2013 Digital IQ Index: China - Beauty Supplement

ExcerptDigital IQ Index ®
: China Beauty Supplement
To access the full report, contact membership@L2ThinkTank.com

January 22, 2013
SCOTT GALLOWAY
NYU Stern

doug guthrie
The George Washington
School of Business

Beauty
Supplement China
© L2 2012 L2ThinkTank.com
1

Inquire about your brand’s ranking: Info@L2ThinkTank.com


Mao’s Rouge
Banned by Mao and his political heirs until the 1980s, global beauty and cosmetics brands are relatively new
to the Chinese market. Just 30 years later, China is the epicenter of growth for the industry as young women
armed with increasing disposable income spend 10 to 15 percent of their annual income on beauty products.1
Despite a slowing Chinese economy, the $17 billion domestic beauty industry is up 16.5 percent year–over–year
through the first ten months of 2012.2 Growth in the high-margin prestige segment has outpaced mass brands
as women continue to trade up.3

E-Commerce Explodes Challenges Remain
If China is the epicenter of growth in beauty, e-commerce is ground zero. Although the numbers are big, the majority of sales occur on Taobao and
With sales of more than $8 billion in 2011, China is the largest online beauty market other C2C channels and often feature gray market or off-price products.
4 Counterfeit sites and products continue to be an issue. The jury is out on Tmall,
in the world, nine times that of the U.S. Online beauty sales are projected to top
$20 billion by 2016, and have registered year-on-year growth of almost 200 percent Taobao’s B2C platform. SK-II and Yue-Sai launched brand stores on Tmall in 2012,
between 2006 and 2012. In 2012, approximately 17 percent of luxury cosmetics in
5 while Benefit Cosmetics exited the platform in June. Lancôme and local brand
China were purchased online versus four to six percent in mature markets. Shiseido 6 Herborist removed links to Chinese third-party e-tailers, focusing efforts on their
and Bobbi Brown launched e-commerce in 2012, and all but two brands in this direct businesses, though the latter continues to sell on Tmall and 360buy.
year’s Index (Elizabeth Arden and Guerlain) sell online in China. Much of the volume
is incremental as e-commerce enables beauty brands to extend their reach to Tier
3 and Tier 4 cities. In 2012, Estée Lauder reported that 70 percent of online sales in
China come from cities with no brick-and-mortar distribution.7

1. Cosmetics and Jewelry in China,” Jeffrey Hayes, Facts and Details, December 2012.
2. National Bureau of Statistics of China, November 2012.
3. “Beautifying China Is L’Oreal And Estee Lauder’s Big Opportunity,” Trefis Team, Forbes, May 31, 2012.
4. ibid
5. “Online Beauty Sales Slated to Top $20 Billion in China by 2016, Reports Kline,” Kline & Company , April 23, 2012.
6. Ruder Finn/Ipsos China Luxury Forecast 2012, August 2012.
7. “Estée Lauder taps small Chinese cities,” Warc, November 5, 2012.

© L2 2013 L2ThinkTank.com. REPRODUCTIONS AND DISTRIBUTION PROHIBITED 2


E-Commerce as a Percentage of
Total Retail Sales: Beauty & Skincare
2005–2010

Student Becomes the Master 16%
Digital platforms are more than just a sales channel, and much of the
Beauty industry’s digital marketing innovation is coming from China. 14%
Brand BBS sites, including Lancôme’s RoseBeauty and Estée Lauder’s EL-Lady,
provide robust consumer engagement platforms to manage sampling, content, 12%

and consumer data capture. Seven brands maintain these brand-specific
10%

E-Commerce Percentage
communities. CRM and loyalty initiatives in China are often the model for the
rest of the world and include a drive-to-retail component often managed through
a consumer’s mobile device. In addition, robust China-specific social media 8%

programs inspire robust participation, tapping into the Chinese consumer’s
6%
desire for self-expression.

