How is Web 3.0 revolutionizing the cosmetics industry?

Web 3.0 is a relatively new phenomenon, subject to interpretation. Web 3.0 is defined as the next generation of decentralized Internet based on blockchain technology. It includes concepts such as NFTs, Blockchain and Metaverse. While Web 2.0 relies on the centralization of user data by major corporations such as Amazon, Meta or Alphabet, Web 3.0 disintermediates these tech giants to give back control of data and privacy to users. In addition to providing security and privacy, Web 3.0 breathes new life into the customer experience. Thanks to this new digital touchpoint, the brand can cultivate stronger relationships with customers and reach a new audience.  

This is an opportunity for cosmetic brands to make customer experience a key differentiator. 

There is currently a growing interest in the cosmetics industry in exploring the potential of Web 3 technologies. Through large investments, industry giants are demonstrating a clear objective: to be pioneers in beauty tech. 

Web 3.0 offers many opportunities for these players and can match consumer expectations in terms of corporate responsibility and immersive experience: 

• Transparency 

Web 3 technologies can help create a transparent and seamless supply chain. Implementing technologies such as NFT, blockchain or RFID tags can help the supply chain to minimize adulteration incidents, while allowing all stakeholders to trace the sourcing and ingredients used.  

Aveda, the Estée Lauder hair care brand, uses blockchain to trace vanilla sourced from Madagascar, verifying the vanilla supply chain’s compliance with the highest ethical and environmental standards.  

• Collaboration 

As an essential component of Web 3, DAOs enable collaboration between members of a community, without a central direction. Based on a blockchain, decisions are taken by the community via electronic voting and a set of defined rules.  

In early 2023, NYX launched GORJS, the first DAO dedicated to the beauty world, inviting a community of Web 3 designers, 3D artists and beauty product manufacturers to collaborate to shape the future of digital beauty. 

• Authenticity 

Blockchain-based digital identity can be used to verify the authenticity of cosmetics and prevent counterfeit items. A goldmine for luxury brands, recent surveys show that nearly 80% of buyers are willing to pay up to 5% more for a luxury product that is certified as authentic. * 

Designed by LVMH, Prada Group and Cartier, the Aura Blockchain Consortium provides direct access to the history of the product purchased and proof of its authenticity at every step of the value chain.  

• Adaptability 

In a post-pandemic world, it is now essential for cosmetics players to review their organization and adapt to a new hybrid world.  

For global companies such as L'Oréal or LVMH, Web 3.0 can be a real competitive advantage in the efficiency of their internal organization: onboarding employees on-site and at home on several continents will no longer be an issue.  

As mentioned, Web 3.0 is generating many opportunities for the cosmetics industry but there are challenges associated with the adoption of this technology. A degree of digital and organizational maturity of the company, as well as comprehensive financial and technical capacities, are necessary to effectively implement Web 3.0 in its organization. 

Beyond these prerequisites, Web 3.0 also raises questions in its implementation. Even if the notion of Web 3.0 is not fully defined and subject to many interpretations, Web 3.0 can raise a variety of challenges: 

• Adoption: Web 3.0 technologies are still in the early stages of development and may take some time to be widely adopted in the cosmetics industry. Beyond the cosmetics industry, some consumers are not yet ready for Web 3.0: 66% of respondents are not familiar with the concept of metaverses* 

• Complexity: Blockchain is complex, and it can be difficult for cosmetics manufacturers to understand and implement with existing systems and technologies.  

• Security: As with any new technology, there are security risks associated with Web 3, and steps must be taken to protect consumers' privacy and sensitive data.  

• Regulation: There is currently no clear regulation around Web 3.0 technologies, and it is unclear how they will be regulated in the cosmetics industry. Legislation needs to be put in place quickly to protect all stakeholders. 

Investments in Web 3.0 have increased in recent years as these new technologies provide a tremendous opportunity for cosmetic companies to showcase and promote their products and engage an increasingly large and diverse community. 

Nevertheless, to invest in Web 3.0, it is essential that companies ask the right questions upstream to assess the profitability and relevance of implementing Web 3.0 into their ecosystem.  

Define the strategy and use case  

Which objective do I want to achieve?   

