ESTEE LAUDER introduces AI

Prepared by Peter L-Chang Kuo

I. Preface

The well-known cosmetics company " ESTEE LAUDER" introduces "artificial intelligence" (AI) in the hope of optimizing user experience and improving their marketing. This move will inevitably lead to the cosmetics industry to follow suit, and those traditional advertising companies and department stores will face huge challenges. Particularly, the most impact, the counter girls have to face infinite challenges.

Fig 1: Cosmetics of "ESTEE LAUDER"

II. New Horizons for Cosmetics Industry Players

The introduction of AI technology by major cosmetics brands like “Estée Lauder” undoubtedly marks a significant transformation in the cosmetics industry, as well as a major disruption to the advertising and department store sectors. The cosmetics industry is opening up new opportunities with AI, and the transformations are as follows:

1. Precise Market Targeting and Personalized Advertising

The cosmetics industry heavily relies on personalized recommendations and customized products. The integration of AI will usher in a new era of precise market targeting. This will have a direct impact on traditional advertisers because:

1) AI-driven Precision Targeted Ads: AI can design highly personalized advertisements based on user behavior data (such as purchase history, search habits, social media activity, etc.), which not only increases ad response rates but also strengthens the emotional connection between the brand and the consumer.

2) Behavior-driven Creative Content: AI can instantly adjust ad content based on consumer needs and reactions. For example, deep learning technologies can generate makeup tutorials or product recommendations tailored to consumer preferences, significantly improving ad conversion rates. In contrast, traditional advertisers typically need a lot of time for creative brainstorming and market research to launch effective campaigns, which makes them appear slower compared to AI’s rapid response capabilities.

2. Big Data and Real-time Marketing

With the application of AI technology, cosmetics companies can leverage “big data analysis” to monitor market trends and consumer behavior in real time, allowing them to quickly adjust marketing strategies. This presents a significant challenge to traditional advertising companies:

1) Immediate Market Response: AI can analyze vast amounts of consumer data to predict market trends in real time and adjust advertising strategies accordingly. This means that advertisers and brands can instantly modify ad content, formats, and timing to quickly respond to market demands—something traditional advertisers often struggle to achieve.

2) Real-time Data Feedback and Optimization: AI's real-time data analysis capabilities allow advertisers to quickly assess the effectiveness of every advertising dollar spent and make immediate adjustments to ad content. This contrasts sharply with the traditional advertising model, which relies on extensive pre-planning and post-campaign evaluation, often taking longer and being less efficient.

3. Creative Generation and Automated Design

Traditional advertising companies typically rely on a large number of “creative designers, copywriters,” and other human resources to develop ad materials and content. However, with the introduction of AI, this process can become more automated and efficient:

1) AI in Creative Generation: For example, AI can automatically generate eye-catching ad copy, design graphics, and even create videos and animations, greatly reducing the need for human intervention. Traditional advertising agencies may feel competitive pressure from this transformation, as AI enables faster and more cost-effective creative output. Brands may choose to delegate this task to AI rather than relying on human labor.

2) Automated Ad Operations: AI can quickly adjust how ads are displayed based on consumer reactions. For instance, using automated social media marketing platforms, AI can dynamically modify ad content, which in some cases may be even more impactful than traditional media advertising.

4. Virtual Customer Service and Interactive Experiences

With the introduction of technologies like "virtual try-on" and "AI beauty advisors" in the cosmetics industry, advertising and brand promotion are no longer limited to one-way communication. Instead, they are shifting towards two-way interaction and immersive experiences. This presents a challenge to traditional advertising business models, particularly for offline traditional ads and the restructuring of advertising channels:

1) Enhanced Virtual Experiences: Cosmetics brands can use AI technology to offer services such as "virtual try-ons," "real-time effect simulations," and "remote skin tests," allowing consumers to instantly see how a product will affect their appearance from the comfort of their own homes. These interactive experiences have the potential to replace traditional display ads and TV commercials, while also providing immediate consumer feedback.

2) Integration of Social Media and AI: AI can collaborate with influencers on social platforms (like Instagram, YouTube) for personalized promotions and analyze user reactions to continuously optimize marketing strategies. Traditional advertisers who fail to keep up with these changes may face the risk of becoming obsolete.

