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Perfect Diary fell into a marketing trap

Image source @ Visual China

Wen | market capitalization list, the author | Chen Jiaxin, the editor | He Yueyang

Makeup, as synonymous with "refinement and beauty", has become the standard for young people today.

Looking at China's makeup market, a small number of foreign-funded enterprises such as Procter & Gamble and L'Oréal occupy the top position in the market, and among the top 40 enterprises in the high-end cosmetics market, the foreign market share is as high as 92.3%.

A large number of local brands are struggling in the bottom of the affordable beauty market, or according to traditional Chinese medicine, or imitating big-name marketing, trying to use the model of low-price positioning and small profits to break the mouth of the Chinese beauty market.

With the perfect diary of "the light of domestic products", local beauty company Yixian E-commerce has created an industry myth of four years of IPO in the United States, which has illuminated the way forward for domestic makeup brands.

But this myth is being shattered.

In less than a year and a half from the listing to now, the stock price of Yixian E-commerce has experienced a roller coaster. At the beginning of 2021, the stock price climbed to a high of $25.47, and now the stock price is less than $1, a decline of more than 90%, and the market value has shrunk by about 3/4 of the Little Red Book.

In the latest disclosed 2021 financial report, Yixian E-commerce's annual operating loss was 1.62 billion yuan, and the loss on the surface was greatly narrowed, but the data improvement was not to sell well and make more money, but to some factors with low correlation with operation. This financial report, I am afraid it is difficult to save the decline of stock prices.

Is Perfect Diary really not selling? Why does the low-price logic fail? How to solve the competitive dilemma? This article will explore these issues.

01, not yet profitable, it will not grow

The explosion of Perfect Diary has provided an extremely successful sample for domestic affordable makeup and skin care brands.

In 2016, Huang Jinfeng, who successively worked in Procter & Gamble and Yu Nifang, and went to Harvard to complete his MBA in the middle of the way, found former alumni Chen Yuwen and Lu Jianhua, and decided to continue his entrepreneurial dream.

At that time, in the Chinese cosmetics market, skin care products accounted for nearly 90% of the market share, and the proportion of makeup was far lower than that of the mature cosmetics market abroad. At the same time, due to the impact of the THAAD incident, the public began to spontaneously boycott Korean goods, and korean makeup with an average price of 100 yuan gradually faded out of the Chinese market, the national tide rose, and local beauty brands gradually grew.

Huang Jinfeng, who has a dual background of consumption and e-commerce, continues the playing style of Yunifang, using e-commerce and marketing as two sharp weapons to play the world for the perfect diary.

Perfect Diary has settled in JD.com and Tmall, and in September 2017, it was settled in Xiaohongshu. At that time, Xiaohongshu, relying on the good community atmosphere created by user sharing, the grass planting attribute was rapidly out of the circle, and in June 2017, it became the first place in the Apple Store shopping APP download ranking, and the number of users exceeded 50 million for the first time.

Perfect Diary saw the potential of Xiaohongshu UGC (User-Produced Content) content marketing and became one of the first domestic beauty brands introduced by Xiaohongshu. Based on the unique "planting grass" promotion model of the Xiaohongshu community, Perfect Diary has formed its own marketing ideas.

In the early days of the new product release, Perfect Diary will invite millions of fan KOLs to share content related to the new product on the Little Red Book to create momentum for the promotion of the new product.

In the mid-term product promotion stage, the official account launched new product related topics, forwarded lottery activities, attracted Xiaohongshu users to participate and discuss, at the same time, 100,000 fan-level waist KOLs took over the traffic handover baton of the head KOL, and began to share new product unboxing, makeup teaching and other grass notes and videos, boosting the second wave of popularity.

Finally, a large number of bloggers below the level of 10,000 people have carried out in-depth product planting through the product experience shared by the real, shaping a good market reputation.

To take a more vivid example, if a lipstick of less than 60 pieces, beautifully packaged atmosphere, your love beans recommend it, Li Jiaqi recommends it, beauty salon experts also recommend it, and finally even your friends and colleagues say that it is easy to use, will you not be moved?

Xiaohongshu is the first wave of traffic dividends in Perfect Diary, and after four months of entering Xiaohongshu, Perfect Diary's sales have exploded to nearly 50 million. According to the research report, before August 2018, Xiaohongshu was the main position of perfect diary traffic, and the brand voice accounted for 45.91%.

Leveraging the popularity of "Idol Trainee", carry out "rice circle marketing", release new products through live broadcasting, live broadcast makeup tutorials, open accounts in Douyin and bilibili; can reach the platform and marketing methods of young people, Perfect Diary has not fallen, and "big name Pingdi" Perfect Diary has successfully left the circle.

