Report: Monetizing Personalization in Beauty

Trends, Tech, and Growth Potential for Modern Beauty Brands

Executive Summary

The Personalization in Beauty report explores the changing dynamics of the cosmetics industry, with a focus on AI-driven customization, evolving consumer expectations, and measurable business outcomes. It provides a comprehensive look at how personalization—once considered a nice-to-have—is now a core strategy for growth, retention, and profitability.

Key findings reveal that personalization is no longer a trend in beauty – it’s a baseline expectation and a revenue imperative.

✧ With 76% of consumers more likely to purchase when
shown personalized recommendations, and retailers reporting
up to a 30% revenue lift from AI-powered personalization tools,
brands that tailor the shopping experience are gaining a
measurable competitive edge.

The report examines major shifts in consumer behavior: from rising demand for virtual try-ons to the importance of frictionless product discovery and personalized consultations. These shifts are being driven by customer frustration with one-size-fits-all experiences, high return rates, and the complexity of navigating thousands of SKUs across categories.

Through the lens of real-world data and emerging technology, the report highlights the essential tools modern brands need to thrive:

Virtual try-ons and shade finders to reduce costly returns,
eliminate mismatches, and minimize product waste;
smart product recommenders to increase average order value;
and virtual consultations to scale expert guidance.

Ultimately, this report makes the business case for personalization, showing how the right tools don’t just improve customer journey, they protect profit margins and unlock long-term brand loyalty.

I. Why Personalization Matters Now

Personalization isn’t just about customer satisfaction – it’s about protecting your margins and staying competitive.

The global beauty market is more competitive and more digital than ever. With the beauty and personal care industry projected to reach $677.19 billion in 2025 (Statista), brands face mounting pressure to not only stand out but to connect meaningfully with each consumer, at scale.

Meanwhile, consumer behavior is shifting rapidly. Today’s beauty shoppers expect more than a great product. They want the right product, tailored to their needs, delivered through seamless and personalized experiences.

And they’re not afraid to switch brands to get it.

But poor product fit isn’t just frustrating for customers. It’s expensive for brands.

➥ The Cost of Getting It Wrong

Behind every product mismatch is a financial consequence. Because returns are the silent killer of profit margins, and not even the beauty industry is immune.

Cosmetics may not top the charts in return rates like fashion or electronics, but product mismatches still cost brands more than they might realize.

According to Richpanel, the average return rate for beauty products sold online is 4.99%, much lower than the 20-30% seen in some other categories, but still financially painful due to the non-resellable nature of most cosmetic products.

Let’s break it down.

¬ Even “Low” Return Rates Add Up

Say you’re a mid-sized beauty brand shipping 100,000 online orders per year. At a 5% return rate, that’s:

• 5,000 returned units annually
• With an average return cost of $10–$15 (including shipping, processing, and loss of resale), you’re looking at $50,000 to $75,000 in lost revenue – every year
• And that doesn’t include inventory waste, delayed refunds, or customer churn

According to Shopify, returns can cost retailers between 20%–65% of the item’s original value, depending on logistics, warehousing, and restocking policies. For products like foundation and concealer, which often can’t be restocked due to hygiene restrictions, 100% of that value is lost.

¬ Foundations and Concealers: High Risk, High Return

Some categories are particularly problematic:

• Foundation and concealer returns are disproportionately high compared to other beauty SKUs
• Returns are often triggered by shade mismatches, inaccurate online swatches, or unmet texture expectations

And while strict return policies may reduce the number of returns, they don’t fix the root problem. They simply push unhappy customers away, costing you future purchases and damaging brand trust.

🟤 One mismatched foundation may cost you $15 in returns. But if that customer never buys from you again, you’ve lost their entire potential lifetime value – easily $200-$500 or more.

¬ Delays = Hidden Costs

According to the NRF, 66% of online shoppers say they’re more likely to return a product in person if it means receiving a refund on the spot. This growing preference puts pressure on brands to offer fast, convenient refund options, often requiring early refunds before the product has even been inspected, increasing the risk of fraud and loss.

At the same time, 44% of shoppers admit they delay returns until they’ve accumulated multiple items, which slows down reverse logistics, delays restocking, and ties up inventory – creating bottlenecks that quietly eat away at your margins.

🟤 The result? A complex, costly cycle that affects both short-term revenue and long-term operational efficiency.

