The moat of Xiaohongshu and the next challenge

Text | New Eyes, Author | Huang Yanjun, Editor | Sang Mingqiang

As a clear stream of Chinese community, Little Red Book has been the focus of Internet attention since its birth in 2013. It is not only mixed with the classic thinking of the previous generation of product managers on the atomized community, but also brings new formats and connection methods with the influx of a large number of emerging and young groups, which also creates the unique style of Little Red Book — — Contradiction between increasing content richness, high user stickiness and slightly inferior commercialization ability (compared with Tik Tok and Aauto Quicker).

Among them, the news that Xiaohongshu was about to be listed on the IPO last year was more discussed by the outside world, but in the end, Xiaohongshu responded with no plans. According to relevant sources, the valuation of Xiaohongshu in the private equity market has dropped from $20 billion in 2021 to $10 billion to $16 billion last year. Perhaps due to the pressure of commercialization, Xiaohongshu has launched various marketing tools one after another since last year, and joined forces with major brands to promote the market and create activities in an attempt to break the current commercialization dilemma.

This kind of pressure can be seen at the WILL conference: if the quantification and marketing product of WILL2023 "planting grass" is version 1.0, then on WILL2024, xiaohongshu has established a mature and complete marketing system. Xiaohongshu launched his own "methodology of planting grass", which they called "the third paradigm of marketing". This methodology focuses on marketing from beginning to end, from user capture to product marketing. Xiaohongshu tries to prove his commercial value and potential by "planting grass".

To some extent, this is also the direction that Little Red Book deserves to study at this stage: What is its moat, and what are the possible challenges it may face next?

Xiang Sheng, the head of Xiaohongshu Marketing Laboratory, said, "Fully understanding people is the beginning of planting good grass." In order to understand people, Xiaohongshu designed more than 1,400 labels for users, and they also superimposed "demand" labels on the basis of crowd labels. Why do you need so many labels? In Xiang Sheng’s words, their users "will use the little red book as an encyclopedia". The function of this encyclopedia is realized through active search.

A very high proportion of users in Xiaohongshu will actively use search: 70% of monthly users will use search, and 88% of users will actively search.

COO Conan shared similar data. "More than one-third of users open the little red book, and the first step is direct search." In some scenarios, the depth and breadth of the active search by users of Little Red Books are very high. Take the swan home as an example: in a month’s time period, users will search and browse more than 400 notes related to the new moon; By the time the swan arrived home, everyone read 8.3 notes about this brand on average.

However, the choice of this scene has certain particularity: "Lunar New Year" is a long-term and important role, and people have always been more cautious when choosing this kind of service. What is more noteworthy is that in ordinary scenes, do users of Little Red Book still have such a deep and extensive search? If not, this may affect the marketing mode of Little Red Book.

Active search can reflect two things: on the one hand, users will refer to Xiaohongshu’s evaluation notes, and Xiaohongshu can plant grass only by accurately matching user needs with brand products. On the other hand, it shows that such users don’t simply regard Little Red Book as a social tool to kill time. They open Little Red Book with a pre-set clear goal. In this case, they are hard to be planted unintentionally.

So you can only let them buy products or services that they have consumer demand from the beginning.

Xiaohongshu is also aware of this phenomenon, and CMO Zhiheng said, "Your consumers have completed their consumption decisions before entering the trading floor." The marketing logic of this little red book is that they start from the demand, find the core population with this kind of demand, and find the matching attributes in the product in reverse, so as to realize the docking between the product and the population. This can only achieve the docking of products and core user groups, and cannot achieve the leap from core groups to broader potential groups. In order to build this missing bridge, Xiaohongshu realized the spread of brand products in the community through the "crowd anti-funnel model". The core of this diffusion lies in how to achieve effective and accurate marketing.

Xie Xuan, head of data products, said that the idea of the anti-funnel model is to impress the core population with products. This is the starting point of commodity sales, because if you don’t buy them, no one else will buy your products.

The key word of Little Red Book’s positioning for the core group is "accuracy", and the way to achieve "accuracy" is essentially a process from "having" to "having": by analyzing the characteristics of the original consumers of Little Red Book users or brands, we can capture people with similar characteristics in Little Red Book according to these characteristics and generate the core group of Little Red Book marketing. This model is not difficult for brands that have accumulated a certain customer base, but for new products and businesses that have never appeared in the market, how to accurately define the core population under the condition that the original consumption sample number is extremely limited may be a hidden difficulty.

