Renee Hartman, China Luxury Advisors01.28.14
Emerging markets are already primary drivers of company value and growth prospects for global cosmetics companies. Estée Lauder posted $500 million of its $10 billion in revenue from China, making it the third largest market for the giant prestige beauty manufacturer and marketer, behind the U.S. and the UK.
However, Chinese consumers are not only spending within China’s borders. On the contrary, Chinese consumers make more than 60% of their luxury purchases while traveling overseas, representing more than $28.3 billion in sales. This number is expected to grow by 31%—four times the rate of growth in China’s domestic market (a more modest 7%).
The Travel Retail division is also a key revenue driver for Estée Lauder and other global cosmetics companies, which is largely driven by Asian customers who are expected to account for 50% of all airport retail sales in the next five years.
It is not surprising, therefore, that global luxury brand managers have suddenly started paying closer attention to the “spendy” Chinese travelers not just in China, but also those hitting their retail doors in Europe, America and around the world.
Chinese Customer Preferences
Beauty companies around the world are paying close attention to this valuable customer and many are adapting not just their packaging and marketing practices to Chinese customer preferences, but also their products.
Here, we take a look at how one global company and one local Chinese company are tailoring their products to meet Chinese customer nuances and preferences.
Global Going Local
Herborist has more than 1,200 stores in China. |
In addition to adding Chinese herbal medicinal components to the product, Osiao has signed up award-winning actress and singer Miriam Yeung to promote the brand in China. As the brand spokesperson, Miriam will be featured prominently throughout advertising and advertorials, PR, in-store and on the Osiao website.
Estée Lauder is not only focused on launching localized products like Osiao, but is evaluating their entire portfolio to understand how to best adapt their products and marketing to Chinese preferences. They have created an internal group called “China 2020” whose job is to ensure the company has the same level of management, local customer intelligence and operations in China as it does in the United States.
Estée Lauder is not the only global company to utilize Chinese and Asian ingredients in their products. Other global brands such as Korea’s Sulwhasoo and AmorePacific, and China’s Shanghai VIVE and BYKL, also feature Asian herbal products.
Local for Local
Estée Lauder launched Osiao to specifically target Chinese customers. |
To differentiate itself from traditional herbal products of other Asian brands such as Kosé and Shiseido, Herborist created the concept of “natural nourishment, comprehensive conditioning.” To support this concept, it introduced the unique Chinese medicine theory of balance and integration. Herborist created its chief selling point: “restore body and mind, radiant beauty comes from nature, personality and health.” It’s medical theories set it apart from other brands and gained quick approval from nature-conscious female consumers. As a result, many women who used foreign skin care brands have shifted allegiance to Herborist.
Examples of some of Herborist’s products include:
• In its anti-aging series, Herborist uses the snow lotus to balance yin and yang.
• In its whitening series, Herborist features “New Seven White” products that are made from seven herbs with the word “white” in their Chinese names. The “white” in their names creates an association with whitening effects in consumers’ minds.
• In its moisturizing series, Herborist utilizes the Chinese medical theory of “nourishing Yin and promoting the production of body fluid,” which is quite different than most global brands’ concepts of external replenishment.
Today Herborist has more than 1,200 stores in China and is rapidly expanding outside of China with a number of stores in Europe and plans to open in the United States soon.
Global brands should take notice of the inroads that both Osiao and Herborist are making with Chinese consumers by aligning themselves with Chinese herbal medicine and tapping into ongoing trends in the China market for natural and organic products.
Renee Hartmann is a co-founder of China Luxury Advisors, a boutique consultancy advising brands and retailers on serving Chinese consumers.