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Business trends

Kao jumps on customization bandwagon with gene-based skin care

Shiseido also moves into personalized cosmetics with app- and AI-based solutions

Shiseido's Optune system makes use of a smartphone app before dispensing skin lotion in one of up to 1,000 possible combinations, based on time of day, temperature and humidity.

TOKYO -- Personalized products are taking the beauty industry by storm, with consumer goods company Kao set to join the trend next year with bespoke skin care offerings based on genetic information.

The Japanese company will use genetic data carried in ribonucleic acid to make predictions about customers' risks for wrinkles and other aging-related conditions, as well as dermatologic disorders. It will then formulate skin care products for maintaining healthy skin. Prices and sales channels will be determined later.

"We want to make this product affordable, not excessively pricey," said President and CEO Michitaka Sawada. "There's no need to display products on the sales floor any more, and the method of distribution is changing," he said, hinting at new offerings being sold directly to customers online.

Kao has been a mass-production, mass-marketing powerhouse. But consumers are growing picky and showing a diverse range of needs, and this is prodding companies to change their business models, with the trend particularly prominent in the cosmetics industry.

In 2018 user-review rankings on total beauty website @cosme show that many of the site's roughly 15 million users in Japan liked emerging brands targeting niche markets better than established alternatives. The pull of these newcomers is growing stronger among younger consumers, who use social media as a main source of information.

That is why Kao has been keen to develop niche-market products and engage in social-media-driven marketing. The Tokyo-based company plans to take this initiative one step further and "offer personalized items in the areas of beauty and household goods as well," Sawada said.

Japan's cosmetics market remains robust, with shipments increasing 7.3% year on year to 1.63 trillion yen ($14.4 billion) in 2017, the second straight annual record. The growth is driven by international tourists snapping up made-in-Japan products and domestic consumers flocking to high-end anti-aging products.

Because of its focus on the middle rungs of the pricing spectrum, Kao missed the anti-aging boom and saw its operating margin for the cosmetics business come to 6% in the first nine months of this year -- far below Shiseido's 13% and also behind other upmarket competitors. Kao hopes its customization strategy will change the game.

Shiseido, meanwhile, is gearing up its personalization drive with its Optune skin care system, a beta version of which was launched in March. After users send pictures of their skin taken using an app, a special device at their home dispenses one of roughly 1,000 serum-moisturizer combinations that works best at a given time, also taking into account factors like temperature and humidity. Users pay several thousand yen a month. In the future, the system will employ artificial intelligence to calculate moisturizer blends.

Last year, Shiseido launched a brand that is mostly marketed online and bought an American startup that developed an AI-driven skin tone analysis technology. "We are acquiring cutting-edge digital technologies to quickly personalize beauty products," said President and CEO Masahiko Uotani.

These Japanese companies are following in the footsteps of U.S. players. New York City startup Function of Beauty uses AI and other technologies to analyze customers' answers to questionnaires and product reviews to create customized shampoo and conditioner formulas from 12 billion possible combinations. The company, founded in 2015, boasts 160,000 Instagram followers, on a par with established brands.

Similarly, Stitch Fix, a San Francisco-based personal styling service, delivers clothing tailored to individual preferences to some 3 million users, armed with some 4,000 stylists and social media data-analysis technology. These customization service providers are quickly acquiring fans in mature markets.

Personalization service startups are popping up in Japan as well. Sparty offers customized hair products from about 100 combinations based on customer profiles. With a pair of bottles costing about 7,000 yen, the service is pricey. Still, it has won about 5,000 subscribers, mostly young women. Using big-data analysis of customer feedback, the service plans to expand its choices to 10,000 as early as next spring.

Dietary supplement company Dricos and aromatherapy spray retailer Code Meee also made full-fledged debuts of their made-to-order products earlier this year.

Custom-made products tend to cost more to manufacture than mass-produced goods. But if production technology advances as big players like Kao get into the game, the customization trend may soon take root across the wider consumer goods industry.

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