It is not difficult to capture the potential crowd from the core crowd. Similar to the content recommendation algorithm of social media, it changes from judging the similarity of content to judging the similarity of users. Once the potential population is delineated, the next step is to decide how to put marketing into practice. At this point, Xiaohongshu added the key indicator of "crowd asset turnover rate", which measures the degree of loyalty of consumer groups. The higher the turnover rate of crowd assets, the more difficult it is to become a long-term user of the brand, and the launching strategy should be changed accordingly.

Next, the brand can choose the intensity of marketing according to the purchasing power of users to ensure the maximum conversion rate. Therefore, the brand completes the marketing process in Xiaohongshu through three steps: anchoring the target population, expanding the potential population and accurately putting into marketing. Xiaohongshu also packaged the whole process intimately, and launched an iterative product "Linxi". Correspondingly, the gradual upgrade of "Linxi" showed Xiaohongshu’s ability to help merchants capture core customers.

This is a completely different route from Tik Tok, Taobao and Pinduoduo. Little Red Book has not become an e-commerce platform for selling goods live, but an amplifier for brands to tap potential consumers. As an amplifier, the core is to make the brand realize that consumers are from the little red book. In other words, consumers must make decisions on little red books.

Bagpipes, vice president of Xiaohongshu technology, said, "No matter which platform orders are placed, when users make decisions, they are in Xiaohongshu."

The data can also support this assertion: 90% of users’ consumption decisions are influenced by the search results of Xiaohongshu; The number of users seeking to buy is as high as 120 million per month. Perhaps this is the differentiated positioning of Xiaohongshu for himself. Different from other platforms, in the traditional e-commerce platform or the mode of live broadcast with goods, consumers’ purchasing behavior and consumption decision are consistent in time and space, and the essence of platform ordering is the embodiment of consumption decision.

At this stage, Xiaohongshu is doing another thing: today, users make consumption decisions on Xiaohongshu, but the purchase behavior is not triggered in Xiaohongshu, and users will buy the same paragraph online in physical stores or online specialty stores. This makes the purchase behavior delayed. Although the consumption decision has been made in Xiaohongshu, the purchase behavior will be delayed until the moment when the consumer finds the physical product.

This difference avoids the direct competition between Xiaohongshu and other e-commerce platforms. It doesn’t really sell goods. It is just a platform that provides consumption decisions, just like when Xiaohongshu made a shopping guide PDF: it can’t provide purchases, but it guides users’ consumption decisions, which realizes planting grass.

Consumption decisions are made every day, but on special days and in a specific atmosphere, users’ consumption desires will be enlarged accordingly. Xiaohongshu extends this particularity to every day of life as much as possible, and there are two ways to land: custom festivals and entertainment trends. Custom festivals are common marketing methods, from Ali’s "double 11" to the later extended "Double 12".

In contrast, Xiao Hongshu’s "festival making" pays more attention to the sense of life, and many festivals have concrete expressions of landing reality. Apart from the sense of life, this "festival-making" way makes each festival have a prominent theme, which contains many potential consumption trends, so Little Red Book is artificially creating and guiding the birth of a consumption trend.

Looking closely at these themes, we will find that each theme is broad enough to cover all kinds of consumer goods, but it is not abstract enough to break away from the festive atmosphere. Xiaohongshu maximizes the range of consumer products when delineating the theme of the festival. It creates an illusion for users: these festivals are closely related to my daily needs, and I have a large number of products to choose from. But there is no need for these festivals, and everyone still has so many products to choose from.

Advertising through entertainment trends is also a common marketing tool, and online little red books are relatively well-behaved. Offline, last year Xiaohongshu began to be an offline community, and began to cooperate with brands to make offline markets with various themes. Minako, a little red book, revealed that they intend to create a breakthrough point during the Paris Olympic Games and make a "national sports week"; However, the specific form of landing was not disclosed by Xiaohongshu.

Judging from the offline "outsiders’ day" data shared by Xiaohongshu: 700 million people exposed 20,000 people to participate offline; 380 million people exposed 10,000 people to participate offline. In the traditional webcast, it is not easy to praise the broadcast ratio of about 1%. Once people are required to participate offline, the conversion rate will only be lower.

At this stage, it is not clear what level the offline conversion rate of Xiaohongshu is compared with the investment, but the offline community is easy to feel tired, which requires Xiaohongshu to continuously improve the conversion rate while innovating. Xiaohongshu did not disclose how they improved the conversion rate, only indicating that they have done a lot of offline fairs and will do more offline activities with different themes. Compared with many online experiences, Xiaohongshu’s offline community is still in the growth stage.

Xiaohongshu seems to have been expressing a core idea throughout the conference: demand is not created by Xiaohongshu, but owned by users.

