t get (offline) elsewhere. 

“It’s critical that businesses innovate in ways that leverage how echoes of the pandemic will remain endemic in the future.”

11. Pop-Ups 

Prime urban real estate is increasingly un or under-occupied. Nature abhors a vacuum and landlords abhor an empty property. We expect more and more innovative business models (and office space for businesses) to be strutting down pop-up catwalks designed with quickie contracts for ephemeral experiences and short-term shops. Here today, there tomorrow. 

12. Purposeful 

Many people woke up during the pandemic and continue to respond well to products and services that demonstrate a full commitment to a purpose – from beauty brands that are more than skin deep to socialpreneurs transforming the meaning of BOGOF to ‘buy one, GIVE one free’. Consider how your innovations can cause a stir with consumers via genuine links with a positive cause. 

13. Screen Standout 

With more shopping moving from the real world to the virtual world and word of mouth becoming the word of thumb, screen stand out is becoming more important than shelf standout. Innovations need to be designed with colors, shapes and materials that look fab on the small screen. Hero beauty shots should eliminate the shopper marketing clutter seen on many packs these days (it isn’t legible on small screens anyway) leaving only ‘extraordinary elements’ and ‘incisive information’ on screen-optimized designs. 

14. Sir.valence 

Big Brother is increasingly accepted if he helps ensure everyone is complying for the collective good. Surveillance and compliance innovation is expected to be built into a host of people processing systems that provide ‘certain.fication certificates’ of a clean bill of health. This will mean a smoother flow of human capital around the world (or around the neighborhood). But Taylorist employers will be counting keystrokes as WFH becomes less of a WTF. 

15. Social.learning 

People are social animals and social networking marched on with a tech-tonic shift during the pandemic. To be successful in the future, all innovations need to learn how to take full advantage of social platforms. Ensure your innovations are leveraging the latest in social seduction and consummation technology to always be within thumbs reach of desire. 

16. Surthrivalism 

Survivalists must be feeling a bit smug about their readiness for the pandemic. Expect more innovation to help people go beyond surviving to thriving in case of further untoward world events. Our 21st Century Archie Bunkers may not all be building bunkers, but many will take smaller steps to honor the Boy Scout motto of ‘Be Prepared’. 

17. Suss.tainability 

Many inquisitive minds have spent their lockdown sussing out Netflix ecomentaries like Cowspiracy and have become even savvier about the importance of living sustainable lifestyles. Innovation in the coming decade needs a sustainability angle – from how it makes a material difference with the materials it uses (or doesn’t use) to the 411 on its value chain that doesn’t raise a 911 alarm. 

18. Touch.less 

People have become conditioned to taking a hands-off approach to their interactions with the outside world. This is because every touch means an opportunity to pick something up (or pass something on). Innovation should consider how to minimize the literal ‘touch-points’ in the user experience (especially for products that are shared or taken outside the home). 

19. Tr.eats 

The self-treat strategy to mood management has worked wonders during the pandemic. Many people have harnessed the new age wisdom of ‘do something nice for yourself every day’ and many of these mood (re)setting treats have been eats. New innovations that inexpensively help people give themselves a treat every day are expected to continue to go down a treat for the foreseeable future. 

Interested in increasing your innovation capacity?

Prophet’s Experience & Innovation practice can help you to underpin a superior approach to innovation to help you realize your ambitions, get in touch here. 

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