2021 Beauty Industry White Paper

China's beauty industry had undergone years of rapid growth, and even in the face of the 2020 pandemic, the market rebounded quickly.

At the same time, evolving consumer demands have pushed brands to innovate. While no brands are completely safe in maintaining their market position amid ever-changing environments, all brands have the potential for phenomenal growth through adaptation and transformation. Brands must continuously explore market opportunities, and continue to refine their product portfolio and brand equity accordingly; it helps brands to build an identity that can resonate with a clearly defined target audience group.

This white paper from Kantar Worldpanel and Ocean Engine provides an overview of the Chinese beauty market and highlights growth opportunities for different brands to explore.

Market Overview

01. Asian and China beauty market

The 2020 pandemic had negatively impacted beauty consumption in most countries across the world. China was one of the first markets to be hit, it was also among the quickest to recover. Despite recording double-digit decline in Q1 2020, China's market value almost fully recovered to the previous level by the end of the year.

02. E-commerce and livestreaming

E-commerce is the engine behind market recovery and enjoyed a +20% growth in 2020. As the fastest growing channel, e-commerce expanded its market share from 50% to 59% between 2019-2020.  Meantime, livestreaming has become a new important revenue stream, and is also contributing to holistic brand communication.

03. Content

Consumers are paying extra attention to beauty-related content, which helps boost brands' sales performance. According to Douyin's 2020 Statistics, skincare and makeup-related content account for the largest share in the beauty, maintaining a strong growth momentum at 50+%.

Douyin content ecosystem has become more prosperous. Everyone is participating in content creation. From amateur content creators to KOLs and official brand accounts, the creator community is quickly expanding.

Content featuring new products and special occasion-based products (giftsets, limited edition) were among the most popular. Also, consumers are growing tiresome of price-focused communications and are instead on the lookout for more authentic and experience-driven content.

Evolving Demands

The pandemic has not hindered the overall skincare market demand, and most segments recorded positive growth in 2020; most noticeably, high-efficacy regimens are outperforming the others.

Essence segment in particular saw an astonishing demand growth, eye creams emerged as a new popular choice, and products featuring specialized ingredients also gained popularity. Brightening and acne treatment continued to be among the top benefits sought after by consumers, and anti-aging and repair also quickly gained more share of voice.
Consumers are looking to try out innovative and novelty ingredients. It is increasingly important for brands to incorporate innovative ingredients that are closely associated with product efficacy.

Product Strategy

01. Bestsellers

It is becoming increasingly difficult to create bestsellers, but their influence is here to stay.  In 2020, the number of bestsellers decreases to 775 from 850 a year ago, but the remaining bestsellers maintained their influence at 25% market share. A competitive bestseller can exponentially improve a brand's chance in securing their footing in the market.

Also, bestsellers have to fight to maintain their market leadership. Bestsellers from 2019 decreased their market share from 25% to 22%, with some of them falling out of consumers' favor.  Continuous effort is needed to stay current with the latest trends in order for a bestseller to maintain its leadership.

02. New products

35,526 new products were launched in cosmetics market in 2020, at roughly the same level as in the previous year. Consumers' spending devoted to these new products saw a marginal increase.

Brands need to evaluate competition density against ROI to drive new product strategies. For example, there was a significant increase in the number of essence new products, but their sales contribution decreased, to reflect the growing challenges in the success and even survival of new products. Sunscreen stands out with a relatively lower competition density and a growing consumer preference and sales volume for new products.

Competition Dynamics

01. Brand dynamics

In today's Chinese beauty market, multinational and local brands account for similar market shares and fiercely compete against each other. Among local brands, existing giants' performance stagnated but emerging brands flourished to record an impressive +40% growth in 2020.

02. Product strategy

Bestseller: Multinational brands are very competitive in building bestsellers, contributing 53% of the bestsellers in their number. Meanwhile, there is a diverging trend for local brands; while local giants' presence significantly eroded over the years, many new local brands have claimed leadership in a number of segments.

