Perfect Diary’s offline promotion method!

Perfect Diary is one of the brands that researchers in the new consumption field focused on in 2019.

Three years ago, this brand made its debut on the social e-commerce platform and ranked first among cosmetics brands on Tmall’s Double 12 in just 18 months.

Since 2019, whether it is 618, Double 11 or Double 12, the first place in the cosmetics category has been occupied by this newcomer. During this period, there were also reports of support from well-known investment institutions such as Hillhouse Capital and Sequoia Capital, with a valuation of US$1 billion.

Such hidden and rapid growth has attracted the attention of peers.

At the end of December 2019, I once again saw a report about Perfect Diary in Jiemian News.

This is a new store news. Perfect Diary’s 36th offline direct-operated store is located in Wujiaochang, one of the top ten commercial centers in Shanghai. It is said that the brand plans to expand into 100 cities and open 600 offline stores in the next three years.

Seeing this, some questions linger in my mind:

1. How can new brands emerge in the highly competitive beauty industry?
2. What has helped Perfect Diary rise to prominence?
3. With the support of social e-commerce, why does Perfect Diary want to go offline?
4. After the integration of online and offline operations, what will be Perfect Diary’s biggest anxiety?

01 Why can it rise in a highly concentrated industry?

This story begins in 2016 when Perfect Diary was founded.

That year, consumer big data company Syntun said that online cosmetics sales in Q1 increased by 46.4% year-on-year, and annual online sales are expected to exceed 50 billion, a year-on-year increase of 27.4%.

But at that time, the industry presented a highly competitive landscape:

The first is the high category concentration. According to 360 big data, facial, lip and eye makeup are the top three makeup categories in terms of popularity, accounting for nearly 90% of the total search volume.

The second is the high brand concentration. According to Euromonitor’s statistics that year, the top 10 brands in the domestic cosmetics market had a market share of 64.6%. Compared with other major categories in the cosmetics industry, such as skin care, body care, facial care, etc., this data is among the highest.

Does this mean that the barrier to entry for new entrants will be higher? Huaxing Capital mentioned in an industry research report:

If we had to use one word to describe the cosmetics industry, we think it would be "segmentation", which is far more highly segmented and dynamic than other industries. Segmentation has created an unparalleled long tail in the cosmetics industry - there are always opportunities for small brands, new brands, and entrepreneurs.

Yes, VC institutions still think this industry is worth investing in.

That year, Pinguan.com and Qipan Capital jointly released the "2016 China Cosmetics Investment and Financing Report". The report shows that 79% of the investment and financing in the cosmetics industry from 2006 to 2016 took place in the last five years, with 46% occurring in 2014-2016.

Amid seemingly red ocean competition in the industry, capital sees some room for growth.

For example, industry concentration is high but attention is low. Among the top 10 brands, consumers do not pay the same attention to them. These brands accounted for less than 40% of 360 industry searches that year.

For example, the growth of domestic brands is visible to the naked eye. Euromonitor data shows that in 2016, the market share of the top 10 domestic brands in the cosmetics industry reached 10.7%. This figure was only 4.3% in 2011.

With the direction of niche product segments and space for the development of domestic brands, this economic era has created opportunities for the birth of a new cosmetics brand.

If Perfect Diary hadn’t become popular at this time, another brand would have become popular. Just like the brands that grew up in those years, there are also HFP, Huaxizi, Magiray, etc.

02 How to control the operational rhythm of social e-commerce?

It should be noted that the online channels in the cosmetics industry have always been a value gap. Take 2018 as an example. The top 10 brands in the cosmetics industry in terms of online retail sales had a market share of only 18.9%.

The concentration of the online industry is not high, which provides an opportunity for new brands to enter the online market. Looking at the development history of Perfect Diary, didn’t it start with the help of Xiaohongshu social e-commerce? Since its launch in 2013, Xiaohongshu has accumulated over 200 million active users born in the 1990s and 1995s. This group of people enjoys browsing and sharing UGC content such as reviews, strategies, tutorials, etc., and slowly develops a desire to consume in the process.

Many beauty brands are happy to "plant grass" on this platform. The old domestic brand Pechoin has 34,000 fans on Xiaohongshu, while the international brands L'Oreal and MAC have around 200,000 fans.

