The underlying logic of Xiaohongshu's marketing

As a marketer who talks about Xiaohongshu, why do I talk about "transaction costs"? Because transaction costs are not only the underlying operating principle of society, but also the underlying logic of marketing.

Transaction costs were mentioned by Harry Coase in a paper entitled “The Nature of the Firm” published in 1937 when he was 27 years old. Coase studied why enterprises exist? The conclusion is simple: the reason why enterprises exist is that they reduce social transaction costs.

Transaction costs can also be understood using the "law of demand" mentioned by economists, which is a basic law that when prices rise, demand decreases.

The "price" here is not just a figure of money paid, but includes various decision-making and transaction costs such as consumer search, comparison, and identification. The "quantity" here not only refers to the quantity, but also refers to the multiple dimensions of evaluating things.

The transaction cost principle is the first principle of the enterprise, which can explain and guide all the work of the enterprise. The work of the enterprise is mainly divided into two categories:

1. Reduce internal transaction costs: Use management methods, such as designing organizational structure, operating management system, reward and punishment mechanism, and partnership system to reduce internal communication costs.
2. Reduce external transaction costs: All marketing actions taken by the brand are aimed at reducing transaction costs. Using nicknames in names, animals in logos, human language in copywriting, and clear usage rules on packaging are all aimed at reducing external transaction costs.

Reducing internal transaction costs is achieved through management, while external costs are solved through marketing. As a marketer, reducing recognition costs, memory costs, reading costs, comprehension and communication costs can be applied not only in brand naming, logos, advertising slogans and creativity, but also in Xiaohongshu’s marketing communications.

To reduce marketing costs, you can refer to the four types of H&H consumer audiences - buyers - experiencers - communicators, and reduce corporate transaction costs at each node.

Figure 1: H&H’s classification of consumers into four roles

At the same time, combined with the user’s contact points on Xiaohongshu, we use the Xiaohongshu user-conversion model to understand it.

The first level is exposure. By combining platform trends and social topics, the exposure is expanded through official pageview tools and KOL screening and traffic tool targets. He is very confused about this audience status.

The second level is to increase clicks, by displaying the cover and title, to increase click-through rate; the third level is to increase interaction rate through selling points/controversies/personal feelings; the fourth and fifth levels are search/conversion, by making purchases directly on e-commerce platforms.

Compared with the four consumer roles of H&H, Yinxiang’s understanding of the population is mainly at the first two levels.

The following focuses on analyzing the methods to reduce transaction costs at different stages.

Figure 2: User content-conversion model for Xiaohongshu

1. Audience

That is to say, when it comes to exposure, the audience is confused and needs to be stimulated, especially instinctively, and the thing to be done must be relevant to him.

Therefore, when creating notes on Xiaohongshu, you need to make use of platform trends, social topics, and keyword tools to find topics that this user is interested in, and use information flow tools to expose the content to more potential users. At this time, use keywords of questions that consumers want to know and are familiar with to reduce user contact costs.

Secondly, stimulate users' interest in reading and clicking through the cover and title, and use attractive and problem-solving titles and covers to reduce the cost of user loss. If we are selling health products, we should write relevant keywords in the title or cover to let users know that this matter is related to them.

In addition, when writing titles and texts, try to use colloquial language to reduce users' reading difficulties and the cost of missing notes. In content creation, adopt a narrative style, continuously test content, find the notes that best suit the brand, and reduce reading costs.

2. Buyers

The core characteristic of a buyer is that of an information seeker in a shopping environment. If consumers see notes on the site and become interested, they should try to complete the purchase on the site. If they are guided outside the site, you can use the comments section to tell users to buy on Taobao to reduce search costs.

If a customer sees a product outside the site and searches for it on Xiaohongshu, the note will inform the user of the selling points, allowing the customer to make a quick decision.

During the buyer stage, brands should make good use of product packaging resources, treat products as the largest media, and turn products into super symbols. When influencers promote products, the product packaging will be exposed to form a memory point. For example, Xiaoxiandun, Santonban, and Xiaoguancha all differentiate themselves from their competitors through packaging.

Figure 3: Xiaoxiandun, Santonban, and Xiaoguancha packaging

3. Experiencer

Users purchase products based on recommendations, and then move on to experiencing the product. For the experience phase, you can refer to the catering experience methodology.

Before coming: create expectations by promoting products and buying them.

To create surprises. For restaurants, it means that users are surprised when dining, whether in dishes or in the ceremony. For people who use the product on Xiaohongshu, it means that they are surprised during use.

For example, after the Xunyu Aromatherapy user has lit the cigarette for a period of time, there will be a ring, which is a small surprise. After the consumer feels surprised, it will also be inspired to share. The user can share for free once, which reduces the transaction cost.

Figure 4: Interpretation of the Aromatherapy Ring

After leaving: worth remembering, happy to talk about, users are willing to discuss it with their friends. Corresponding to Xiaohongshu, users will spread the information after using it.

4. Disseminator

The key to communication lies in transmission, which is essentially a matter of transaction costs. For example, if it costs 100 yuan to acquire one customer, but after using the product, he shares it with 9 other people, then our transaction cost is 10 yuan. After these 10 people use the product, they share it with 90 others, and the transaction cost becomes 1 yuan. This is the charm of word-of-mouth marketing.

If a product cannot achieve self-propagation, the transaction costs will only get higher and higher, and eventually you will not be able to afford the advertising fees. This is the reason why many new consumer products die. Because many users buy the product just to try it out and have no way of spreading the word on their own, the cost of attracting new users eventually becomes increasingly high and the revenue cannot cover the cost.

In the communicator stage, on the one hand, you must ensure that the product is really easy to use and solves user problems, that is, your product is indeed very good; on the other hand, you must plan and send word of mouth to consumers, think about how to spread my product, design a sentence for consumers to spread, or the packaging can allow users to spread, so as to achieve the effect of person-to-person spread.

In this regard, many brands that are promoted on Xiaohongshu are not up to standard. Their names are difficult to pronounce, and some are even super long English names, making it difficult for users to spread the word, which is undoubtedly self-defeating.

At this stage, while spreading the word, it is necessary to leave behind results and encourage users to leave notes on the platform. For example, Xiaoxiandun and Santonban call on users to share spontaneously and form a word-of-mouth effect.

Transaction cost is the underlying logic of Xiaohongshu's marketing. In marketing, it reduces reading costs by selecting topics that are highly recognized by users from the cover and title, and encourages more users to read the text through colloquial language, thereby generating purchasing actions.

During the usage and dissemination stage, more users are encouraged to share, thereby reducing brand communication costs and ultimately bringing marketing communication costs to zero.