A new breed of young, Chinese, digital direct-to-customer brands are scaling at amazing speed by leveraging China’s thriving e-commerce and social sectors. It normally takes decades to build brand awareness, but these companies are leveraging social media to get to scale at tech-like speeds.
A key factor in their rapid growth is an online-focused marketing strategy that includes content marketing across platforms driven by social media influencers, known in China as key opinion leaders (KOLs).
Budget Chinese direct-to-consumer cosmetics brand Perfect Diary took just five years to get from start to an IPO that raised $617 million in New York debut in November. It leveraged a dedicated KOL strategy laser focused on China’s social media-savvy consumer generations. The five-year-old brand quickly became a household name and a top seller in the color cosmetics category. It came to account for 4% of China’s color cosmetics market, trailing only L’Oreal and LVMH’s combined 20% market share in 2019, according to a Euromonitor report from June.
Built on social
Perfect Diary first gained recognition on social media network Xiaohongshu, also known as RED, through a KOL-focused strategy. It paid media influencers from movie stars, top KOLs, and lesser-known KOLs to generate product review videos and notes about their products. Later, it expanded to other platforms to build a profile that now spans Tencent’s WeChat, ByteDance’s Douyin, and Bilibili.
To launch a new perfume in 2019, the company cooperated with a pyramid of 150 influencers and spent at least RMB 80,000 on promotions for the product on the Xiaohongshu platform. As of September, the brand had collaborated with nearly 15,000 KOLs of varying popularity with different follower bases.
- December 2016: Huang Jinfeng, previously the COO of Chinese skincare brand Unifon, founded Perfect Diary in Guangzhou as an e-commerce-based cosmetic brand targeting young Asian female users.
- November 2018: Perfect Diary is the first brand to reach RMB 100 million in gross merchandise value (GMV) on Tmall in the color cosmetics category on Singles Day that year.
- June 2019: Parent company Yatsen Holdings expands product lineup by acquiring cosmetics brand Little Ondine.
- December 2019: The Guangzhou-based company is reported to set the goal of opening 600 stores within three years.
- April 2020: Yatsen receives $100 million financing from Boyu Capital and Tiger Global Management at a $2 billion valuation.
- June 2020: The company launches its third brand, Abby’s Choice, to focus on “masstige” skincare products, or prestigious products for the mass consumer.
- September 2020: Yatsen receives a $140 million strategic investment from Loyal Valley Capital, The Carlyle Group, and Warburg Pincus at a valuation exceeding $4 billion.
- November 2020: The company raises $617 million in its listing in its New York debut. The prospectus showed its net revenues nearly doubled to RMB 3.27 billion ($481.9 million) in the nine months ended September from RMB 1.89 billion in the same period a year earlier. The company had a combined 23.5 million customers as of end-September.
The rise of Perfect Diary is an example of the growth potential of young Chinese online brands. Others include fashion brand Shein, cosmetics rival Florasis, and ice cream brand Zhongxuegao.
The popularity of KOLs, increasingly the source triggering purchases, is beginning to create opportunities for brands to declare independence from major e-commerce platforms like those run by Alibaba. Some have started to move customers to new platforms like Wechat stores, which give the brand more control of the relationship.
Kim Leitzes, chief executive of influencer marketing platform Parklu, learned respect for KOLs the hard way. When she moved to China in 2010, she struggled to navigate the Taobao jungle, spending up to eight hours a week to do research for what is worth buying, reading reviews, chatting with the sellers, ordering, and returning some time.
“It was quite a process for e-commerce” for Leitzes. Eventually, she decided to start a blog about what was best to buy. The efforts eventually evolved into Parklu, a play on Park Avenue, a point of connection. From the experience of creating content and growing an audience, she began to learn the power of influencers, who then were referred to as bloggers.
KOLs, usually lifestyle models who buyers look up to, helped a generation of Chinese consumers find the wheat in mountains of chaff. The rise of brands like Perfect Diary is the latest solution to option overload.
Parklu is an analytics platform that helps brands to match, manage, and measure their KOL-focused marketing strategies in China. The Shanghai-based firm specializes in the fashion, luxury, and beauty industries and covers more than 100,000 KOLs across all of China’s major social media platforms.
Responses below have been edited for brevity and clarity.
TN: What makes Chinese online-first brands so remarkable?