But these seem insignificant compared to Perfect Diary, which has 1.75 million followers and more than 140,000 notes across the platform.

Screenshot from Xiaohongshu App

Perfect Diary launched its Tmall store in July 2017, but sales did not improve much in the following months. The turning point was in February 2018.

This month marks the beginning of Perfect Diary's focus on operating Xiaohongshu. At that time, Perfect Diary, which had just entered the market, performed mediocrely on social marketing platforms such as Weibo, Bilibili, and Douyin.

All operations are purposeful. For Perfect Diary, Xiaohongshu may mainly be used to divert traffic to the two shopping festivals.

For example, from September to October 2019, Perfect Diary launched a batch of new products. During this month, it vigorously promoted 1-2 of these products on Xiaohongshu.

The delivery of this is also very rhythmic:

• Early stage: Use elite bloggers to raise topics and create momentum
• Mid-term: Introduce small and medium-sized bloggers to participate in the discussion
• Later stage: A large number of ordinary consumers and individual bloggers speak out

In an analysis, Growthbox divided the users of Xiaohongshu into seven levels: celebrities, well-known KOLs, top influencers, mid-level influencers, junior influencers, amateurs, and passers-by.

Through statistics of single-time delivery data, Perfect Diary's delivery ratios for these seven levels of users are 0.1%, 0.1%, 0.3%, 4.6%, 10.2%, 15% and 69.4% respectively.

Such a ratio is certainly not a golden rule, but how to gradually make a topic explode is what many consumer brands should learn from Perfect Diary. The effectiveness of all these initiatives will be revealed during the upcoming Double 11 Shopping Festival.

Perfect Diary's parent company Yatsen E-Commerce later released the following information:

In the 28th minute of the Double 11 event in 2019, Perfect Diary’s sales exceeded the entire day of Double 11 in 2018, making it the first cosmetics brand on Tmall to exceed 100 million yuan in sales . Its full-day performance also made it the first domestic brand to top the Tmall Double 11 cosmetics list.

Of course, in addition to Xiaohongshu, the operations of platforms such as WeChat, Weibo, Douyin, and Bilibili are also being copied by Perfect Diary. Presumably, in March and April of this year, Perfect Diary will launch a large number of new products for social operations to accumulate momentum for Tmall 618 in 2020.

03 Some internal abilities are needed to play online

A quick look at Perfect Diary’s marketing strategy seems to be similar to that of other emerging brands. But why can only this one brand emerge from the same routine?

Lu Xun said, there is no such thing as genius. I just spend the time others spend drinking coffee on work. We cannot attribute the success of every brand to genius and luck. All fruits have their causes.

Qu Fang, founder of Xiaohongshu, once said when commenting on the rise of national trends represented by Perfect Diary that they "combine good looks and cost-effectiveness, and focus on interacting with consumers."

Appearance, cost-effectiveness, and consumer interaction, it all hits the mark.

Perfect Diary’s founder Huang Jinfeng is a low-key person. He did not even speak at the unveiling ceremony of the company’s new retail center headquarters in Shanghai. But from the integrated media information, we know that this person has a Harvard MBA, COO of Yu Nifang and Procter & Gamble and other qualifications.

He can be considered an industry veteran who resigned to start his own business, so he should have good connections upstream and downstream of the industry chain.

For example, at the very beginning, Perfect Diary was able to cooperate with COSMAX, the largest cosmetics manufacturer in South Korea, whose cooperative brands include YSL, DIOR, L'Oreal, Shu Uemura, etc.

This picture shows some of COSMAX's partner brands, Baidu Image

Competition in the business world is like a card game, where winning or losing in each link depends on the "comparative advantage" of the cards. Perfect Diary has such a "comparative advantage" in building the upstream supply chain.

First of all, the superior supply chain provides guarantee for Perfect Diary’s beauty

Taking the eye shadow series developed in collaboration with China National Geographic magazine as an example, the "Red Danxia", "Pink Plateau", "Blue Lakes" and "Colorful Terraces" products are known as the "beautiful collaboration" among young people.

Beauty is justice.

360 Cosmetics Network once wrote an article stating that paying for a product’s appearance is most evident among people born in the 1990s and 1995s. This has become the norm. Dyson sweepers, Forbidden City ice cream, Nayuki Tea and even Weilong spicy strips are all impressing young people with their appearance.

