How Chinese brands are infiltrating local areas and urban Gen-Zers
Homegrown Chinese cosmetics brands are enjoying a growing presence in the home market in the mid-to-low price range. We examine the local conditions that have kick-started the support for native brands after a long spell of overseas brand dominance.
The Chinese cosmetics market has long been monopolized by foreign companies. However, in recent years, China’s own brands have been steadily edging their way in. Within the top 20 companies making up the largest share of the domestic market, six were Chinese makers in 2012, but this grew to eight in 2017. Chinese maker’s overall share of the market went from 7.6% in 2012 to 14.3% in 2017 — a near two-fold leap. How did they accomplish this expansion?
Tackling small regional cities via specialty stores and e-commerce channels
A driving force behind this were small regional cities — what are called “3rd tier” or “4th tier” cities. In the 1st tier cities, such as Shanghai or Beijing, foreign brands are overwhelmingly strong, and this is also the case in the “New 1st tier” cities, such as Chengdu and Hangzhou, and the 2nd tier cities, such as Dalian and Xiamen. Breaking through the dominance of foreign brands in these areas is not easy, thus the shift towards lower-ranked cities.
In particularly what the Chinese makers focused on were drug store chains, like the health care and beauty chain Watsons, specialty store chains, and e-commerce. Watsons has grown to 3,200 stores within 438 cities in China. Cosmetics chain Gialen, which kick-started in Guangdong Province, had by August 2017 spread to 2,000 stores. Both Watsons and Gialen stores are spread widely across 3rd and 4th-tier cities.
Even so, brands need to gain recognition in order for people to buy them. It’s here that Chinese brands have put efforts into advertising by taking a page from the South Korea’s book: adopting celebrities as their brand ambassadors and becoming main sponsors of popular TV and web shows.
Originally, in cities classed 3rd-tier and under, the practice of using cosmetics hadn’t permeated into people’s lives very much. However, with the rise of disposable income and the large investing by Chinese brands into advertising, habits of skincare and makeup are gradually spreading.
Also, the fact that the prices of Chinese brands are lower than that of foreign brands is another factor helping their rapid progress. For example, a 100ml bottle of beauty lotion is around 600 yuan (US$89) as a high-priced foreign brand, however, as a Chinese brand, it’s not unusual for the same product to be under 100 yuan ($US14.90).
Gen-Z’s non-resistance to homegrown
Another factor that can’t be overlooked for the huge role it’s played in the expansion of Chinese brands is young people. It’s here that social media and review sites have had a big influence.
If one looks at how each generation is influenced by KOL (or Key Opinion Leaders), for 35 to 44-year-olds, 5% said they “only buy products recommended by KOL”, while 45% said they’d “possibly buy products recommended by KOL”, 20% said they “make use of KOL recommendations”, 30% said they “are not influenced by KOL”, and 0% said “KOL give a negative influence”. However, as you move down to younger generations the influence from KOL gets stronger — for the 18 to 24-year-old bracket, each answer was 15%, 54%, 17%, 12% and 1% respectively. On one level or another, close to 90% of people are affected by these influencers in some way.
Out of users of Alibaba Group’s online retail platform Tmall, over 300 million bought cosmetics in 2018, and out of that 50 million were Generation-Z (or as they’re known in China, “95 hòu”, meaning “those born after 1995”). This generation, who are the most influenced by KOL, is eventually going to become the main consumers. Of course, it doesn’t mean that all Gen-Z users are supportive of Chinese brands, however, in comparison to older generations, they are more open to using homegrown brands.
After interviewing multiple Chinese women in their 30s, we found they had an overwhelming image of Chinese brands as products of low quality and many said they hadn’t used them before. Even for those who did use them, the Chinese brands were limited to auxiliary roles, such as makeup removal, and foreign brands were their main product of choice.
Gen-Z, on the other hand, doesn’t have such preconceptions. One reason for this is said to be the effect of the patriotic education campaign that began in China from the 90s, but another large reason is the fact that the quality of Chinese brands has risen.
The newly-emerging brand “YES! IC ” has been recently gaining popularity and posts that talk about them on Weibo have been mainly from Gen-Z users. Many write about the products’ cute and elegant look rather than usability. More concrete user comments are given on popular e-commerce app “RED”, with people mentioning the pleasing texture of the product and how it can easily fit into bags, and in this way, a word-of-mouth effect is taking place. There are also KOL influencers who are mostly introducing Chinese brands on social media and have made a name for themselves by doing so.
On the other hand, the increase in homegrown brands has brought about a surplus of makers and there’s a feeling of excessive competition. Under such circumstances how can each company go about distinguishing themselves?
A way to do this can be found in both overseas expansion and the importing of advanced technology from overseas. With more and more Chinese companies carrying out M&A (mergers and acquisitions) of foreign manufacturers in various fields, including automobiles, home electronics, industrial robots, and apparel, it’s no surprise that this is also happening in the cosmetics industry. And as Chinese brands acquire technology from Japan, France or the U.S. and integrate it with Chinese culture, we may see consumers focus more on a product’s quality, ability to delight and brand story, rather than where it was made.
Text: Ching Li Tor
Original text (Japanese): Team Roboteer
