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After 5 years of strategic consulting in both the US and China, John Solomon founded a company--enoVate--in Shanghai, which focuses on insights and strategy within the Chinese youth market. John works with multinational and Asia based companies looking to expand in the growing China market.... More
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  • Skincare Companies Dominating the Cosmetic Market in China 0 comments
    Oct 20, 2009 6:09 AM | about stocks: PG, LRLCY, AVP, LVMUY
    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 P&Gs Olay (PG) and L’Oreal (OTCPK:LRLCY) are sold next to local brands such as Herborist and also compete with direct sellers such as Amway , Avon (AVP), 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 (OTCPK:LVMUY) 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:

    • The Chinese cosmetics market is less fragmented, but includes a highly diverse range of product offerings.
    • There are unique circular purchasing habits: researching products online, go to the stores to test and experiment, then back online for purchases.
    • Celebrity and beauty experts have extremely high levels of influence on purchases, as well as friend-to-friend word of mouth. The underlying theme in this area is something we call, “cosmetic trust”.
    •  Direct selling is particularly effective in lower tiered cities.
    •  Increased vanity and confidence among Chinese youth is a strong social factor behind their purchasing habits.

    Disclosure: No positions

    Originally posted on
    Stocks: PG, LRLCY, AVP, LVMUY
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