As the makeup industry recovers, Xiaohongshu has shown its increasingly important role in this market. Also, Xiaohongshu is expected to become a lifestyle-sharing platform for younger generations based on its advantage of the B2K2C model.
► Xiaohongshu will play an increasingly important role in the cosmetic market.
► B2K2C model is becoming popular in e-commerce platforms.
Whatever the negative direct influence of COVID-19, sales revenue in the cosmetics industry decreased a lot from January to March this year – however, the revenue has been recovering steadily and speedily since April, with figures showing that the industry is still booming.
A recommendation and promotion strategy based on social media is playing a very essential role in the makeup industry. And Xiaohongshu utilizes its UGC platform, focusing on lifestyle choices among younger generations, to accumulate large product-specific fan bases.
With the mission of ‘Inspiring Lives,’ Xiaohongshu is a social media platform that blends e-commerce, shopping, UGC, and reviews. User can record their lives in the form of short videos, pictures, and words. They can also interact with each other based on interests like beauty, fashion, travel, fitness, food, and many other aspects. Accordingly, Xiaohongshu has become a social media platform that promotes online shopping specific to the beauty makeup industry.
Xiaohongshu has raised a total of USD 417.7 million in funding over 7 rounds. Their latest funding was raised on Jun 1, 2018, from a Series D round – the company’s estimated revenue range is from USD 500 million to USD 1 billion.
As it shows in its funding history, the latest funding type was a series D which was conducted by Alibaba. And this transaction has meant a lot for both sides. Firstly, Alibaba wanted Xiaohongshu to become one of its ‘flow pools’ while Xiaohongshu would utilize Alibaba’s platform to realize content profitability. Also, Alibaba would like to apply the recommendation and promotion strategy of Xiaohongshu for its operation, since the current trend of e-commerce is to increase revenue by the management of KOCs (key opinion consumers), which is the advantage of Xiaohongshu. Lastly, Alibaba can use Xiaohongshu to advertise its products which can increase exposure to specific consumers. Therefore, the cooperation between Alibaba and Xiaohongshu is not as simple as a funding round. They help each other to improve the business model to the next level.
Because of the community feature and Xiaohongshu has creatively developed a consumers-brand influence model by a closed B2K2C loop. In Xiaohongshu, different beauty makeup firms will attract key opinion consumers who can make influences on general consumers. Then these KOCs will share their true experiences of using these products with general consumers. With time going by, key opinion consumers can build trust between themselves and general consumers. And those general consumers are more willing to buy products recommended by KOCs. In the closed-loop of B2K2C, brands establish public praise through the real experience and sharing of KOC to influence more consumers. Users share consumption experience and then reverse influence the brand and other users, thus making it possible to form a positive cycle. KOC has become the most important and special part of this business model.
Firstly, KOCs themselves are consumers. The content they share is mostly their real experiences which can be more trustful for general consumers. They have closer relationships with general consumers. Usually, they share more life-related stuff instead of concentrating on specific characteristics of the products like a professional sale, enhancing the sense of truth for KOCs which gives them more power to influence others.
Additionally, KOCs can start a topic in interesting and creative ways. Nowadays, everyone can be a talented creator based on special thoughts and different experiences. KOCs deliver content by utilizing interaction, questions, songs, and other fun diversions – which shows the diverse, explosive power of social propagation.
Lastly, KOC strategies are more cost-efficient. The KOCs are not stars or professionals. They are like us, but with interesting content to share – and they can promote stickiness and loyalty among users by establishing trust.
2 Break the circle
Just like its mission statement – ‘Inspiring Lives’ – Xiaohongshu has not limited itself to just the makeup industry, which is its best-managed part now. It is heading towards multiple lifestyle-related topics and content, from music to study. All of these show the current popular lifestyle trends among young people.
Recently, Xiaohongshu launched its newest recommendation area – travel. And its defined position in this industry is the tourism decision-making platform which is clearly based on its biggest advantage of recommendation and promotion. With the rapid development of the Internet and 5G, Xiaohongshu thinks a short video, a picture, a description in words, a movie, and a TV show all could trigger a trip. The flows of tourists are spread across many channels. Xiaohongshu wants to gather all these channels to its platform.
However, after recommendation and promotion, all of the services will be undertaken by related companies.
Xiaohongshu’s breaking through its circles is strengthening its mission and showing its future direction – which is to make full use of its strong recommendation and promotion ability to illustrate the popular lifestyle trends among young people.
3 Collaborate with national brands
Although European & American beauty makeup brands dominate this market, the growth rate of national brands has increased much faster than other brands, with 65.9% YoY. Also, many novels and unique national brands have performed astonishingly in the last year. In 2017, the Perfect Diary carried out a round of marketing on Xiaohongshu. Through refining brand stories, more than a dozen KOLs shared the related content. A month later, the notes of the Perfect Diary rose to three or four hundred, among which only about a dozen were the official contents of the brand. Xiaohongshu revealed that, in 2018, the daily average revenue was more than CNY 20,000.
As national brands enter more consumers’ lives, national brands can accomplish more with qualified products and effective campaigns. Accordingly, Xiaohongshu could be one of the best channels for national brands to advertise their products and brands.
Based on current trends, it is plausible to believe that Xiaohongshu would go further to expand its community to every topic in lifestyle based on its recommendation and promotion advantage. For its makeup business, it would be more like the business model of Instagram+ Sephora. As for other content areas, it would be also similar to the cosmetics businesses which are already a combination of social media and e-commerce apps. However, there are some risks and threats that Xiaohongshu needs to pay more attention to, such as fake advertisements, ghostwriting notes, and illegal content. Any violation could put Xiaohongshu in trouble. Thus, Xiaohongshu has to standardize the content operation and improve the content quality which can accelerate its future success.