➥ Consumer Expectations Are Rising

Today’s consumers aren’t just browsing – they’re comparison-shopping across multiple channels, platforms, and brands.

This means brands must offer more than quality – they need to deliver smart, intuitive, and hyper-personalized customer journeys from discovery to checkout.

That includes helping customers find the right shade without second-guessing, offering real-time product guidance based on individual features and preferences, and ensuring consistency across every channel they shop on.

Bottom line, personalization is no longer just a nice-to-have. It’s how modern beauty brands build trust, reduce friction, and drive performance in an increasingly fragmented and competitive market. Those who fail to deliver personalized experiences risk not only losing the sale but the customer altogether.

➥ The Power – and Profitability – of Personalization

Personalization isn’t just a better experience – it’s better business.

Cosmetic brands investing in personalization aren’t just making their websites more engaging. They’re building revenue engines that increase sales, reduce returns, and drive long-term customer loyalty.

Let’s look at what the data shows:

• 75% of buyers would pay more for beauty products if offered personalized shopping experiences online. (PR Newswire)
• 76% of consumers are more likely to purchase when shown personalized recommendations. (McKinsey & Company)
• 78% are more likely to re-purchase and recommend a brand that personalizes effectively. (McKinsey & Company)
• The market for personalized recommendation tools is growing at a 20.5% CAGR, set to exceed $3.6 billion by 2031. (Insight Ace Analytic)^[1]

And that’s just the start. AI-powered product recommendation engines – one of the most widely adopted personalization tools – deliver some of the most tangible returns:

• Retailers using AI-powered recommendations see an average 15-30% increase in revenue.
• Personalized shopping experiences drive a 40% increase in average order value (AOV) and a 30% boost in conversion rates compared to generic experiences.

So, how exactly do these tools generate that impact?

1. Streamlined Discovery = Faster Conversions

AI recommendation engines cut through the noise by surfacing relevant, tailored options immediately – no endless scrolling, no guesswork. This improves product discovery, shortens the path to purchase, and reduces drop-off points during the journey.

2. Increased AOV Through Smart Upsells & Cross-Sells

Strategic placements like “Customers also bought” or “Frequently bought together” suggestions at checkout help customers build full routines, often leading them to buy more than they originally planned. This translates directly into higher average order value without the need for discounts or aggressive promotions.

3. Higher Retention and Repeat Purchases

Personalized experiences make shoppers feel seen, understood, and valued. As a result, customers return more often and are more likely to trust future recommendations. In beauty, where routine and loyalty play a critical role, this is a major competitive edge.

🟤 A good recommendation engine doesn’t just improve UX – it becomes your 24/7 sales assistant, increasing satisfaction and revenue simultaneously.

In short, AI personalization pays off – not just in better experiences, but in higher revenue, bigger baskets, and stronger loyalty.

It’s the difference between being explored and being chosen.

And as the data shows, the brands embracing it are already pulling ahead.

II. The evolution of personalization in beauty

From in-store expertise to algorithmic precision: how personalization has changed

The early 2010s introduced a new wave of online tools. Brands began using digital foundation match quizzes, skin type selectors, and “build your routine” widgets. While these added convenience, they often lacked the nuance needed to capture each individual’s unique features, especially across diverse skin tones, undertones, or conditions. Moreover, they were subjective and depended heavily on the customer’s self-assessment.

The result? Many consumers were still left with disappointing product matches, returns, or abandoned shopping carts.

➥ Why the old way wasn’t enough

The traditional approach to personalization simply couldn’t keep pace with rising consumer expectations and exploding product variety. With thousands of SKUs across categories, the paradox of choice began to overwhelm rather than empower shoppers. A generic quiz could never fully account for the complexity of undertones, textures, lighting, preferences, or regional differences.

Worse still, this system was inherently exclusive. Many users, especially those with deeper or very fair skin tones, non-binary identities, or skin concerns like rosacea or hyperpigmentation, were left out.

Early personalization tools often failed to provide accurate results, leading to disappointment, poor product fit, and erosion of trust.

And the effects are showing up in consumer behavior:

• 69% of consumers say beauty shopping feels overwhelming. 
• 74% walked away from purchases in the last three months of 2023 simply because they felt overloaded by options.

This sense of overload is also pushing shoppers away from physical retail. The inability to navigate complex product assortments efficiently – whether online or in-store – is directly impacting conversion rates and brand loyalty.

