BW Confidential - Issue #4 - October/December 2010 - (Page 12)

Update Digital digest China, prestige brands & the web Success in China will be tightly linked to brands’ digital competence, according to a study by US-based L2 Think Tank. The report, which analyzed internet efforts and the ‘digital IQs’ of 100 prestige brands, showed that beauty is performing better than other luxury-goods categories. Out of the 100 brands analyzed from all product sectors, Lancôme ranked first in terms of digital IQ, Estée Lauder came second, Clinique was fifth and Clarins took seventh place. Beauty was also the leader in terms of e-commerce, with six out of the 13 cosmetics brands reviewed selling online in China. However, the report states that brands need to do more to engage with Chinese social networking sites, such as RenRen, Qzone, Kaixin001 and Youku. It shows that Lancôme is doing this well: the brand has an official group on Kaixin001 with more than 250,000 members and its online community site Rose Beauty has over four million subscribers. Estée Lauder and Clarins also have successful branded community sites. Going local is key to succeeding in the Chinese digital space. However, while Chinese search engine Baidu accounts for 62% of the search engine market, only 39% of prestige brands come up in its organic search results. In addition, many brands still don’t include local content nor have sites in Chinese. Given the importance of a local approach, L2 Think Tank advises brands to partner with Chinese technology companies. Another opportunity is mobile. There are around 745 million mobile phone subscribers in China, however only 42% of brands have mobile-enabled sites. Given that China has lower in-home internet penetration than in the West, many Chinese consumers will move directly form no internet to mobile internet. Prestige beauty brand digital IQ ranking in China Category rank 1 Brand Lancôme Digital IQ 167 (genius) Comment Search-optimized site delivers on sales and local relevance; manages four million subscriber brand community Site features Chinese celebrities and local products Impressive platform; could do better tapping potential of the social web Content tailored to local consumers; maintains blog Local company keeps pace with global competitors through strong e-commerce Limited local content beyond recent longform video set in Shanghai, but in English Asian skincare technology resonates; brand tops category in social media Site features a popular Chinese model to appeal to a younger demographic The brand is all over SEO and SEM; site comes up first across the board Despite lack of e-commerce, highlights products that are locally relevant Pure-playing in Europe Selling beauty products on the web is still a thorny issue in Europe, as was shown at a conference held at the Beyond Beauty Paris trade show in September. The debate centered on the new European selective distribution agreement, which came into effect in May and states that brands can refuse an online retailer the right to sell its products if the site doesn’t also operate a brick-and-mortar store (this clause has led pure-players, or internet-only retailers, to file a petition against the regulation). For Eric Barbry, a lawyer specializing in the internet, the clause is an anachronism that ignores consumers’ heavy web use and the growth of e-commerce. “It’s normal that a brand ask a website to respect criteria in terms of the quality of the site. But imposing a physical store is an anomaly, as it makes a difference between online and brick-and- mortar stores when in reality there is none,” he notes. French sample sale website co-founder Xavier Court agrees: “The internet is already part of distribution today. Retailing is about a mix of online, physical stores and mobile shopping— you can’t have one without the other.” Yet brands worry that allowing pure players to sell their products will lead to “a situation where anybody can re-sell our brands, meaning we no longer control where and how our products are sold,” said Clarins Fragrance Group ceo Joël Palix. He also cites product safety and avoiding the sale of counterfeit or out-of-date products online as an issue. Court however, said that protecting safety is not a valid argument, given that consumers often have more information about an online retailer’s reputation than they do about a physical store. “The internet is all about transparency and if you don’t have that as well as good customer service you are dead. There is more advice and product information online than in store, and in the future this means that price will become less of an issue on the internet, as it will be all about service.” Perhaps brands’ real fear about selling to pure players is more about upsetting their traditional retail partners than anything else. October-December 2010 - N°4 - BW Confidential 2 3 4 5 6 7 8 9 10 11 12 13 Source: L2 Think Tank Estée Lauder Clinique Clarins Herborist Dior Shiseido Yue-Sai La Mer Guerlain L’Occitane SK-II Benefit 157 (genius) 146 (genius) 137 (gifted) 112 (gifted) 109 (average) 102 (average) 96 (average) 95 (average) 90 (average) 89 (challenged) Loses points for limited video content on Youku 87 (challenged) Hampered by poor visibility on search 61 (feeble) Lack of a Chinese language option prevents it from keeping pace with peers 12

Table of Contents for the Digital Edition of BW Confidential - Issue #4 - October/December 2010

- Brand & retail news recap
- Digital digest
- Companies on the move
Take note
- Market facts, figures & trends
Best of BW
- Highlights from our e-publication
- The latest in fragrance, skincare & make-up
- BPI president Rémy Gomez
Insight: fragrance
- Category overview
- Retailing
- Industry viewpoint
- New opportunities
- Launch roundup
- Airport Spas
- Spa case studies
- New store concepts
Travel retail
- Market overview
- Retail strategies
- Interview: World Duty Free & Aldeasa
Show preview
- TFWA World Exhibition
- Six up-and-coming beauty brands
Market watch: India
- Country overview
- Industry roundtable
- Retailing analysis
- Sector outlook
- Sustainability
Last word
- Mintel head beauty consultant Nica Lewis

BW Confidential - Issue #4 - October/December 2010