The Chinese cosmetics market is a dominating industry. Market estimates place the industry anywhere between $5 and $10 billion USD. Consumers of this industry also vary dramatically. Young and old, male and female: most Chinese consumers play in active role in placing the cosmetics industry where it is today. The wide range of market segments in the cosmetics category allow for brands to be very diverse in their product offerings. Skin care covers over 80% of the cosmetics market. Heavy hitters such as Olay and L’Oreal are sold next to local brands such as Herborist and also compete with direct sellers such as Amway, Avon, and Mary Kay. It’s a unique combination of distribution in China (including supermarkets, malls, online shops, and direct selling) that drives this market forward. Direct selling in China is definitely a growth sector. This particularly holds true in smaller tiered cities, where cheaper products and convenience makes direct selling more effective.
We’re also seeing a less fragmented market than before, with higher-level competition between these major players. Large umbrella companies such as LVMH own many successful brands like Benefit and Sephora in China. This makes the success of Shanghai Jahwa brand, Herborist all the more interesting. By incorporating local ingredients and marketing strategies they have found success and are seeking global expansion avenues.

We’ve found in our primary research that many cosmetic consumers begin spending after they graduate from High School and begin college. Dorm make-up parties, 大S books, and BA (Beauty Advisors) all have huge influences on youth cosmetic purchases. Word of mouth plays a large role in recommendations and beauty tips. Many consumers use a circular purchasing strategy. First, online research is conducted to see which products are currently fashionable, or which celebrities are using certain skin care products. Then, consumer’s head to the local cosmetics store where they can get custom skin advice and application tips from specialized BA’s. After comparing prices, purchases are not made in the stores, but are instead made online in special Taobao shops or online stores, such as Sephora’s web portal. The influential factors for cosmetic purchases are more tiered and experimental than other product categories. Consumers in China expect customized cosmetic experiences and excellent service. This is something companies and brands must be aware of when implementing marketing and advertising strategies.

Companies in China looking to differentiate themselves in a less fragmented market now need to turn to R & D and innovation as ways to drive future products. There are many innovative products on the market today including natural and edible cosmetics, traditional Chinese medical cosmetics, and a new category bringing food into the beauty realm. Paying attention to local consumer tastes and preferences has been successful in food categories and definitely applies to the cosmetics market.

Girls and guys purchasing cosmetics have three words in their minds: “dream, beautiful, and perfection”. Celebrities and beauty experts are hugely influential in representing what is beauty and what is perfection. Consumers first gain the trust of these celebrities and beauty experts and rely on their trial and error rather than spending too much money on their own cosmetic trials. Many girls dream of having perfect skin in order to impress guys at school as well as in the workplace. Guys also dream of perfect skin and looks to attract females. Vanity and confidence are underlying factors in the minds of Chinese youth. In our field research this week, 100% of respondents said that cosmetics make them feel better about themselves and if cosmetics could make them the most beautiful or sexiest person in the world, then they would purchase this product.

Key Takeaways:

My earliest memory of skin care includes using, 郁美净（a local brand of children’s cream) and Johnson & Johnson baby cream. Perhaps I wasn’t satisfied with these childish skin care creams, or maybe I wanted to grow up so bad, but I always sneakily used my mom’s L’Oreal cream and lipstick when she was not home.

I was eight when I first wore make-up. It was at a neighbor’s home and I made a deal with their daughter: I would bring my mom’s skin care and she would bring her mom’s make-up and we would try everything. It was such a great time! Also, at primary school, our teacher would offer to put make-up on us when we had parties. But the teachers were not very good at putting on make-up so it always looked horrible!

After I entered college, I started to wear make up everyday . College life is a big release for most Chinese students, it means we are free from parents and curfew. I began to try different kind of make up styles: smoky eyes, princess style, I was always so passionate about it. Fridays, we would have dorm make up day, where we do make up for each other and then hang out with boys of other majors. Having white skin was still quite popular then, especially after 大S said, “I want my skin as white as toilet paper.” My classmates treated me as a whitening professor even though I told them I was just born with white skin. They still followed all of the products that I use. But, actually I barely had to use any whitening lotion. Because of my combination (dry-oily) skin, cleaning and moisturizing is more important for me.

