It’s no secret China’s beauty sector has incredible potential, valued at USD 6.34 million in 2020 the industry is estimated to be growing at average rate of 12% per year. As the country’s largest group of consumers, millennial and Gen Z, increase their purchasing power and come of age, the region has become irresistible market to beauty brands from all over the world. Potential for growth isn’t the only thing brands should be excited about — it’s how China’s sophisticated digital ecosystem and fast-adapting consumers are revolutionizing the way beauty brands create, market and sell products.
At Gusto Luxe, we have been carefully observing beauty brands and their customers in China over the past decade through our work developing and executing China marketing strategy for some of the world’s best-known beauty brands. Over the past year we have identified three distinct trends unique to China which are disrupting the beauty sector.
We see these trends as fundamentally changing how consumers discover, purchase and interact with beauty brands and products. Platforms such as Douyin are becoming heavily content-led as opposed to network-led, feeding users algorithmically derived product recommendations based on their content consumption habits. Metaverse technologies, virtual idols and advanced gaming experiences are creating new opportunities and new occasions for consumers to interact with beauty products. Evolving consumer behavior is resulting in a growing demand for emerging products, new opportunities for niche brands as well as new category opportunities for established brands.
Below, we outline three disruptive trends China is leading in the beauty sector and how brands can approach these trends to create opportunities. We will also introduce how Gusto Luxe has leveraged these disruptions to support our clients in China to thrive.
1. TAPPING INTO A BOLDER DIGITAL ECOSYSTEM
Among China’s ecosystem of social media and ecommerce platforms, two in particular have emerged over the past several years as crucial channels for beauty brands to build awareness and increase conversions — Xiaohongshu, also known as Little Red Book or ‘RED’ and Douyin, China’s version of TikTok. Both platforms, well known for product discovery have also proven to be strong ecommerce contenders as well. Between January to November 2021, Douyin’s GMV for cosmetics sales on the platform reached US $57.9 billion, nearly double what the largest ecommerce platform, Tmall, recorded for the same period.
Why Douyin is such a powerful ecommerce player
With monthly active users swiftly approaching 1 billion, Douyin has become the most influential short video platform in China. The platform has captured the attention of China’s largest consumer group, many of whom reside in tier 2, tier 3 cities which are experiencing rapid economic growth. Douyin’s ecommerce success is attributed to its unique model of ‘interest ecommerce’. Interest ecommerce focuses on consumer interest as the starting point and uses targeted marketing to meet consumer needs instead of allowing users to decide what content they consume based on a pre-existing network.
The core of such model is to help users discover their potential needs proactively and accurately match those needs with products. Douyin’s algorithms allow the app to understand customer needs more effectively and provide users customized content related to their interests and preferences. For example, suppose a female user browses 3 to 5 skincare videos daily within a certain period — Douyin’s algorithm will determine that she has a strong interest in skincare and recommend more videos of skincare products taking into account her age and previous purchase history. In addition to a highly sophisticated algorithm, in 2021 Douyin launched its own payment solution – Douyin Pay to close the loop on its ecommerce operation.
With ‘interest ecommerce’, beauty brands can capture potential consumers more accurately and efficiently. This has become particularly attractive to brands who have been bearing the weight of steadily increasing customer acquisition costs from large ecommerce platforms such as Tmall.
Douyin and RED form the building blocks of a newly emerging multi-platform strategy
Beauty brands are using RED in conjunction with Douyin as part of a multi-platform strategy. Successful brands are leveraging the two platforms using a ‘sow with RED, reap with Douyin’ flow. While RED has fewer registered users than Douyin, the platform is an important destination for beauty shoppers. Makeup and skincare have consistently been two of the most popular content categories on RED. According to qiangua.com, in May 2022, all makeup-related posts received 193.33 million interactions, while skincare-related posts received 119.97 million interactions.
Brands tap into their official account to push content and live-streaming to followers as well as leveraging dynamic influencer-seeding strategies to generate a buzz among potential customers. Lancôme has mastered this strategy, leaning heavily into live-streaming in particular they have amassed 2.38 million followers on Douyin already. This helped them to post a record-breaking US$1.5 million in sales during the 520 (Chinese “I love you” Day).
photos via Douyin
While Lancôme’s strategy for staggering success may not be sustainable, nor achievable for smaller brands, the sophisticated social commerce nature of RED and Douyin are attractive for independent, niche beauty brands. Through a well-planned content, influencer and community-building strategy these two platforms provide a faster, more economic path to success both in terms of sales and brand building than traditional ecommerce platforms such as Tmall have in the past.
2. BECOMING WEB 3 LEADERS
Beauty brands in China are becoming Web3.0 natives. Compared to luxury fashion brands, most of which are still skeptical about the metaverse experience, beauty brands are embracing it, whether it’s gaming, NFT or virtual idols. Thanks to the growing base of young digital natives in China, who are also becoming the category’s top spenders, beauty brands are finding it imperative to engage these consumers through new emerging mediums.
