Hello, fellow members of Amorepacific. The second half of this year has begun. Due to COVID-19, the first half of 2020 will be remembered as a year comparable to the Spanish flu of 1918, the Great Depression of 1929, and World War II of 1939. Today, I'd like to talk about K-beauty, along with the neighboring J-beauty (Japanese beauty) and C-beauty (Chinese beauty).

J-beauty failed to prevail in the 2010s when K-beauty made strides. In 2011, Japan especially struggled to capture the opportunity to target Chinese market due to the Great East Japan Earthquake and territorial disputes with China. And it did not do well enough as much as Korea's K-beauty in targeting the Chinese market early on. Since China opened its markets, the country experienced exponential economic growth for 20 years since 1994 and became the largest consumer market of the world. K-beauty grew rapidly in the Chinese market by predicting the country's growth. And Japan, which observed such change in the market, pursued a forward-looking strategy in targeting China. In its 2018 annual report, Shiseido announced that it has developed a strategy to bring the entire organization together in an organic manner viewing China as one market based on its 'Cross-border Marketing for Chinese Consumers' strategy. Also, Shiseido CEO Masahiko Uotani introduced a 'triangle touch point strategy', saying, "Oh no! I'm losing my business to China" and "No. We are creating synergies." ^{Note 1)} The strategy was about offering consistent customer experience to Chinese customers experiencing Shiseido brand at duty free shops while travelling the US, duty free shops in Chinese airports, or in Japan as well as China's Tmall and Taobao. In other words, the strategy focused not on segmenting customers from a company's point of view, but on offering consistent experience and brand to customers from a customer's point of view.

Since then, Japan has actively responded to the growing Chinese e-commerce market, recording sales of JPY 120.4 billion (KRW 1.3 trillion) in 2016, 144.2 billion (KRW 1.6 trillion) in 2017, and 190.9 billion (KRW 2.2 trillion) in 2018. In 2019, Japan achieved 19.0% growth in China and 19.4% growth in Travel Retail, with J-beauty market share in China's cosmetics import recording 25.5% as mentioned above. ^{Note 2)}

During when demand for cosmetics increased in mainland China, imported cosmetics had strong presence in the market. However, with the domestic market gaining vitality and the growth of e-commerce, homegrown Chinese cosmetics brands started to gain strength in the market. Let's take a look at Perfect Diary, a brand that unveiled the essence of Key Opinion Leaders (KOLs) marketing in China.

The founder of Perfect Diary, Jinfeng Huang, worked as a marketing manager at P&G and as the COO of Chinese cosmetics brand Unifon. Based on his work experience, he established Perfect Diary in Guangzhou. Since its establishment in 2016, the brand targeted women in the ages from 20 to 35 as a makeup brand and has led the Wanghong economy based on KOL marketing without opening any large stores or offline presence. There are other mainland Chinese brands dominating the mid-to-low priced lineups, but a notable feature of Perfect Diary is that it is a brand that began online without offline presence. Recently, Perfect Diary received investments from China's largest global investment firm, Hillhouse Capital, and American venture capital firm, Sequoia Capital, based in Silicon Valley. The current value of Perfect Diary amounts to USD 1 billion (KRW 1.2 trillion). Perfect Diary launched its first product in March 2017 on Taobao and Tmall and grew using Xiaohongshu as a key channel to showcase the brand. In addition, the brand communicates with customers using WeChat and had only three pop-up stores in Shanghai as offline stores. In 2018, it expanded its contact points with customers through Douyin (local Chinese version of TikTok) and JD.com. And finally, in 2019, Perfect Diary opened its official offline store in Guangzhou and currently manages about 40 offline stores (as of Feb 2020).

Backed by the astonishing growth of the e-commerce market in China, the brand created its content and way of communicating with customers. In 2019, Perfect Diary ranked among the Top 10 in Tmall's cosmetics category as no. 9. While many import brands in China failed to catch up with the speed of change and trend in the fast-growing direct-to-consumer (D2C) market, it is impressive how Perfect Diary is leading the market. Perfect Diary also communicates with customers using a personalized customer model. It befriends and chats with customers with fictional avatar 'Xiao Wanzi'. Hundreds of Xiao Wanzis are run by Perfect Diary employees. They post profile images and WeChat Moments and share updates of the latest products and makeup tips. Perfect Diary not only conducts activities on WeChat, but also conducts active viral marketing on Xiaohongshu. It promotes marketing activities and attracts product reviews from celebrities, top-tier, mid-tier influencers and Key Opinion Customers (KOCs). The brand lowered the hurdle to purchasing making products accessible by offering mid-to-low priced lineups such as lipsticks (around KRW 9,000) and eyeshadows (around KRW 22,000). It also launched collaborations with KOLs and ranked as no. 1 beauty brand creating a buzz on Xiaohongshu, ahead of brands like L'Oréal, Tom Ford, and Estée Lauder. ^{Note 3)}

Another notable feature of Perfect Diary is, as mentioned above, that it communicates with customers not through the brand 'Perfect Diary', but using virtual avatar called Xiao Wanzi. It continues communication with customers through a medium that feels human-like, forming fandom and increasing and maintaining customer traffic. The interactive communication between customers and the brand's character enhances the quality rather than the quantity of customer traffic, leading to more purchases and repurchases. Perfect Diary is a success story of how a brand can lead in a market that is evolving into a new distribution model at a pace unimaginable.

Today, this column looked at J-beauty and C-beauty quickly catching up to the position of K-beauty. We must study and understand how beauty brands implement their brand strategies in prestige and masstige lines for K-beauty to continue to achieve strong performance in the fast-changing market.

Note 1) https://www.moodiedavittreport.com/the-martin-moodie-interview-shiseido-ceo-masahiko-uotani-on-the-power-of-listening/
Note 2) Shiseido Annual report 2019
Note 3) https://jingdaily.com/d2c-brand-perfect-diary-is-disrupting-chinas-beauty-market/