After graduation I worked at a trade company and since I am super passionate about cosmetics, my former boss let me work on a small sourcing case. A Canadian mineral cosmetic brand wanted to find a Chinese factory to do OEM (Original Equipment Manufacture) for them. After a few days searching, I found out there are a lot of Chinese factories doing OEM for international cosmetic brands, but their brands are very low profile and they have challenges branding their products. This led me to post a discussion on alibaba.com to talk about Chinese cosmetic brands and introduce them to some of the foreign experts in this industry. Due to the high rating of my post, Alibaba invited me to be the moderator of the Fashion & Apparel forum. And later on a Korean cosmetic company found me and sent me a huge box of their products to see if it’s possible for them to market their products in China. My passion for cosmetics was beginning to pay-off! Also I started to do group cosmetic purchases on Taobao with my colleagues. Every time we got a parcel, the whole office got so excited! We shared delivery fees and we also shared the experience.

Now, for me, cosmetics is like an old friend, I know her, I love her, I don’t have to wear her everyday, but if I wear her it will make me perky and happy. Whether it’s a work day after a big hangover, a date with boyfriend, a nice dinner with friends on the weekend, or even an up-coming Halloween party, she’ll be there for me.

Several products have hit the shores of Japan already. Look out China, beauty foods may soon be the next craze. To learn more about the convergence of beauty and food, one can also attend the SIAL and Beauty and Beyond conference in Paris next October where a main topic will be when “food moves into the beauty sphere and conversely, beauty moves into the food sphere.”

Beauty Food examples:

According to a recent survey from Sina.com, 80.4% of female cosmetic consumers worry about the safety of cosmetic products, especially the ingredients. For most Chinese girls, putting on make-up is a daily task. However nowadays they no longer blindly pursue beauty, instead cosmetic buyers are becoming more and more conscious of the health and safety of the cosmetics they purchase.

Niu Er (牛尔), is a Taiwanese beauty expert. As a 12 year old boy, Niu Erbegan using materials in his kitchen to make  facial masks. Niu Er was strongly influenced by his mother who sold cosmetics. After graduating from medical school he started working in the beauty industry and continued on this path for more than 10 years. He later worked for The Body Shop, Sisley, and other cosmetic companies as a marketing – training officer, and a spokesman.

In 2006, Niu Er began to sell his own DIY nature cosmetic brand, ”Nature Beauty Easy” at Taobao Taiwan. His signature product is his red wine facial mask which sold out in a very short time. Because of his natural cosmetic preference and well quality products, he became a cosmetic expert for well-known brands like L’Oreal, appearing on famous Chinese and Taiwan TV programs such as”女人我最大” and ”美丽俏佳人” and being feature by many international well-known beauty magazines such as Marie Claire, Rayli, Elle, Cosmopolitan, etc.

This past September he launched his first official online store on Taobao so that girls from all over China can buy his natural products. Presently, the only series you can buy there is cream called “京城之霜’ which was specially designed for female customers that live in mainland China. The cream contains 60 natural ingredients which are approved by French organic certification organization ECOCERT. In the future, Niu Er plans to have many more natural products coming out.

Since the LOHAS (Lifestyles of Health and Sustainability) lifestyle is becoming more and more popular in China, the concept of “organic cosmetics” is being more and more accepted by consumers. According to the report released by organic product observation organization, Organic Monitor, in 2008 the global sale of natural organic cosmetics is 7 billion U.S. dollars which is an increase of  1 billion from 2007! And as trends percolate, American brands follow: a few months ago, American organic brand, Nature’s Gate entered the Chinese market hoping to capitalize on this burgeoning trend.

佰草集 aka Herborist’s parent company Shanghai Jahwa has a long and rich history dating back to the turn of the 20th century. As testament to Herborist’s strong showing in the domestic market it was awarded the title of “Shanghai famous brand” in 2005 and currently stands alone as the only local player in a highly competitive beauty market. So how has this local Shanghai brand managed to stand up and compete with the Estee Lauders and Sisleys ? Lets explore.

Herborist’s product range is not too dissimilar from it’s competitors, showcasing the usual creams, face packs and moisturisers. Where their strength lies however, is the specifically Chinese niche they have found  in a highly globalised industry whereby nationality and cultural references play a large role in marketing (Shishedo = Japanese purity, MAC = American sexiness, etc).

The brand cleverly distinguishes itself by “intergrating Traditional Chinese Medicine into the latest fruits of modern biotechnology”, as stated on their website. Imagery and even product innovation all make relevant nods to traditional Chinese, such as their nourishing and cleansing ‘Tai Qi Mud’, which promotes the Chinese aesthetic of balance through its yin-yang design and application process.

Their products are also well rounded out by the Herborist Spa, which opened in 2002 offering unique treatments to compliment their product range. These product and brand innovations, when coupled with a rising overall market trend for organic and natural products, have helped Herborist stay ahead of the curve.