New product: Multinational brands launched fewer new products in 2020 and became more targeted in their new product drive. In contrast, local brands, especially the mature giants, were more active in innovation to offset the external impacts and fuel brand transformation.

03. E-commerce and content quality

The growth in e-commerce sales is strongly correlated to the increase in a brand's voice. Having the right voice is the key to success, content optimization is crucial.

Multinational brands doubled their content views on Douyin. This growth was led primarily by market leaders who took on the role of consumer education and communication through high-quality contents.

Traditionally, local big brands were weak in content marketing, but they are quickly catching up, and this helped their e-commerce business grow +19% despite their sluggish performance overall. Local emerging brands are ahead of competitors in terms of content communication, and continue to create more innovative content to attract consumer interest.

04. Competition landscape

On Douyin's 2020 annual beauty industry ranking, International giants such as Lancome, Estee Lauder, and Dior are among the top, but they are joined by local newcomers such as Florasis and Perfect Diary.

Consumers' search behavior can accurately reflect their purchase intent.  Usually, the first-searched brands are the ones with strong brand power; other brands need to increase their digital presence and zoom into the real consumer needs to better convert account followers to loyal users.

Consumer Insights

01. Young women and lower-tier city consumers

Young women are the key contributors to the beauty market.  In 2020, young women under 40 y.o. spent more than ¥1,000 per capita on cosmetics, and they accounted for nearly 70% of the total market, far exceeding their population share.

Meanwhile, consumers in lower-tier cities proved more resilient to external risks; tier 4 and 5 city markets were less severely impacted by the pandemic and recovered more quickly.

02. Beauty lover profile

Brands should also choose an appropriate communication platform that will help increase the effectiveness of content delivery. For example, young consumers and people in lower-tier cities are more inclined to use Douyin, and content in new formats such as short-video ads and livestreams can quickly capture their attention. At the same time, Toutiao's demographics are also leaning towards younger audiences, allowing advertisers to tap into this TA by leveraging both platforms.

03. Four key user segments

According to Douyin's beauty user data, the acne user segment is generally younger, with over 50% of them 18-30 years old, and are more likely to be from higher-tier cities. There is a relatively even gender distribution, which shows that acne is a common concern for both men and women alike. On the other hand, anti-aging, brightening, and sensitive audience segments are more female, disproportionately between the ages 18-30.

04. Segment evolution

While age and geographic profile can provide a general guidance, consumer preference, and purchase decisions are further affected by their personalities, lifestyle, and environment.
Once brands have identified the most relevant high-potential consumer groups, they need to evaluate these TA's spending power and evolving demands to update communication and portfolio development effectively.

Marketing Solutions

01. Decoding 2020 marketing strategy

For multinational brands, there is a significant increase in the share of performance advertising, and the mixed investment in both branding and performance advertising is likely to become a long-term strategy. Many are also tapping into new media and advertising formats to showcase their abundant contents of which the performance is carefully measured. Local brands are faced with an urgency to transform themselves and putting a greater emphasis on branding communication, which indicates that local brands are starting to look beyond a short-term ROI to building "brand power."

02. Beauty industry marketing breakthrough in 2021

Intensifying traffic competition and ever-growing consumer demand for content presents brands with new challenges. Multi-dimensional brand building to capture the hearts of users is a must to achieve business growth:

• Branding ads help set the tone of the brand and convey the "official image" through qualified imagery,

• KOL endorsement provides in-depth information and infuses the brand with greater credibility, and

• Auction ads can feature diverse details that might be overlooked by the above two.

Ensure the brand image is imprinted in the consumers minds as they travel through the consumer journey:

• Find the right people: Ocean Insights classifies consumers into new 5A groups to help brands reach the right consumers and drive meaningful impact from their communication.

• Multi-faceted contents: Leverage KOL influence and quality content to drive buzz and enhance brand equity.

• Strategic and efficient use of popular IPs to extend marketing potential.

• Strategic use of KOLs to drive multi-faceted social media presence.