🟤 In short: if the journey feels confusing or exclusionary, today’s shoppers will simply leave – and many won’t return.

➥ Enter AI, AR, and data-driven personalization

The next generation of personalization was ushered in by beauty tech – a convergence of AI, machine learning, computer vision, and augmented reality.

• AI enabled real-time analysis of skin tone, face shape, and user preferences.
• AR offered the ability to try before you buy – without swatching or touching a product.
• Data insights allowed brands to move from guessing to precision: suggesting the right foundation, lipstick, or skincare routine based on real-time inputs.

III. The Business Benefits of Personalization

Personalization isn’t just a UX upgrade – it’s a measurable growth strategy.

In a crowded, high-pressure market, cosmetic brands need more than great products. They need precision. Personalization, especially when powered by AI, allows brands to deliver that precision at scale.

But personalization means much more than showing recommended products. It’s about delivering the right product, experience, and message at the right time – based on real individual needs.

Whether that’s helping a customer find their foundation match, preview a look virtually, or build a personalized routine, AI-powered beauty tech makes it possible to do this at scale.

Let’s break down how this translates into real business value.

1. Faster, Frictionless Product Discovery

In beauty, the paradox of choice is real. With thousands of SKUs and ever-growing shade ranges, customers often feel overwhelmed. And they don’t want to scroll endlessly.

That’s where personalization steps in.

AI recommendation engines cut through the noise, surfacing the most relevant products instantly based on skin tone, concerns, past behaviors, and more. Virtual try-ons and foundation shade finders allow customers to instantly preview shades and styles that suit their skin tone, features, or preferences.

All of this reduces decision fatigue, improves satisfaction, and shortens the time to conversion.

2. Increased Average Order Value (AOV)

Personalization isn’t just about finding one product, it’s about building complete, confident routines. That’s where AI-powered cross-sell and upsell logic, “complete the look” suggestions, and routine builders come in.

But it doesn’t stop there. Tools like Virtual Try-Ons (VTOs) empower customers to experiment across categories – lip, eye, blush, highlighter – and discover complementary products they wouldn’t have considered otherwise.

These interactions lead to larger baskets and smarter purchases, driving up AOV by as much as 40% compared to generic experiences.

3. Stronger Retention and Lifetime Value

When customers find their perfect shade or routine the first time, they’re far more likely to return. Personalized experiences – whether it’s a virtual try-on that showcases the products incredibly realistically or a shade finder that nails their skin tone – build trust and loyalty over time.

And beneath every great personalization layer is data: brands that collect and leverage customer insights can re-engage shoppers with tailored offers, optimize future launches, and reduce churn.

According to McKinsey, brands using AI for personalization report 15–30% revenue growth, thanks to higher retention, repeat purchases, and customer satisfaction.

From Experience to Profit Engine

IV. Monetizing Personalization: The Data Advantage

While AI-powered personalization drives better customer experiences and bottom-line results, it also gives brands something equally valuable: real-time, actionable data.

In traditional in-store environments, much of the customer interaction data is either uncollected or purely observational. But with modern beauty tech – like virtual try-ons, shade finders, and product recommenders – every interaction becomes a data point.

And those data points add up to serious business intelligence.

🟤 In short, personalization doesn’t just serve the customer – it serves the brand. AI tools collect insights at scale, in real time, enabling smarter decisions without additional resources or manual research.

And because these tools are automated, the data collection is ongoing, effortless, and highly scalable – turning every session into strategic input for future growth.

V. Must-Have Personalization Tools for Modern Cosmetic Brands

Personalization isn’t a single feature or widget – it’s a layered strategy that enables meaningful engagement at every touchpoint.

Today’s leading beauty brands are building personalization ecosystems powered by AI, AR, and real-time data. These systems not only enhance customer experience but also drive measurable business results: higher conversion rates, lower returns, greater customer loyalty, and smarter inventory management.

Here are four foundational personalization tools that every modern beauty brand should consider.

a) AI Shade Finder

Reduce returns. Recover revenue. Strengthen loyalty.

Shade matching is one of the most challenging aspects of the cosmetics shopping journey. A wrong foundation shade leads to wasted products, dissatisfied customers, and costly returns.

Therefore, foundation mismatches don’t just disappoint customers. They directly impact your bottom line. Worse still, they often result in lost trust and future revenue.

Traditionally, consumers relied on in-store swatching or static online quizzes, neither of which offers consistent or inclusive accuracy.

