China's Lipstick War

More luxury brands are rolling out lipstick lines in a bid to attract more Chinese consumers. We discuss why and which marketing tactics are taking off

by Franklin Chu

This article originally appeared on BeautyMatter, a leading media platform for global beauty & cosmetics news.

Luxury brands such as Chanel, Dior, and Gucci are all fighting for market share in China’s high-end lipstick market. Why?

Lipstick has long been perceived as an entry-level item for millennials to get a taste of luxury, with brands hoping that down the line these shoppers will buy big-ticket items like handbags. Since cosmetics is the top category for cross-border e-commerce, US beauty brands can discover proven approaches to sell to the biggest retail market in the world.

Lipstick Makes Sense for Chinese Customers New to Makeup

Color cosmetics is still a relatively new category in China, accounting for just a quarter of the country’s total beauty and cosmetics sales. This is because Chinese consumers prefer whiter skin and tend to enhance their looks naturally through skincare products. Globally, makeup accounts for the majority of beauty sales. 

However, trends are changing, and partly because of China’s influencers, makeup is becoming more and more popular, with lipstick being the first entry-level item that consumers tend to buy. In 2018, lipstick accounted for 39% of all color cosmetics sales in China, according to data from search engine Qihoo 360 and CBN Data.

Why Luxury Brands Are Pushing Lipstick in China

Consider this observation: Chinese consumers are aspirational consumers in that their purchasing behavior reflects their aspirations to live like the wealthy. Incomes in China have risen considerably over the last ten years, and many consumers are optimistic that they will one day enter the upper class. 

This is why they’re willing to spend beyond their means—many items in China cost just as much or even more than they do in the US market, and yet people are still willing to buy them. Some are even willing to sell their kidneys to buy an iPhone. Products “Made in the USA” are in demand because Chinese consumers perceive American brands as prestigious symbols of affluence and US product quality tends to be superior to domestic brands.

Because of this, foreign brands market themselves as premium brands in China. This is in contrast with the US market, where many items are marketed as value items for the middle class. But luxury items such as handbags are still pricey for the average college grad in China, where monthly salaries likely average under 10,000 RMB (US$1,454). This is where luxury lipstick comes in.

Young female college graduates can’t afford to spend thousands of dollars on a luxury handbag, but they can afford to spend $50 on a tube of lipstick. Once these customers grow older, they’ll be able to upgrade to higher-ticket items. What’s more is that luxury lipstick also acts as a bulwark against slowing economic growth—also known as the “lipstick effect.” 

While consumers may pull back on discretionary expenses such as luxury handbags, they are less likely to pull back on luxury lipstick purchases. This may prove to be particularly important now that China’s economic growth is slowing down. These factors have spurred the world’s luxury brands to launch new lipstick lines. YSL, Chanel, Dior, and Armani are some of the most prominent players in the Chinese market. 

Standing Out in China’s Lipstick War

In China’s increasingly competitive market, brands are coming up with all sorts of creative marketing campaigns to push their lipstick products. After all, in a market where there are low barriers to entry, the best way to compete is to create a unique customer experience. 

We discuss three interesting ways brands are marketing themselves to stand out amidst the competition. 

Online Personalization Mini-Apps on WeChat

Personalization is a service that was previously reserved for VIPs. Now, YSL Beauty is making it available to everyone, using China’s pervasive social media platform WeChat.

YSL Beauty’s WeChat mini-program enables users to add icons to lipstick packaging, engrave their names, write personalized gift cards, and pick their own gift boxes as well. After placing an order, customers can have the products shipped to their homes or friends and family. 

WeChat, with its billion-plus users, is an important social media platform for any brand to be on to engage increasingly affluent Chinese consumers. However, it has two main drawbacks in that users cannot see content posted by users they are not friends with, and the advertising options have limited targeting technology and low ROI. 

This means that brands have to create innovative, engaging customer experiences that will encourage customers to share with one another. A personalization mini-app such as the above is just one example. 

Lipstick Arcade Games & Vending Machines

Recently, lipstick vending machines have been popping up all over China. They even come attached with arcade games that participants can play to win special offers.

For instance, some lipstick vending machines come equipped with an arcade game. Participants pay a small fee through WeChat Pay or Alipay to play. If they win, they’re rewarded with lipstick from the likes of Dior, Givenchy, Estée Lauder, etc., which would normally cost over $50. 

These vending machines provide another chance to interact more closely with customers, and yet the challenge involved also creates a sense of scarcity that makes consumers want the products even more. This makes it a win-win for brands. Today, many shopping malls throughout China have installed these machines to entertain their guests. 

Using AR Technology on WeChat to Test Virtual Lipstick

On July 5, Armani Beauty rolled out an augmented reality WeChat mini-program that enables users to test out different shades of lipstick. The mini-program is powered by technology from ModiFace, which was acquired by L’Oréal (Armani Beauty’s parent company) and has over 30 patents in the beauty technology space. At the product page, customers can click on a camera icon to see how different colors look on themselves in real life.

AR technology like this has been implemented inside offline smart beauty stores such as Watsons x Colorlab collaboration stores, in which customers use AR-powered magic mirrors to test out different products. But Armani Beauty is the first to use a mini-program to debut this type of technology. This type of personalization feature is key to enhancing the customer experience, and using WeChat as a platform makes it easier for customers to share amongst friends. 

Key Takeaways

  1. Color cosmetics is still relatively new to Chinese consumers, who prefer skincare products. Lipstick, as an introductory product, is the most popular item.

  2. Luxury brands market lipstick to Chinese consumers, who have lower salaries and purchasing power, in the hopes that they can upsell them on higher-ticket items in the future when they earn higher salaries and have more disposable income.

  3. Brands are coming up with all sorts of tactics to engage customers, such as personalization mini-apps, video game vending machines, and AR-powered technology to test virtual makeup. 

Franklin Chu

Franklin Chu, managing director of Azoya USA, is an expert and speaker in China cross-border e-commerce, where Beauty & Cosmetics are leading categories. Franklin also serves as President of Sage Capital Group Inc. a private equity and global investment management firm and is a graduate of Yale University and Harvard Business School.

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