Digital IQ = Shareholder Value 4%
This report is a supplement to our 2012 Digital IQ Index : China and
®

attempts to distill trends, best practices, and case studies in Beauty for 2%
the China market. Our aim is to provide a tool for identifying areas of strength
and weakness, helping brands achieve greater return on digital investments. Like 0%
the medium we are assessing, our approach is dynamic. Please reach out with 2005 2006 2007 2008 2009 2010
suggestions to improve our findings. You can reach me at scott@stern.nyu.edu. Source: “The World’s Next E-Commerce Superpower,”
The Boston Consulting Group. November 2011.

Chinese Beauty Market
Retail Sales Growth
Scott Galloway
Professor of Marketing, NYU Stern
Founder, L2

%
19%1 %
17 1 17 2*
2 01
0 20 01
2

* First ten months
Source: National Bureau of Statistics of China, November 2012.




ABOUT THE RANKING
The Methodology
Mobile Site Android Applications

20% 30%
• Compatibility of • Availability in China
China Site • Popularity
• Functionality • Functionality

Mobile
• Transaction
Capability
Site
iOS Applications Localization of site features
• Availability in China • Technology: Load Time, Hosting Location
Compatibility, optimization, and
• Popularity • Customer Service & Store Locator
marketing on smartphones and tablets
• Functionality • Product Page
• E-Commerce & Checkout
• Integration of Chinese Social Media
• Innovation: Product Customization, BBS/Microsites,

30%
Category-Specific Functionality
Brand presence, community size,
content and engagement
SNS
• Sina Weibo • Page Size & Growth
Social Media ng
Search BBS, Social, and Baidu Buzz

0%
• Tencent Weibo • Post Frequency

eti
• Traffic • Mentions
• Reposts & Comments
• Kaixin
k
ar
2
• Web Authority • Average Daily Searches
• Renren • Tabs & Applications
• Douban • Engagement Rate
ta lM an
d
• SEO & SEM: Email

igi , Baidu, So.com, Google • Frequency
dia
Video Sites
• Views D lm
e
ts Advertising & Innovation • Language
• Youku
ita effor
ig g • Online & Offline Synergies • Content
• Tudou • Number of Uploads
,d n
• View & Subscriber Growth rch rketi • Cross Platform Initiatives • Chinese Social Media
S ea a • Emerging Social Platform Integration
m
ail
• Viral Videos
Adoption (WeChat, Meilishuo
em & Mogujie, iQiyi, Jiepang)
Note: Brands were scored based on effectivenees on platforms they participate on

Digital IQ Classes
Genius 140+ Gifted 110–139 Average 90–109 Challenged 70–89 Feeble < 70
Digital competence is a point of competitive differentiation. Brands are experimenting and innovating Digital presence is siloed Digital efforts lack. Investment does not
Successful multi-channel, digital campaigns; functional across their site, mobile, traditional and by dimension. match opportunity.
sites that cater to local needs; strong social presence emerging social media platforms.
and integration across platforms.




DIGITAL IQ RANKING
Genius
RANK BRAND DIGITAL IQ DESCRIPTION
GENIUS
Estée Lauder
Lancôme

GIFTED
• Expanded social presence from three to Benefit Cosmetics
six platforms Clarins

1 156 • EL-Lady BBS features evergreen sampling Shiseido
Sephora
campaigns with fan reviews
Chanel*
• Optimized for local search. Outperforms all Kiehl’s
brands on emerging search engine So.com Biotherm
Estée Lauder Companies SK-II
AVERAGE
Herborist
Clinique
Bobbi Brown
Origins
CHALLENGED
Dior*
• Upgrade of RoseBeauty BBS cements M.A.C Cosmetics
leadership position L’Occitane en Provence
2 142 • Shanghai version of Rouge in Love TVC Guerlain
outperforms global edition Yue-Sai

• Tapping the popular female-dominated social FEEBLE
media platforms Meilishuo and Mogujie Elizabeth Arden
L’Oréal