Success

Although online consumer satisfaction is hard to guage with opinion differing wildly from person to person, confidence in Herborist products has recently been shown via an online vote of consumers’ favorite cosmetic brands. The brand was voted as having top products in no less than two different catergories.

More conclusive evidence of the brand’s success can be seen through the stock portfolio of Shanghai Jahwa. As the parent enterprise of Herborist, they were the first domestic cosmetic company to go public and over the years have showed consistent signs of improvement.

Other than Herborist, Shanghai Jahwa’s brand profile also includes:

• Chinfie – Luxury cosmetics line
• GF – Male cosmetics range endorsed by HK actor Tony Leung
• Maxam – Skin care for the mature lady
• Cocool -  Make-up for a younger market

With it’s extensive R+D operations and production infrastructures, Shanghai Jahwa, has been able to leverage the license for the complete market operation of Adidas personal care products in mainland China. Furthermore, the company has also established a joint venture with Sephora Cosmetics (part of the LVMH group) within China. Through this agreement Herborist has been able to establish itself as the first Chinese cosmetics brand carried by the Sephora in all it’s overseas markets, earning the brand a small amount of international recognition.

Whilst previous local competitors, Yue Sai, were added to L’oreal’s ever expanding brand list specifically due to Chinese commitment to “local” brands (“I will stick to Yue-Sai, no matter who owns it”), the Herborist brand is unlikely to be bought out anytime soon. The combination of good brand identity and marketing, as well as well nurtured business infrastructure and production are what make this brand successful. All too often local brands can lack one of these vital pieces and even with a small amount of success, they run the risk of being bought out by a larger conglomerate to help bolster one of these ailing factors. The depth of it’s operations and it’s baby steps into an international market are both good indicators of the continued success of the Herborist brand.

Let’s take a look at the Chinese Consumers’ Favorite Cosmetics Awards held by Kimiss, one of the biggest Chinese cosmetic consumer online community sites, which attracted 1.8 million people to participate in voting for their favorite brands and products.

• Most favorite skin care brands: Avene, Clinique, Estee Lauder
• Most favorite cosmetics brands: Benefit, Bobbi Brown, Dior
• Most favorite perfume brands: Burberry, Chanel, Dior
• Most favorite men’s skin care brand: Biotherm

Clinique, Estee Lauder, Dior are always the most favorite high class brands in China. Avene is a favorite amongst women with sensitive skin. Bobbi Brown’s foundation, as well as other products are very popular in China recently. Benefit’s blush is a star product and Biotherm for the Chinese men represents privilege.

I personally think these products gained popularity because of their good quality and the various promotion channels by which they are marketed.

People are always curious about the lives of celebrities. How do they live? What do they eat? What products are they using? Because of their reputation, people are always watching their every move. Over the past few years, Chinese celebrity paparazzi shots have been popular. People learn to dress from the stars. Especially for the university students, they try to spend the least money but want to wear the most fashionable clothes. And they are especially concerned about celebrity’s favorite things and what they recommend.

The 大S Phenomenon

Gradually, for many students, the original name of cosmetics are slowly replaced by the “大S Recommended XX product”, or “Teacher Kevin (Kevin老师 －Taiwanese Make-up Artist) recommended XX product” and so on. Many University students begin to trust these celebrities and purchase products that they advertise. Stars like 大S, or Teacher Kevin became the best advertisements for these products, while the students of these networks become the largest shopping group for these recommended products. But, why are celebrity recommended cosmetics so popular right now? Do college students really need these products? Let’s examine.

The Pursuit of Fashion

Much of this marketing phenomenon can be traced to the Taiwanese celebrity, 大S. To put it plainly, she published a beauty book, which students read as THE Chinese cosmetics handbook. In 大S’s childhood, she tried all kinds of cosmetics. This gives her credibility as someone who has been there and done that. This book has a lot of popular products, such as The Body Shop’s Tea Essence to Kiehl’s Cucumber Water Lotion, etc.,

Before reading this book, most girls use the ordinary brands such as Maybelline and L’Oreal . After reading, they move on to more fashionable or trendy products, such as Benefit, M.A.C, Shisedo and so on. And these celebrity recommended products are often trendy and stylish. As long as the students have the ability, they are willing to try all.

Another example showing this strong celebrity influence is from the Taiwan TV Show, “女人我最大”. A few months after the “Magic Stick” appeared in “女人我最大” (where the hair can be fixed but the hair style won’t be changed) many university girls frenzied to purchase this item. The passion and the pursuit of fashion is reflected from buying these “大S” or “女人我最大”  brands. A company with a 大S-like testimonial is similar to the Oprah product bump in the United States.