Perfect Diary and National Geographic magazine's co-branded eyeshadow series, Baidu Image

Secondly, the superior supply chain provides a guarantee for Perfect Diary’s cost-effectiveness

The appearance economy has a bottom line. Among this group of young people, in addition to being good-looking, they also need high cost-effectiveness. Xiaomi mobile phones have always advocated cost-effectiveness, and their shipments have remained in the top 5 in recent years. By integrating the supply chain to reduce costs and increase efficiency, as well as keeping the hardware gross profit margin below 5%, Xiaomi phones have always been affordable.

The early stable OEM factory made Perfect Diary’s cost-effectiveness obvious to all. Feng Qiyao, president of its new retail division, once said: "There are two ways to make money. One is high profit with low volume, and the other is low profit with high volume. Perfect Diary belongs to the latter."

According to media reports, Perfect Diary is also preparing to build a cosmetics production base, which is expected to become the largest cosmetics production base in Asia after completion.

In this way, the establishment of its own supply chain system is likely to further improve its cost-effectiveness.

Of course, cost-effectiveness does not come entirely from supply chain integration, but also depends on the company's pricing strategy.

According to Diao Ye, Yang Yin, CEO of Afu Essential Oil, once bought Perfect Diary lipstick. This product, which costs nearly 30 yuan, is worth only 60 yuan, and the markup rate is 2 times.

In the traditional cosmetics industry, the markup rate generally remains at 10 times. That is, if this lipstick is sold by other brands, it might cost 300 yuan.

Finally, where does the ability to interact with consumers come from?

Another emerging domestic brand that has done a good job in interacting with consumers is Jiang Xiaobai. Rap, street dance, graffiti, animation, this new player in the traditional liquor industry is interacting enthusiastically with a group of young people.

In my previous signed article on Huxiu, "Reflections on Jiang Xiaobai's Innovation Genesis", I believed that this was not the ability of Tao Shiquan, but the credit of the group of employees in the office building whose average age was less than 26 years old.

At the subway station downstairs from Jiang Xiaobai Building, tens of thousands of people pour out from underground every morning. "If you see someone wearing flip-flops, with tattoos on their arms, etc., he must be working for Jiang Xiaobai."

Jiang Xiaobai interacts with young people through activities such as graffiti, Baidu Image

This group of people comes from the main consumer group itself, and they understand the market as well as they understand themselves. Coincidentally, Perfect Diary has about 1,300 employees, and more than 80% of them are born after 1995.

At the end of that report, Huaxing Capital said that the core selling point of cosmetics is still "hope", and in terms of core capabilities, marketing is greater than R&D. Perfect Diary relies on over 80% of people born after 1995 to find young people online, which can be considered an advantageous card.

04 The practical logic behind offline implementation

Data for this industry for 2019 has not yet been updated.

Just in March 2019, the China Business Industry Research Institute released a list of the market share of the top 10 online brands in the industry. Among them, Perfect Diary ranked second with Maybelline with a share of 2.7%, only 1 percentage point behind MAC.

But in January of this year, Perfect Diary opened its first offline experience store in Guangzhou Zhengjia Plaza. This beauty brand, which grew up through social e-commerce, also announced that it will open 600 stores in 100 cities in the next three years.

How feasible is it?

When we answer this question, we are actually answering the question "Why are online brands moving offline?"

Perfect Diary offline experience store makeup trial scene, Baidu image

When Zhang Liaoyuan of Three Squirrels planned to open 1,000 stores in 2020, he explained the logic of offline operation:

Although online virtual shelves can display enough products, users do not have enough depth when browsing. They usually only accurately select those products that are more popular, that is, the best-selling products. But generally speaking, hot-selling products have lower profits and are not easy to make money from.

The number of Perfect Diary’s SKUs is growing rapidly.

Generally speaking, the product development cycle of Chinese cosmetics brands is 12-18 months, while Perfect Diary launches 5-6 new products every month. The latest data shows that Perfect Diary currently has more than 700 SKUs.

As SKUs continue to grow, even if the online virtual shelves can accommodate them, users may not be able to see all of them.

Although they are all striving to provide the best value for money, the online environment has fostered a serious price comparison mentality. Even if Perfect Diary's product markup rate drops from 10 times to 2 times, there are still other low-priced products that influence user decisions, even if the price difference is only 0.01 yuan.

