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The Great Reset: Unlocking Brand Value in China 2.0

June 21, 2022
June 21, 2022
Olavo de Amorim via Canva

Amid China’s emergence from lockdown, structural flaws exposed in the cross-border model, marquee global beauty brands registering an unprecedented dip in sales on Tmall—up to 40%, in some cases—the platform itself facing intensifying competition from burgeoning social, content, and e-commerce platforms and, topping it all off, C-Beauty coming into its own with a vengeance, a reset may be in order both for those brands in the market and future entrants.

This in turn begs many questions: What does the new model looks like? What is the groundwork that needs to be laid to get it off the ground? What is the model’s objective? Starting with the last question first, I would submit the model should unlock brand value and ensure profitable growth rather than being based on chasing sales, as it’s been to date.

To begin to think about a go-forward model, it may be helpful to step back and understand how we got here.

TPs—third-party Tmall accelerators—hatched when the platform emerged, are an integral part of the e-commerce ecosystem. They adeptly harvest traffic and accelerate demand once already branded products are on the platform. Think Amazon, as an analogy.

Lured by the promise of fast growth, Western beauty brands jumped onto the TP bandwagon expecting to scale and unlock brand value in the world’s second-largest beauty market. Fast-forward and today’s reality is starkly different: instead of authentic brand engagement with an avid Gen Z and millennial community, livestreaming on Tmall with a constant stream of promotions and discounts became the proxy for brand building.

But this model hasn’t worked—chasing sales on Tmall via discounting and promotions isn’t sustainable, it caters to the discount-driven consumer, and the sales spike followed by the trough dilutes brand value. However, by turning the model on its head, we begin with brand building pre-Tmall. In other words, generating brand awareness and momentum takes place across the entire ecosystem of social and content platforms—from RED and Bilibili to TikTok, Kuaishou, Kaola, and Taobao. Only then will profitable traffic flow to your Tmall flagship.

To wit, those beauty brands and their local partners that made the requisite investments in brand building are reaping the rewards. Today, these brands, lockdown notwithstanding, are outperforming the market with sales up as much as 50% vs a year ago, in some cases.

The framework of this new brand-building model is purposefully localizing, seeding, and scaling. And its animating principle is meaningful engagement with 750 million avid Gen Z and millennial consumers. Put differently, sidestepping the pull of quick sales via livestreaming and discounting will pay dividends over time.

That said, making this harder to pull off is an increasingly competitive landscape with the emergence of C-Beauty, foreign brands piling into the market, and the fracturing of consumer attention as multi-content platforms proliferate to meet Gen Z’s and millennials’ ever-evolving tastes and preferences.

As a first step towards meaningful engagement, brands might want to consider understanding their target audience and getting actionable insight on why their brand is relevant. Failing to understand your connective tissue with consumers inhibits effective community building.

Conversely, unpacking your brand value proposition to get clarity on whether your brand DNA resonates with discerning, digitally sophisticated, and tech-forward Gen Z and millennial Chinese consumers is the bedrock of engagement.

Artfully combining content with differentiated digital strategies across and within social, content, and commerce platforms will drive excitement and energy and coalesce community around your brand. At the same time, due diligence on the market entry model and go-to-market strategy, and alignment with prospective partners are must-haves in the brand-building toolkit.

Looking ahead, the future is bright for brands that lay the groundwork for success as they are positioned to capitalize on China’s double-digit growth in the years ahead.

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