DIGITAL IQ RANKING
Gifted
Beauty overall BRAND DIGITAL IQ DESCRIPTION Beauty overall BRAND DIGITAL IQ DESCRIPTION
GENIUS
Estée Lauder
Successful sampling campaigns on Lancôme
Presence on seven social platforms;
3 9 129
best-in-class email marketing
10 20 111 Sina Weibo and Youku generated
GIFTED
100,000+ participants
Benefit Cosmetics
LVMH Procter & Gamble
Clarins
Shiseido
Sephora
Strong e-commerce mobile site
4 11 120
features in-store sample redemption
Chanel*
Kiehl’s

Clarins Group Average Biotherm
SK-II

AVERAGE
“Discover China Beauty” UGC contest
One of two brands to launch Herborist
4 11 120
e-commerce in 2012
11 23 107 allows fans to vie online, offline, and via Clinique
mobile to win a trip to Paris Bobbi Brown
Shiseido Shanghai Jahwa Group Origins

CHALLENGED
Dior*
Multiple campaigns on popular third- Popular on third-party BBS, but brand
6 13 118
party BBS drive traffic to brand site
12 27 101
doesn’t maintain its own
M.A.C Cosmetics
L’Occitane en Provence
LVMH Estée Lauder Companies Guerlain
Yue-Sai

Classroom section on site features FEEBLE
Movie star Zhou Xun boosts brand’s
7 15 117
online and offline buzz
13 30 97 extensive beauty advice from local Elizabeth Arden

“beauty consultants”
Chanel Estée Lauder Companies

Custom tabs on Douban and a 19,000 virtual trees were planted
8 17 115 dedicated page on the site attract fans 14 32 94 on the brand’s BBS to support its
to games like design-your-own-skeleton ecological mission
L’Oréal Estée Lauder Companies

Sampling campaign includes microsite
9 19 112 and iPhone app and teaches Chinese
guys how to “Live Like A Man”
L’Oréal

* Chanel classified as “Fashion” brands in cross-category Digital IQ Index®: China.




DIGITAL IQ RANKING
Challenged Feeble
Beauty overall BRAND DIGITAL IQ DESCRIPTION Beauty overall BRAND DIGITAL IQ DESCRIPTION
GENIUS
Estée Lauder
Brand-owned BBS is stronger than
Lancôme
Haute couture show in Shanghai and Chinese brand site and includes social
15 40 88
Chinese version of DiorMag
20 79 54
integration, local campaigns, and GIFTED
product information Benefit Cosmetics
LVMH Elizabeth Arden
Clarins
Shiseido
Dynamic e-commerce site and Sephora

16 44 80 best-in-class email marketing don’t Chanel*
Kiehl’s
compensate for subpar social media
Biotherm
Estée Lauder Companies
SK-II

AVERAGE
Active Sina Weibo page launched in Herborist
17 46 78
July hosts frequent contests Clinique
Bobbi Brown
L’Occitane International Origins

CHALLENGED
“Little Black Dress” fragrance microsite Dior*
18 47 76 included giveaway of 10,000 samples M.A.C Cosmetics
and links to Sephora e-commerce L’Occitane en Provence
LVMH Guerlain
Yue-Sai

FEEBLE
Brand page on Meilishuo, the Chinese
19 49 73
Pinterest, drives traffic to Tmall
Elizabeth Arden

L’Oréal

* Dior classified as “Fashion” brands in cross-category Digital IQ Index®: China.