KL: We call it China speed. During the information age, news spreads quickly. The first reason behind the change is structural and only e-commerce makes this possible. Brands relied on retail distribution channels many years ago. Beauty brands had to sell through a department store, which took time to build out the physical presence and train retail staff on that whole distribution model. The second thing is that there’s been a tactical change where social media has made it possible to build direct and consumer brands very quickly. In a not-too-distant time ago, a lot of the sales revenue was still happening offline even though there was e-commerce. A lot of customer acquisition didn’t have the targeting and precision power of social channels, so the whole customer acquisition model was slower. Now you have so many formats where you can reach consumers directly, and therefore scale and grow much faster.
The real secret sauce to these direct-to-consumer brands, particularly in China, is that they experiment and iterate. If they decide on Friday they’re going to launch a new campaign, it could be live as soon as Monday. On the contrary, brands that existed before this social commerce age may make marketing plans one year ahead. There’s not a lot of experimentation happening on a day-to-day basis. But what you’ll see with these online first brands, they’re not necessarily trying to plan every nuance and they’re able to execute much faster.
In the case of Perfect Diary, they cooperate with the entire spectrum of influencers from celebrity to top-tier KOLs to mid-tier KOLs down to KOC (key opinion consumer). Some people might think that the growth of these brands is purely fueled by overzealous venture capital, but behind it they’re experimenting and iterating tactics that haven’t really strictly scaled until now. There’s a long list of things that they’re deploying, ranging from private traffic to virtual influencers, to KOC marketing.
TN: A lot of online sales happen on major platforms like Alibaba, JD.com, and Pinduoduo. Do these young Chinese brands want to sell using their own sales channels, such as WeChat mini program stores or self-run sites, which allows for independence? How will it influence their branding and marketing campaign strategies?
KL: The process will be pretty slow for China’s e-commerce to become more fragmented, instead of concentrated on major e-commerce marketplaces. For any brand, to decide moving to a homegrown e-commerce model, they have to answer the question of whether they are able to balance the cost benefit for acquiring that traffic for their own site, or whether it has a better ROI in the long run than on mainstream e-commerce marketplaces like Tmall. It takes time for that math to work. Most of our clients operate across different platforms: their own sites, WeChat stores, and Tmall flagships. They still see a majority of traffic going to Tmall because the Chinese consumer has the habit to search and do their e-commerce purchases there.
For e-commerce challengers like WeChat’s mini program stores, the brands would come up with a differentiated e-commerce experience. Through buying from the brand directly, the consumers should get a different kind of product, for example. There should be a reason to drive the change.
TN: Some expect that these young Chinese brands will only be popular for a short time relative to traditional brands. What are your tips for longevity?
KL: The modern consumers—whether they’re Gen Z or millennial—want to buy brands that they identify with. For example, the reason KOL marketing works is because they have built up a community of fans and followers who identify with them. When a brand works with that KOL, they’re opting into that mindset and that trust factor. In many ways, the sustainability of any brand comes down to who and how are they nurturing that community. It doesn’t necessarily mean that brand building is just an exercise of beautiful, professionally generated content. It’s also encouraging the voices of actual customers and promoting KOL content. It’s across the spectrum, but certainly, it is very much about knowing your customer, and making sure that not just the content you as a brand create speaks to them but also your biggest advocates, your KOLs, are also doing that as well. It’s not just a bunch of buzzwords. It can also be measured in terms of the content and conversations about a brand.
TN: Let’s take a peek under the hood. What is the matching process for KOLs and brands?
KL: For Parklu, the actual matching process is done through five factors based on an algorithm that we’ve developed over the past several years. We look at KOL relevancy, their advocacy, content quality, community—which is primarily about engagement factors—and audience demographics, location, age, etc. Each of the five factors are further broken down. We do both pre-campaign evaluation for KOLs and then analysis for the post-campaign performance. To help a sportswear brand to find a KOL, for example, the system would analyze amongst the brand library of fitness and sportswear products, and relevant keywords mentioned by the KOLs. Does the audience engage more or less, or positively or negatively compared to other content as well as the changes in average benchmark metrics.
TN: Content, including text, videos, and livestreams, are driving e-commerce growth. What’s the next big content format?
KL: We call that the advent of video-driven commerce, or v-commerce. We really believe we are just getting started. The adoption of 5G will accelerate to e-commerce. You see companies like ByteDance were doing such an incredible AI recommendation engine with a commerce mindset. It’s certainly for entertainment and surprise but ultimately that connection with commerce is the foundation as they build out that platform.