5. Shortening Marketing Cycles and Reducing Costs

The introduction of AI has made advertising in the cosmetics industry more efficient and precise, while significantly lowering advertising and marketing costs and improving return on investment (ROI):

1) More Precise Budget Allocation: AI allows brands to quickly adjust budgets based on the needs of different regions and consumer groups, eliminating much of the waste typical in traditional advertising. This enables brands to use each advertising dollar more efficiently.

2) Lower-Cost Ad Content Creation: Traditional ad creation requires substantial human resources for design, filming, editing, and more. AI can automate these processes, significantly reducing the costs associated with ad creative and content production.

6. Digitalization to Optimize Customer Experience

As the cosmetics industry accelerates its digital transformation, many brands are leveraging technologies such as virtual makeup, AI skin analysis, and “personalized recommendation systems” to optimize the customer experience. This is manifested in the following ways:

1) Virtual Makeup and Personalized Recommendations: Many brands have introduced virtual try-on technologies, allowing consumers to simulate different makeup looks on their phones or computer screens. Based on their skin tone and type, consumers receive personalized recommendations. This means consumers no longer need to visit physical counters to browse products → make purchases → and wait for home delivery.

2) Data-Driven Customer Experience: AI can analyze customer purchasing behaviors, preferences, and social media data to accurately predict their needs and deliver personalized promotions. For instance, AI can recommend the most suitable cosmetics based on a customer's skin condition and past purchase history.

3) Seamless Online-Offline Shopping Experience: With the integration of online and offline shopping channels, consumers can try products in physical stores, then choose to purchase them online with direct home delivery. This "seamless experience" allows consumers to enjoy a more flexible and convenient shopping process.

III. How Should Traditional Advertising Industry Respond to the AI Revolution?

The advertising industry is known as a "creative industry," where ideas are generated through human effort, requiring at least a week to develop a proposal. However, with AI capable of generating entire drafts in just 1-2 seconds, traditional, labor-intensive processes are already at a significant disadvantage in terms of speed. So, how should traditional advertising companies adjust when faced with AI?

Overall, the advertising industry is currently in a "transition period from traditional models to digital transformation," which is pushing traditional ad agencies to rapidly adapt to data-driven strategies, AI tools, and automation technologies. Especially important is the effective use of machine learning, natural language processing (NLP), data analytics, and automated design tools to transform workflows, creative output, and customer interaction models. My recommendations for the advertising industry are as follows:

1. Automating the Planning Process to Improve Efficiency

Traditional advertising proposals often require collaboration across multiple departments, including market research, creative brainstorming, copywriting, and visual design, which may take several weeks. AI can help accelerate this process in the following ways:

1) AI-Assisted Market Analysis and Insights: AI tools can be used to quickly conduct market research and data analysis. Traditional market research requires a significant amount of time to collect data, analyze trends, and understand the target audience. AI, through “big data analytics,” can quickly identify market trends, consumer behaviors, and potential advertising opportunities. AI can also perform “sentiment analysis” to gauge consumer emotional responses to brands, helping advertising agencies better understand their target audience.

2) Automated Ad Copy Generation: AI tools like GPT-3 and Jasper can generate high-quality ad copy. These tools can automatically produce engaging advertising content tailored to the brand’s voice and target audience, and they can quickly be edited and optimized. This not only reduces the time spent on manual creation but also offers more creative options.

2. Accelerating Digitalization

As clients begin to adopt AI and digital technologies, this not only changes how brands market themselves but may also drive the digitalization of the entire industry. Traditional advertising agencies have no choice but to transform in order to adapt to emerging digital platforms and an AI-driven media environment. The steps to achieve this are as follows:

1) Shifting from Traditional Media to Digital Media: Traditional advertising agencies must strengthen their partnerships with digital platforms (such as Google, Facebook, TikTok, etc.) and master more digital marketing technologies, such as programmatic advertising and automated ad placement, in order to keep up with changing market demands.

2) Collaboration and Co-creation: Advertising agencies may choose to collaborate with AI technology providers to jointly develop new ad creative generation platforms, making AI a part of the creative process rather than replacing the entire workflow.

In summary, AI will transform the way traditional advertising agencies operate. They must “accelerate digital transformation and embrace AI technology,” using it as a supportive tool to enhance creative efficiency, precise targeting, and real-time responsiveness. By “integrating AI with human creativity,” advertising agencies will be able to secure a competitive position in the new era of digital marketing. If they fail to do so, their future prospects may be bleak.