Xiaohongshu only connects users and products with these consumer needs; Little Red Book creates trends and scenes. The trend magnifies the consumer’s desire, and the scene highlights the unique highlights of the product. Instead of creating demand from "0" to "1", it is better to start from "1" to "1": with the help of 60% users with super consumption power from first-and second-tier cities, tap existing demand, broaden application scenarios and lifestyles of consumer groups, and achieve accurate docking between brands and target groups. Little Red Book has become a marketing amplifier based on community content.

In the face of commercial competition, Xiaohongshu seems to be avoiding direct opposition with other online shopping models.

Compared with the live broadcast ecology of the head anchor, Xiaohongshu is softer: by maintaining the existing community vitality, it can influence and promote users’ consumption decisions in a more subtle way, thus feeding back the marketing efforts of the brand in Xiaohongshu and realizing the realization of Xiaohongshu community traffic. This invisible commercialization model, on the one hand, avoids users’ resistance to the frequent advertisements for selling goods in the content community, and on the other hand, helps brands to integrate into users’ life scenes more seamlessly. Correspondingly, the commercial liquidity of traffic under this mode will be weakened to some extent.

The "planting grass" mode of Xiaohongshu has an implicit premise: 90% of the content of Xiaohongshu comes from UGC, and more than 80 million users will actively share it. Minako, the Little Red Book, commented that Little Red Book is a "very creative and imaginative community", and this vitality is the basis for them to create scenes and trends. Once the number of brands that have settled in exceeds a threshold, brand stores can be found everywhere in the search results. Can this premise be maintained?

The "Search Direct" of Xiaohongshu online can put brand notes at the forefront of search results. This mode is extremely dependent on the quality of the notes produced by the brand: it looks more like an advertisement, or the experience sharing of daily necessities. Xiaohongshu’s coping strategy is to control the quality of notes and put the promotion of high-quality notes ahead.

In the long run, if Xiaohongshu has enough brands in the future, it will cover a large number of products in the case of extensive search. At this time, how to avoid making users think that the search results are all advertisements and give up the next search may be something Xiaohongshu needs to weigh. Once Xiaohongshu is no longer the user’s "guide to national life", the marketing model of Xiaohongshu at this stage is difficult to produce any effect, which may become a card point for the further commercialization of Xiaohongshu in the future.

In addition, marketing is an extremely commercial behavior.

Xiaohongshu has no influential opinion leaders, no big V users with millions of fans, and no one can answer them all at once. When Xiaohongshu is used as a content community, this model has strong user friendliness; Once it is commercialized, it means that marketing is more difficult, because no one can easily trigger the herd effect.

In the traditional e-commerce platform, once the influence of the anchor with goods is large enough, the importance of the platform to the anchor will gradually weaken. According to Tik Tok’s closed-loop system, "planting grass" can be divided into two types: user’s active search behavior and passive traffic behavior.

In Xiaohongshu, users who actively search account for a very high proportion, and there is no head anchor who can survive across platforms. If the brand wants to reach the target population, it is difficult to reach the core users directly across Xiaohongshu. After all, this contact is of little significance, and the core users are not "core" enough. In this case, it is difficult for the brand to independently enter the marketing products of Xiaohongshu without any help from the platform, which is the advantage of Xiaohongshu.

Xiaohongshu also has no intention of being a loner: Xiaohongshu proposed "building an open and connected Xiaohongshu commercial product". By opening up the background data of Xiaohongshu, we will form a data alliance with JD.COM, Dewu and Meituan, so as to realize the data handshake of all parties, which is convenient for merchants to find out the grass planting ecology of Xiaohongshu.

Compared with the "TrueInterest" quantitative index of planting grass introduced by Little Red Book in WILL2023, the data alliance and "planting grass all over the world" announced by WILL2024 are more mature and comprehensive. Brand business decisions are based on these data, and similarly, these data are also feeding back the accuracy of brand business decisions. Therefore, once the brand joins Xiaohongshu, it is equivalent to obtaining a pass for these platform data. This is a good choice for traditional brands who are difficult to obtain the data of the telemarketing platform.

Looking at the offline, Xiaohongshu has done a lot of expansion in addition to holding community market festivals. Since September last year, Xiaohongshu has launched "grass training camps" all over the country, which aims to attract small brands that lack sufficient resources and experience in e-commerce operations.

For big brands, Xiaohongshu launched a joint market with Yili and McDonald’s, and jointly held a luxury digital summit with VOGUE Business. It is using these brands to expand its offline appeal. The offline activities at this stage can only show the coping strategies of Xiaohongshu to different brands, but can’t see the core differences between Xiaohongshu’s offline model and other ecosystems. Perhaps compared with the complete marketing system, Xiaohongshu’s offline development path is still unclear.