Beauty x Gaming; an Untapped Market in China
Several years ago, the idea of Esports IPs teaming up with beauty brands might not have made sense to anyone, but the brands who did their research are reaping the benefits today. A report on the Chinese Women’s Gaming Industry estimates that by 2023 China will be home to 396 million female gamers. This is big news for beauty brands, especially during special occasions such as 520 (Chinese “I love you” Day) as well as large shopping festivals throughout the year where collaborations with gaming IPs and/or eSports players can provide brands with the opportunity to reach a new audience and delight loyal fans.
Most recently YSL sponsored the most important championship of China’s League of Legends game. Local skincare brand OSM (欧诗漫) collaborated with Tencent’s popular game Honor of Kings, which received great social media reactions and generated US$ 291,000 in sales.
Esports not only allows for beauty brands to tap into a new audience of consumers, but it also creates a new opportunity for existing users to interact with products, both virtually and in-person. Renowned luxury skincare brand La Mer also leveraged the domestic mobile game League of Legends (LoL) to offer gamers personalized profile images to use within the game, frames, and other surprises such as a limited edition co-release gift box.
The New Beauty Influencers go Virtual
Pixel-perfect is becoming the new picture-perfect standard for beauty influencers in China. Virtual idols offer beauty brands a range of opportunities such as customization, and (this is a big one) security. Second, virtual idols are easier to manage, in terms of both schedules and risk, and can be tapped for a range of different service offerings. A virtual idol can be available for 24/7 live-streaming and client services, all while avoiding devastating scandals so many real-life influencers have found themselves in. Virtual idols can also help to position a brand as forward-thinking and tech-savvy, a plus for attracting young consumers and investors.
There are many examples of beauty brands who have collaborated with, or even built their own, virtual influencers. K-beauty label Laneige named China’s first virtual male icon @Chuan as its spokesperson. M.A.C. launched “Lightful C3” product line through an ambassador deal with up-and-coming virtual influencer, Ayayi. Domestic brand Floraris launched their own virtual ambassador 花西子, which shares the same name as the brand itself, a fashionable and classic oriental woman. Her temperament comes off as an effortless blend of natural confidence and grace.
@Chuan for Laneige via Xiaohongshu (RED)
M.A.C x virtual idol Ayayi via Xiaohongshu (RED)
Florasis virtual idol via Xiaohongshu (RED)
In the future, the virtual idol 花西子 will form into a richer personality, with her own thoughts, behaviors and values. She will become an important bridge for the emotional connection between the brand and consumers.
Gusto Collective, holding company of Gusto Luxe has also launched a metahuman platform into Mainland China with “AjA”, a female urban-sports-focused high-fidelity metahuman. AjA already has partnerships with some fashion brands and in the future may work with Esports brands as well as beauty brands who are looking to reach China’s young, Gen Z consumers.
What Brands Should Pay Attention To
As Gen Zers increasingly feel more embodied in the digital realm, they will demand their metaverse selves to be equally as expressive, creative, and curated as they are in the real world. This will create a new realm of opportunities for brands to bring about new products and product experiences which can overlap both the digital and physical world.
While these new technologies are an exciting opportunity for brands, it is still important to closely monitor Beijing’s ever-changing position on the metaverse and the particular regulations that may impact how consumers interact with Web 3.0 solutions. The Gusto Luxe Corporate Advisory team ensures we stay up-to-date on topics like this so that we can anticipate future shifts in the industry for our clients.
3. EMERGING PRODUCT CATEGORIES PROVIDE NEW OPPORTUNITIES FOR BRANDS IN CHINA
Chinese Gen Z and millennial consumers are unique in the sense that they are dramatically different from the generation before them, both in the way they shop and preferences. They are looking for products and brands which can help give them a distinct sense of self identity. Whether it is Gen Z males tapping into men’s skincare, premium haircare or niche fragrance, the untapped opportunity for brands lays in exploring categories within the beauty market that can be a popular tool for Gen Z to express their true self.
Niche Fragrance Emerging as a Key Category within Beauty Sector
Among these new categories, niche fragrance in particular has caught the attention of many brands. Mintel has forecasted the Chinese fragrance market to grow at an accelerated compound annual growth rate of 17% over the next five years, meaning sales are slated to more than double between 2020 and 2025 from US $1.1 billion to US $ 2.4 billion.
What makes this category particularly interesting is the emphasis Gen Z consumers are placing on the ‘niche-ness’ of a fragrance. They aren’t particularly invested in whether a niche fragrance is tied to a major luxury brand or is part of a larger beauty group, but they want it to be niche and special enough to help them stand out from others. This is where new brands with unique scents and distinctive product names have been seizing on the opportunity to gain market share. To win the hearts and noses of Chinese consumers in this increasingly competitive category, brands should focus more on localizing through developing unique scents and clever collaborations.
The consumption of beauty in China is largely driven by Millennials and Gen Z, rapidly evolving and hyper digitalized generations who are holding brands to a high standard. “Brands often find themselves in a precarious position in China, misguided or untimely localization attempts can derail even the most respected brand,” says Chloé Reuter, Founding Partner and CEO, Gusto Luxe, Founding Partner, Gusto Collective. “ With the Chinese border closed since March 2020 it’s more important than ever for us to provide guidance, consulting and support to our partners and clients who are unable to travel there in person. Despite these challenges we are really confident about the Beauty Industry in China and its growth and future potential.”
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