At this point, Perfect Diary has taken the road of traditional marketing.

The ultimate weapon that Perfect Diary is known for is THE DTC mode. The so-called DTC model is to directly connect with customers, for example, consumers will receive an attached red envelope card for the first purchase in Perfect Diary, guide customers to pay attention to the perfect diary public account and personal customer service "Xiao Wanzi", and then join the discount WeChat group.

At this time, the WeChat group is the place where Perfect Diary operates its own private domain traffic, and strengthens the connection and interaction with consumers through direct interaction, thereby improving the repurchase rate.

Superimposed good at marketing, 2018 double 11, Perfect Diary broke through 100 million in 90 minutes, becoming the first domestic beauty brand, Tmall total sales makeup list ranked second, in 2019, Perfect Diary topped the Tmall Double 11 makeup list, and was also the first domestic brand to achieve this achievement.

Its highlight moments didn't last long.

In 2021, Yixian E-commerce barely maintained double-digit growth, falling to 11.6%, and in 2019 and 2020, this figure was 377.11% and 72.65%, respectively.

In 2021, the operating profit of Yixian e-commerce was -1.62 billion yuan, and the loss on the surface narrowed by 1.06 billion yuan, but this improvement was not due to the increase in earnings, but because of the reduction of equity compensation fees.

If the equity compensation expenses arising from the listing and the amortization of intangible assets arising from the acquisition are removed, in 2021, the net loss (non-GAAP) of Yixian E-commerce is 1.052 billion yuan, an increase of 35%.

Before it was profitable, Perfect Diary didn't grow.

02, why can't it be sold?

Makeup for the improvement of appearance has immediate and significant effects, different from skin care products to emphasize safety, functionality, makeup emphasizes the color aesthetics, with the trend of change fast, so the update speed of makeup products is fast, the life cycle of a single product is short, and it is easier to cause consumers to consume impulsively.

Many marketing methods are also aimed at the diversity and variability of consumers' aesthetics, pinching the psychology of consumers " I want all " , driving the sales of goods. The other side of this feature of makeup is that consumers have no loyalty, and emerging high-value, creative products are easy to break through.

Perfect Diary and Hua Xizi are all rushed out like this.

The product characteristics of makeup determine that this is a high barrier to entry and fierce competition. Perfect Diary is now facing a living environment in which there are big brands in the past and cheap brands fiercely catching up.

During the 2021 Double Eleven period, more than 400 yuan of makeup products achieved an overall growth of more than 40%; Among the TOP10 brands, international high-end brands such as YSL and Estée Lauder performed relatively well. During the 3.8 promotion period this year, the sales of Tmall Guanqi, a key makeup brand of the Tao system, fell by 21%, but the sales of high-end makeup brands still maintained a counter-trend growth of 10%.

Many of the big-name beauty products, while the price has not changed, the giveaways are more attractive than before.

Lancôme, Estée Lauder foundation and other products basically have a buy-one-get-one-free activity, superimposed on the platform itself full of activities, more than 40% off can take a genuine original. If you squat in the live room to a coupon or giveaway sample, you can earn another profit.

Since June 2020, the renminbi has continued to appreciate, and it is almost inevitable that international big names will reduce prices to expand market share and earn more and stronger renminbi. This is an advantage that domestic brands can't match, and after everyone can afford to buy a big brand, what else should they do?

On the other hand, brands such as Huaxizi and Caitang, which reproduce the perfect diary of the channel with goods model, have also begun to fight a marketing war.

According to the statistics of the Pinguan APP, Hua Xizi, who focuses on "oriental aesthetics", is deeply bound to Li Jiaqi's personal IP, and in the first seven months of 2019, Li Jiaqi participated in 45 live broadcasts of 118 sales. In the 2021 Double Eleven, Tmall ranking, perfect diary is ranked in front of Hua Xizi, and vibrato is Hua Xizi overshadowing the perfect diary.

Caitang, a makeup brand founded by Tang Yi, a professional makeup artist under Polaria, with Tang Yi's strong personal IP, and the boost of big-name celebrities such as Yan Ni, Yao Chen, Bailu and Via's live broadcast room, has quickly gone out of the circle on social platforms at home and abroad, and the total retail sales of Tmall Guanqi goods from December 2020 to November 2021 reached 280 million yuan.

Brands that see and taste the sweetness want to rely on KOL marketing to increase their visibility, and KOL marketing expenses have risen. The founder of Yixian E-commerce said in an interview with China Entrepreneur Magazine that the main reason for the company's marketing expenditure of 4.006 billion yuan in 2021 is that the increase in marketing investment by competitors in the whole industry has led to an increase in the water level of marketing expenses.