The express delivery costs for online consumption cannot be covered. The high cost-effectiveness will stimulate user consumption, but the low average order value will inevitably increase the proportion of logistics costs. The phenomena of recharging VIP to waive express delivery fees and placing orders over 99 to waive express delivery fees have become common practices of major e-commerce platforms.

Christy, Perfect Diary's vice president of marketing, once said that the average selling price of the company's products is less than 100 yuan, which is less than one-third of that of well-known international brands.

The embarrassing thing about this price is that only when users buy in groups can they get free delivery, which shows that online consumption is not actually very frequent.

The consumer experience is difficult to guarantee. Especially in the beauty industry, offline makeup trial in stores is the most common consumption scenario.

Tmall Beauty, which has been reconstructing the "people, places and goods" concept, has specially launched AR makeup mirrors for offline beauty stores. Perfect Diary plans to recruit 3,000 front-line employees for its offline stores in 2020, including 500 makeup artists.

Three Squirrels offline experience store scene, Baidu image

Offline, Zhang Liaoyuan said that Three Squirrels' gross profit margin can reach 40%. Perfect Diary did not release this data, but there is clearly considerable room for improvement in gross profit margin.

After all, users can more directly access all SKU products offline, and the effect of low-gross-profit hits will be diluted; the makeup trial experience will be improved, and consumption conversion will inevitably increase; the price comparison atmosphere will be diluted, and users will not have to bear the logistics costs...

This is the common logic for all online consumer brands to move offline.

05 What other anxieties does Perfect Diary have?

Inspired by Jack Ma’s “new retail” in 2016, the mutual penetration of online and offline brands has become a foregone conclusion, and Perfect Diary is just one of the country’s 40 trillion consumer market.

These consumer brands that have grown on social media, like the once popular traffic stars Lu Han and Wu Yifan, have particularly fragile life cycles.

Traffic stars have never been the protagonists; the Internet and people’s desires are – in other words, such brands are well-known but not necessarily loyal.

There are many such brands, such as Diaoye Beef Brisket, Huang Taiji, Skinfood, etc. How can the domestic brands that have emerged in recent years be built into a brand with user loyalty rather than a label? This is a hot topic in the entire industry.

Internet celebrity brands have a short life cycle, just like traffic stars, Curiosity Daily

First of all, we must manage young people well

YouthZhong CCO Wang Xufei once said that in this era, young people are valued much more than ever before. Because they now have four roles in one.

Role 1: They are business social innovators. The future evolution trend of market demand and the driving force of business innovation as a whole will come from this group of people.

Role 2: They are the seed users of every brand. They are curious about new things and are willing to spend money to try them as long as they like them.

Role 3: They are the main force of consumption upgrading. The Nielsen report shows that young people born after 1990 have become the main consumer force, with their consumption willingness reaching 63 points, far exceeding other age groups.

Role 4: They are culture shapers. In the social groups of young people with circle culture and label culture, everyone is a KOC. In this group, a cultural atmosphere can be quickly formed to help the target brand shape its brand attitude.

At present, there are not many companies like Perfect Diary where more than 80% of the employees are born after 1995. How to capture young people and manage this group of "saviors" well is not just a marketing strategy, but a deeper issue of internal organizational adjustments.

Coca-Cola, which has been in existence for more than 100 years, has been interacting with the younger generation of users. Whenever people talk about brand power in the consumer sector, Coca-Cola is always used as an example.

But few people care about another thing Coca-Cola has always done - product iteration.

Coca-Cola's youth marketing, Baidu Image

Secondly, product strength has always been the foundation of brand strength

At the beginning of last year, Coca-Cola announced that the company would launch a clearance operation for products that had not experienced growth in the past three years. At that time, more than 120 items were included in the elimination list.

You see, no matter how strong the brand influence is, it will not sell if the product is not good.

Perfect Diary is currently considered a well-known brand. It interacts with consumers through cost-effectiveness, beautiful design, and offline experience, and then generates conversions.

But as far as the entire cosmetics industry is concerned, marketing is more important than R&D, and products still do not have any barrier advantages. How to become a real brand?

New entrants will need other breakthroughs.

Author: Huang Xiaojun

Source: New Business Opinion (ID:xinshangye2016)