Web 3.0 can be used for many strategic challenges. It is therefore key to identify the priority activities that will benefit most from this new technology.   

In terms of marketing challenges, Web 3.0 offers added benefits such as targeting Gen Z, enriching the customer experience (CX) with a new touchpoint, modernizing the brand image or consolidating a solid customer relationship.   

The key is to make sure that the implementation of Web 3.0 is in line with the strategy you want to implement for your product and its positioning.   

What about ROI?  

Like any investment, it is essential to question the ROI of this action. Some brands like Clarins rely on Web 3.0 to promote the release of their new luxury skincare product line, Clarins Precious. Direct financial returns are therefore expected for this type of implementation. Understanding what sort of ROI you are expecting is therefore essential.  

Which use case?   

Once you know why you are doing it, the question of "how" ensues. Web 3.0 integrates many uses and possibilities for companies. NFT, Virtual Try-on platforms or Metaverse present different opportunities. It is therefore necessary to choose the most relevant application with the initial goal of the project. This solution must also fit into the organization's current ecosystem in terms of organizational, technical, and technological feasibility.  

Drive the implementation phase   

How significant is the human factor?   

Choosing, and collaborating with, the right talents is critical to a successful end-to-end implementation. From project management on decentralized platforms to project delivery, collaborators with technological expertise and knowledge are needed to ensure success.  

Beyond the project owners, it is also fundamental to acculturate all team members to this change through webinars, VR acculturation workshops or Metaverse events. Make sure they understand the benefits of Web 3.0 and how it can improve their work.  

Why market and engage customers?  

The activation phase is essential in a Web 3.0 project, where the concept is still a foggy notion for some people. It is therefore necessary to accompany the end consumers in the adoption and comprehension of the solution.  A solid 360° marketing plan, targeted marketing operations or customized Metaverse customer experiences can significantly contribute to the project's success. Once the community is engaged, it is necessary to keep it alive through actions such as quests or on Discount, the Web 3 messaging system. 

In early 2023, the L'Oréal Group announced, via its BOLD venture capital fund, an investment in DIGITAL VILLAGE, a U.S. start-up specializing in the Metaverse and the NFT marketplace. This investment joins a large list of investments made by major players in the Luxury/Cosmetics industries.  

If investments are multiplying, it is because Web 3.0 offers an opportunity to upgrade the customer experience and meet new challenges set by consumers. 

Let’s live a unique & immersive experience 

By entering Givenchy Beauty’s Metaverse access platform, users can take part in dance or make-up contests virtually. All this while discovering the universe of the brand's emblematic fragrances such as L’Interdit. Dior has teamed up with 3D avatar creation platform ‘Ready Player Me’ to create an immersive experience around the Miss Dior perfume. The user and its personalized avatar are immersed in the universe and history of the perfume, for a unique shopping experience. 

Let’s join the Club 

Clinique has strengthened its loyalty program by allowing its most loyal customers to earn NFTs and an assortment of products once a year over the next decade by asking them to share stories of optimism and their hopes for the future. In the same loyalty strategy, Shiseido has used NFTs as a real weapon to increase customer retention. To celebrate its 150th anniversary, the Japanese group has launched 150 limited edition NFTs to celebrate its 150 anniversary, providing access to a range of benefits: £1,000 of skincare products and samples throughout the year, tickets to online and offline events, and exclusive content. 

Let’s be transparent 

LVMH is testing blockchain technology to trace the origin of precious materials used in its products and to prevent the use of counterfeit materials. To ensure traceability, transparency and customer relations, the luxury brand, Le Jardin Retrouvé, also uses blockchain technology to guarantee the authenticity of its products to its distributors and customers. By scanning the QR code on the packaging, any consumer can access a large amount of tamper-proof information on the origin and manufacture of the product. 

Let’s change the World 

The third age of the Internet also represents an opportunity to be involved in social causes. While reaffirming their position on these questions, Web 3.0 allows them to diversify their means of communication on these topics. NYX, the make-up company of the L’Oréal group, is organizing its own Gay Pride in the metaverse. The idea is to remind its commitment to the LGBTQIA+ community. Clinique also unveiled an NFT campaign #MetaverseMoreLikeUs, in favor of the inclusivity of representations in Web 3. 

*Based on studies by Authena, Sia Partners