AI-powered shade finders solve this in three key ways:

For beauty brands, the ROI is clear: fewer returns, more confident purchases, and stronger customer trust, especially for shoppers historically underserved by generic tools.

b) Virtual Try-On (VTO)

Increase conversions. Lower waste. Maximize ROI.

As online shopping becomes the norm (with 83% of beauty consumers shopping for beauty products online), the inability to test products remains a barrier to purchase.

Key benefits include:

• Improved conversion rates: 70% of consumers are more likely to purchase makeup if they can try it virtually first. In fact, VTO can increase conversions by up to 90%, especially for color cosmetics.
• Reduced returns: VTO minimizes buyer regret and guesswork.
• Sustainability & cost reduction: Reduces the need for physical testers, which are costly, wasteful, and restricted in many regions.
• Enhanced engagement: The interactivity of VTO makes it highly shareable and memorable, boosting both time on site and brand affinity.

For brands, a virtual try-on is not just a sales tool – it’s a marketing asset, a sustainability solution, and a modern customer service feature, all rolled into one.

c) Smart Product Recommenders

Increase basket size. Sell more. Drive repeat purchases.

Today’s beauty consumers face decision fatigue: thousands of products, formulations, finishes, and price points to choose from. Generic product filters no longer meet the demand for fast, accurate, and confidence-boosting discovery.

AI-driven product recommenders deliver:

What’s more, most brands focus heavily on driving new traffic, but smart AI recommenders help you monetize the traffic you already have.

These recommenders transform shopping from a search exercise into a guided experience and allow brands to surface under-discovered products and drive deeper brand exploration.

d) Virtual Makeup Consultation (With Integrated Virtual Try-On)

Deliver guidance. Inspire confidence. Convert faster.

Combining natural conversation with virtual try-on, virtual makeup consultations mimic the experience of speaking to a beauty advisor – only faster, available 24/7, and personalized using real-time data.

Why it works:

• Bridges the gap between self-service and expert consultation.
• Increases purchase confidence, especially for first-time or undecided shoppers.
• Drives higher engagement and conversion, along with longer session times.
• Reduces dependency on in-store staff, extending support 24/7 at no additional cost.

As shopping becomes increasingly digital and mobile-first, scalable conversational guidance is a game-changer for customer support and conversion. And as for brands operating across time zones or without large support teams, this tool can deliver consultation-style service at a fraction of the cost.

So, this is not just a chatbot – it’s a virtual advisor, makeup artist, sales assistant, and product matchmaker. For brands, it means fewer missed opportunities, deeper personalization, and the ability to support more customers without adding human overhead.

VI. The Role of Omnichannel Personalization

Consistency drives confidence – and conversions.

To win their loyalty and their wallet, brands must offer personalized experiences that feel seamless and connected, as well as consistent across all channels.

And when they do, the financial upside is substantial.

Consider the numbers:

• In 2024, the online revenue share in beauty tech e-commerce reached 55%, solidifying the importance of digital-first experiences. (Statista)^[2]
• Mobile browsing and buying are surging: Mobile traffic accounted for 79% of beauty site visits in 2024, while mobile transactions reached 72%, up 4 percentage points from 2022. (Criteo)^[3]
• 57% of beauty shoppers prefer to research online before buying in-store, demonstrating the growing impact of ROPO (Research Online, Purchase Offline) behavior. (Internet Retailing)
• While shopping in-store, almost 80% of shoppers use their smartphones to access the retailer’s website. (EMARKETER)

➥ The Financial Impact of Connected Personalization

Modern shoppers don’t distinguish between online and offline touchpoints. They expect brands to “remember” their preferences across all touchpoints. They expect the same level of service, personalization, and product relevance whether they’re browsing in-store or scrolling through TikTok at midnight.

So, when brands unify customer data and personalize across the full journey, they see measurable improvements:

• Higher conversion rates: When customers see consistent product suggestions and saved preferences across devices, they convert faster.
• Reduced cart abandonment: Saved recommendations and personalized retargeting help bring shoppers back – right where they left off.
• Stronger loyalty: Omnichannel personalization creates a sense of continuity, encouraging repeat visits and purchases.

🟤 According to McKinsey, omnichannel customers spend more and shop 1.7 times more than shoppers who use a single channel.

➥ How Omnichannel Personalization Drives Growth

An effective omnichannel strategy doesn’t just maintain consistency. It enhances performance at every stage.