IV. Potential Impacts on Department Stores

1. Trade-offs Faced by Department Stores:

1) Declining Foot Traffic: “Cosmetics counters with high traffic” are often one of the main engines for attracting customers to department stores. For female consumers, cosmetics counters are not just shopping spots, but also a place for socializing and leisure. If a large number of cosmetics brands withdraw from these counters, it will directly reduce foot traffic in department stores, impacting overall revenue.

2) Increased Pressure for Digital Transformation: To respond to the competition from online shopping, department stores need to accelerate their digital transformation by integrating more online sales platforms and virtual shopping experiences into their operations. This shift not only includes moving product sales online but also incorporates digital customer service and AI-driven recommendation systems to offset revenue losses caused by declining foot traffic in physical stores.

3) Greater Focus on Experience and Social Functions: Department stores may place more emphasis on offering “offline experiences,” such as creating “immersive shopping spaces or social events,” so that customers not only shop but also enjoy social and cultural exchanges. This model would help attract consumers to visit the stores in person.

2. Inevitable Transformation:

1) Possibility of Cosmetics Brands Pulling Out of Department Store Counters: With the introduction of AI technology and digitalization, the “counter sales model is bound to be affected.” Many cosmetics brands may start to consider shifting their focus from traditional department store “counters to online and virtual experiences,” increasing the likelihood of brand withdrawals from physical counters.

2) Impact on Employment for Sales Associates: The rise of “online experiences” will reduce the dependence on traditional counters, making sales associates (counter staff) potentially redundant. As a result, sales associates will face the risk of job cuts, directly affecting related employment opportunities. However, these sales associates can transition to roles in “online customer service or as virtual beauty advisors,” offering online product recommendations, makeup guidance, and after-sales support. This will require digital skills and an understanding of AI technology, making education and professional training critical for their career transition.

V. Conclusion

After multinational cosmetics companies introduce AI technology, they can transform their marketing strategies by establishing dedicated departments within the company and utilizing far-reaching digital technologies to provide “online customer service.” Traditional advertising agencies may need to undergo transformation or even consider shifting their business model. Regarding the question of whether cosmetics brands will pull their counters from department stores, the principle of "increasing revenue and reducing costs" is fundamental to any profit-driven business, and cosmetics brands are likely to follow this rule. If department stores fail to adjust their operational strategies in time, they may face a precarious situation.

For example, Disneyland, a place where customers traditionally need to visit in person to experience the park. They adopted our invention, using our "Contactless TranSmart Chip Technology," and spent US$ 1 billion in 2013 to develop the "Magic Band" to improve their ticketing and shopping systems, ultimately enhancing the user experience. This led to a return to prosperity, annual revenue as high as US$ 2.4 billion — but this is not something an ordinary department store could achieve.

Fig 2: Our Inventions cited by Disney to improve their dilemmas

As for the most vulnerable group, the sales associates, their positions are likely to be reduced due to AI and digitalization. Not everyone can successfully transition into roles like virtual beauty advisors through training, and thus unemployment is an inevitable trend. My compassionate wife, Linda Din, predicted structural social issues back in 1986. She invented "The Electronic Store System" (TES), which selected to use contactless TranSmart chip technology to create a cashless transaction system. This prevented transactions from ending at the point of exchange and instead turned them into backend operations, creating new job opportunities. TES includes many elements of artificial intelligence, and even those who retire from the workforce can participate in TES through short-term training. This model also offers informal and flexible employment, which may provide higher income than formal employment — a topic that is now a major issue to be addressed at the APEC 2024 Leaders' Summit.

Fig 3: "The eStore System" (TES) — An Invention for Solving Jobless Issues

In conclusion, as AI and digital technologies continue to advance, the traditional “retail structure” will undoubtedly undergo profound changes. However, this also presents new opportunities for brands and retailers. The key to success lies in how one chooses to adapt.

Peter Lichang Kuo, the author created Taiwan's Precision Industry in his early years. Peter was a representative of the APEC CEO Summit and an expert in the third sector. He advocated "anti-corruption (AC)/cashless/e-commerce (E-Com)/ICT/IPR/IIA-TES / Micro-Business (MB)…and etc." to win the international bills and regulations.