Cost Effectiveness

It is undeniable that the recommended products by the star have higher quality and price points. And the recommended products are the things always ignored in our daily life. But if the price is reasonable, and the effectiveness is shown to be very high, it has a better chance to become popular for university students. Many university students have no income, and their main source of income comes from their parents, thus it’s particularly important for them to budget their money as much as possible and purchase a product with high quality.

Making The Cosmetics Connection

It is understood that many college students do not know what type of products are suitable for their skin type; do I have dry, mixed, neutral, or oily skin? Many students blindly follow the trend of purchasing”大 S recommended” product. In fact, students’ demands for cosmetics are relatively simple, they don’t have anti-wrinkle and other big skin problems. As long as brands provide better make-up guidance and offer a reasonable price for students, we are willing to buy in the stores and at the sales counters. After all, shopping for cosmetics on Taobao can be quite a risk.

But this week, we are looking at cosmetics in China. Coming in the top 100 are the four familiar cosmetic and skin-care brands, OLAY, Maybelline, L’Oreal, and Amway.

Of these four brands, OLAY, L’Oreal, and Maybelline are globally recognized in the make-up and skincare areas. But Amway’s non-traditional direct sales model and high quality perception has allowed it to increase sales dramatically in China. China is currently Amway’s largest market with gross sales of over 2.5billion USD in 2008.

But why are these brands seeing success and other are not? Well, according to CLSA’s Head of Consumer Research, Robert Bruce, the answer lies in a shift in values from price to quality:

“Consumer emphasis is already shifting from price to quality, which will allow companies who deliver on their brand promise to increase price, in turn increasing profits, and thus providing the ability to innovate and propagate through R&D and distribution.”

Quality is surely becoming more important for older and wealthier Chinese consumers who are attracted to luxury brands, but what about Chinese youth consumers who do not always have high incomes or strong purchasing power?

For our hypothesis that we will testing this week through our primary and secondary research methods, we believe in three key factors that cosmetic brands must keep in mind to attract Chinese youth consumers. These are:

• Cosmetic brands attention to customer service.
• An open forum to discuss cosmetics, whether it is through online BBS’, SNS’, etc, with friends, or with customer representatives.
  
• Cheaper and convenient online shopping methods.

Pay attention to our final analysis report at the end of the week to see if these hold true!

One floor of the mall presents a wealth of brands, European, American, Korean, Japanese and Chinese are all in the mix; for the unaware they are not always easy to separate. European brands, such as Lancome and Estée Lauder, play on their heritage and project an air of wealth and elegance. Japanese brands such as Kanebo and Shishedo, rely on their Japanese aesthitic of quality and a refined nature, whilst American brands, MAC and Benefit, push a more sexy and playful image. Korean and Chinese brands are some what caught in between, but tend to fall toward a sub-European and Japanese aesthetic of natural elegance, particularly Shanghai brand 佰草集 (Herborist), whose use of natural products is perhaps directly influenced by traditional Chinese medicine.

The range of products is utterly overwhelming, the bigger brands break up their skin care section (far and away the largest product catergory in cosmetics) into at least four caterogies of hydration, revitalization , uv protection and whitening. Each of these categories contains products that link to each other and are to be purchased in conjunction with each other.

Interesting to note is the possible growth area of male cosmetics. Some stores such as L’oreal had male products as a small after thought to the larger female section, but brands such as Clarins and particualry Biotherm are now pushing hard to target a skin conscious male market. Biotherm was the only store with a male assisstant and devoted a whole wall to male products. They have also recruited Japanese hearthrob actor Takeshi Kaneshiro to be the face of their campaign.

Aside from the wealth of cream, lotions, oils and facepacks lay a few innovative products. Japanese brand, Fancl, offers a range of skin care products which instead of being spread on the outside are instead ingested, playing well into the Chinese phrase: “以内养外” (the outside is cultivated from within). Similar to this, albeit with a slightly less natural feel, American brand H2O plus offers a skin enhancing drink, “Collagen 8000”, containing seawater, vitamins B6 and C and yes…collagen.

The store sales staff are not just window dressing for the product, their knowledge and customer intreraction at POS is vital to ensuring a good customer experience in a highly, highly competitive market. Many brands offer product literature which shows a complete range of product offerings and product information. But as is often the case, the samples and product information provided by these brands often make it easier for consumers to head online and purchase these products.

We’ll be examining many of the societal shifts regarding cosmetic use in the last decade, generational and gender differences in cosmetic use, as well as the potential for massive online growth in cosmetic shopping.

If you are interested in this topic and would like specific information, do not hesitate to contact us.