Site Functionality
Key Findings Percent of Beauty Brands Emplying the Following
October 2012, n=20

E-Commerce
100% 90%
Except for Elizabeth Arden and Guerlain, and lifestyle brands
75% 75% 65% 55% 40% 30%
Chanel and Dior, all Beauty brands sell online in China, with
Bobbi Brown and Shiseido launching in the past year. Ninety
percent of Beauty brands have customer service for China,
Store Locator for Customer Service User Reviews/Ratings View Price in RMB Wishlist Sharing Product Live Chat International Store
three quarters show prices in RMB and have user reviews and China Number for China to Chinese Locator
ratings, and 40 percent offer live chat. The Beauty category has Social Media

the fastest average site load times at 14.2 seconds, compared
with 24.1 seconds across all categories. Free Shipping Options Across
E-Commerce Sites
The majority of e-commerce-enabled brands support free
Beauty Brands
shipping with an average minimum order value of 485RMB
October 2012, n=14
($78). Three brands provide free shipping with no minimum.
Clarins is the only brand that does not currently provide
any free shipping options. Only five brands allow customers
to choose samples during checkout, versus 58 percent of
Beauty brands in the U.S. Only Clarins and SK-II support
m-commerce sites. Four brands (Benefit Cosmetics,
Herborist, Lancôme, and Shiseido) maintain e-commerce- Free Shipping Free Shipping No Free Shipping
enabled iOS apps. with Minimum with No Minimum

Localization is robust, all Beauty brands support at least
one local Chinese payment method. In addition, 79
percent of brands offer a formal government-issued receipt
Payment Options Across E-Commerce Sites
(fapiao) to confirm purchases and track tax payments.8 In
Percent of E-commerce Enabled Beauty Brands
China, fapiao are key to consumer trust and the perceived October 2012, n=14
legitimacy of purchase.9
Alipay 100%
China UnionPay 93%
Cash on Delivery 79%
Fapiao 79%
8. “Doing Business In China: What is a Fapiao and why is it so important?,” TheMIGroup,
February 2011.
9. “The Importance of Chinese Fapiaos When Doing Your Accounts,” China Briefing,
International Credit Card 7%
February 21, 2011.




Key Findings
Social Media
Ninety percent of Beauty brands are on at least two platforms.
Benefit Cosmetics increased its social presence from four to
seven platforms, and Estée Lauder is present on six.

All beauty brands maintain a presence on Sina Weibo, but
communities are much smaller than on Facebook. Beauty
brands in the Index average 167,953 followers on Sina Weibo,
Beauty brands in the Index average 167,953 followers
versus 1.86 million on Facebook. Despite the smaller page
sizes, the engagement rates on Sina Weibo (0.051%) still lag on Sina Weibo, versus 1.86 million on Facebook.
behind those registered on Facebook (0.071%).

Sina Weibo added several Facebook-like features in 2012,
including custom tabs and pinned posts. However, only
10 beauty brands utilize pinned posts, and just six feature
custom tabs. Five brands showcase products on these
custom tabs, yet just three include pricing and none has full
e-commerce integration.
Chinese Social Media Adoption
Percent of Beauty Brands Present on the Follow Platforms:
91% October 2012, n=20
of index
51%
of index 29%
20% 17%
of index 16%
of index of index 9% 7%
100%
of index
45% 50% of index of index
35%
25% 15% 10% 5%

Sina Weibo Youku Kaixin Tudou Tencent Douban Renren Jiepang
Weibo




TABLE OF CONTENTS
Click to Jump To:

5 Methodology 1 9 Lancôme: Doll Eyes Bar
2 0 L’oréal: Multi-Brand E-Commerce/Sampling
6 Digital IQ Rankings
2 1 Benefit and Lancôme: Singles’ Day
6 Genius
2 2 Sephora: Only Lady & Sephora Beauty Awards
7 Gifted
2 3 Dior and Chanel: Online Magazines
7 Average
2 4 Social Media Sampling
8 Challenged
8 Feeble 2 5 Herborist: “Discover China Beauty”

11 Key Findings 26 L2 Team
9 On Top 27 About L2
1 0 E-Commerce
1 1 BBS Sites
1 2 Social Media
1 4 Other Social Media Platforms
1 6 Video
1 7 Search
1 8 Mobile

19 Flash of Genius




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