In 2021, the sales expenses of Yixian e-commerce accounted for 68.6% of revenue, compared with the sales expense rates of some mature brands, such as Marumei shares, Polaria shares, and Water Goat shares (the original Yujiahui, the parent company of Yu Nifang), etc. are about 30%-40%.

Perfect Diary fell into a marketing trap

This is not only a pain point for perfect diaries, but also a common problem for cutting-edge makeup brands.

One of the purposes of the DTC model is to reduce the purchase traffic and exposure of the expenditure, so that consumers form loyalty to the brand and products, but the DTC model is the most successful Yixian e-commerce is still suffering from high marketing costs, which means that the DTC model can only add icing on the cake, in the fiercely competitive beauty track, product power is the most fundamental.

03. How to break the dilemma?

Limited by the characteristics of makeup, Yixian e-commerce to reach more users, there are two tentacles: offline stores to reach different circles, more abundant products to meet a variety of diverse and changeable aesthetics.

Let's start with the offline store.

Before the outbreak of the epidemic, the main manifestation of the expansion of Yixian e-commerce was the increase in the number of offline stores. According to the prospectus, the expenditure of 40 experience stores in 2019 was 52.9 million yuan, but only contributed 100 million yuan in revenue, accounting for 3.3% of revenue.

The advantage of online is that the shelves have no boundaries, and the offline physical stores provide experience value, and at the same time, due to rent and other expenses, they pay more attention to the efficiency. In addition to product strength, offline business also tests the ability to select sites and services, and also tests the professionalism and sales ability of the cabinet sister.

Let's look at the rich product matrix.

Since 2020, Yixian E-commerce has successively launched its own skin care brand "Completed Heart Selection" and makeup brand "Pink Bear", acquired nail art brand Odin, French high-end skin care brand Coran Li, Taiwan professional skin care brand Dar Skin and The well-known British skin care brand Evelyn's mainland business, forming a multi-brand, full-coverage brand group business matrix.

As of now, compared with perfect diary with more than 18 million fans, the brand with the highest number of fans in the Tmall flagship store, Little Odin, has only 3.088 million fans, and the brand with the fewest fans, Colan Li, is less than 110,000.

Neither self-creation nor acquisition of brands has reproduced the marketing pomp of the perfect diary phenomenon.

The acquisition of high-end skin care brands has driven the gross profit margin growth of Yixian e-commerce in 2021, but the high-end products do not coincide with the target users of Perfect Diary, and how to find the balance between brand upgrading and user base still needs a long time to explore.

Contrary to the direct price reduction of big brands squeezing the living space of other makeup brands, brand upgrading is not easy, nor is it something that can be rushed.

L'Oréal was founded by pharmacists, the first non-toxic hair dyes were invented. After Being Acquired by L'Oréal, Maybelline launched a newly developed Range of Yeon-Cai products with ground-breaking patented technology, including: Lip Makeup, Eye Makeup and Concealer Products.

Breaking the upper limit of revenue through a wealth of products is certainly an important reason for L'Oréal to become a world-renowned cosmetics group, but the accumulation of technology is the foundation of all this, and it is also the root cause of the explosive power of cutting-edge brands such as Yixian E-commerce but the lack of sustained high growth ability.

At the performance meeting of the third quarter report of 2021, Huang Jinfeng said that he would continue to invest in brand equity and product research and development. In 2021, the R&D expenditure of Yixian E-commerce was 142 million yuan, which doubled year-on-year, and the proportion of revenue was gradually increasing, but from R&D investment to actual output, it takes time and also needs to bear uncertainty.

04. Conclusion

Since its inception, Yixian E-commerce has not regarded itself as a simple beauty company, and the essence of perfect diary spending thousands of dollars for KOLs to "buy it" is the business logic of the Internet burning money for scale.

This set of playing styles is characterized by fast, so it has spawned one rookie brand after another. Whether this set of playing methods is successful depends on how many opponents can be squeezed out and how much market size can be laid, which is the most difficult to do in the track of makeup, which is aesthetically diverse and the product cycle is short.

Therefore, everything returns to the fundamental logic of doing business, selling good goods in order to have repeat customers.

bibliography:

"Tao's Double Eleven Growth Slowdown, Differentiation of Domestic Skin care and Makeup", Guoyuan Securities;

"Tao system is under pressure due to the influence of multi-channel diversion, and Douyin domestic products continue to dominate", Guoyuan Securities;

"From the Perfect Diary, Hua Xizi to see the makeup track and the rise of new brands", Guoyuan Securities;

"From the Perfect Diary, See How the DTC Model Creates makeup "The Light of Domestic Goods", Open Source Securities;

"The Perfect Diary's Repurchase Rate Gamble", Huge Tide Business Review;

"L'Oréal China" walks off the altar, Chinese entrepreneur

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