• Discovery: Tailored product recommendations can be served via social ads, search, or email based on past behavior or inferred preferences.
• Evaluation: Virtual try-ons and shade finders embedded in apps, websites, or in-store kiosks allow customers to experiment whenever and wherever they are.
• Purchase: Smart suggestive selling and bundle offers follow the customer from mobile to desktop or store, keeping context intact.
• Post-purchase: Recommendations evolve with each purchase, enabling relevant follow-ups, refills, or cross-sells.

¬ Technology as the unifying layer

To deliver on this promise, brands must invest in technologies that:

• Unify customer profiles across touchpoints (web, app, CRM)
• Track behavior and preferences in real time
• Integrate personalization tools seamlessly with commerce platforms, marketing tools, and in-store tech

When data and recommendations move with the customer, you gain both efficiency and higher ROI from every tool in your ecosystem.

VII. Addressing the Challenges of Personalization

While the benefits of personalization are clear, executing it well comes with a set of challenges. For beauty brands looking to build trust, scale efficiently, and meet evolving regulations, personalization requires thoughtful planning and ongoing refinement, not just smart tech.

Below are the most critical challenges and how forward-thinking brands are solving them.

a) Data Privacy and Ethical Use

Personalized beauty experiences rely on collecting user data – images, preferences, behaviors, even location. But with privacy regulations tightening and consumer awareness increasing, brands must be transparent and compliant.

Privacy is not just a legal checkbox; it’s a trust-building opportunity. Brands that prioritize ethical AI earn long-term loyalty.

b) Inclusive Design Across Skin Tones and Identities

Many early beauty personalization tools failed to serve users across the full range of skin tones, gender identities, and cultural aesthetics. If personalization is to live up to its promise, it must be inclusive by design – not an afterthought.

🟤 Inclusive personalization isn’t just ethically right, it’s commercially smart. Underserved customers represent a massive, loyal market segment. Read more about it in our comprehensive State of Inclusivity in Beauty report.

c) Brand Voice in Automated Experiences

As brands adopt more automated tools (chat interfaces, recommenders, AI advisors), there’s a risk of losing the emotional tone and brand character that customers love.

Automation must feel like an extension of your brand – not a break from it.

d) Technical Integration and Scalability

For many brands, personalization sounds exciting until it hits legacy systems, fragmented data, or limited internal resources.

Personalization doesn’t have to be perfect at launch, but it does have to be sustainable and scalable.

In short, personalization is not a plug-in; it’s a discipline. Brands that commit to doing it well, with ethics and equity at the core, will earn not just transactions but long-term relevance.

VIII. Conclusion: Personalization Is a Profit Strategy

The beauty industry is no longer just about products; it’s about precision. And brands that understand this shift are outperforming the rest.

From reducing costly returns to boosting conversions, from increasing AOV to driving customer loyalty – personalization is delivering hard business results. It’s not just improving experiences. It’s unlocking revenue.

In other words:
Personalization isn’t just a feature. It’s a growth engine.

Brands that embrace personalization are seeing fewer returns, higher margins, stronger loyalty, and more repeat purchases, without needing to spend more on traffic. They’re making smarter decisions based on real-time customer behavior. And they’re scaling relevance in ways that weren’t possible even five years ago.

Meanwhile, brands that delay risk falling behind – not just in tech adoption, but in profitability, retention, and reputation.

The question is no longer whether to personalize. It’s whether your brand can afford not to.

Turn Personalization into Performance

…WITH ARBELLE’S AI-POWERED TOOLS FOR COSMETICS BRANDS

Virtual Makeup Try-On	Lets customers try before they buy with hyper-realistic beauty AR across all devices.
Foundation Shade Finder	Instantly matches each customer with their ideal foundation shade using real-time AI skin tone analysis.
Product Recommender	Suggests the right products for every individual based on preferences, routines, and behavior.
[BETA] ArbelleGPT	Virtual makeup consultation that combines AI guidance and try-on for a personalized, real-time consultation experience.

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^[1] Insight Ace Analytic. Global Artificial Intelligence (AI) in Beauty and Cosmetics Market 2024. PDF download. Published: May 26, 2025. 

^[2] Market Insights by Statista. Beauty Tech eCommerce: market data & analysis. PDF download. Published: 2024.

^[3] Criteo. The State of Health and Beauty. PDF download. Published: 2024.