Perfect Diary is the first Chinese beauty brand based on a direct-to-consumer (DTC) business model. Launched by Yixian E-Commerce in 2017, it is designed to be an affordable alternative to foreign cosmetics brands, targeting Gen Zs and millennials in China. It was the number one brand in China’s online color cosmetics market in 2019. Its parent company Yixian went public under the name Yatsen Holding Limited (NYSE:YSG) in November 2020. The brand had achieved enviable growth from startup, with revenue reaching USD655.2mn in 2021. However, things soon took a downturn for Perfect Diary. Growth stalled, and eventually its sales started to decline in 2022.
The case aims to (1) illustrate how Perfect Diary used a blue ocean strategy and internet strategy to grow and expand; (2) identify the key reasons of its rapid decline; and (3) explore strategic options for the brand to regain success.
The case provides an overview of China’s beauty industry and the market dynamics that shaped the rise of Chinese domestic cosmetics (C-beauty) brands like Perfect Diary and Florasis. It provides a strategy canvas for students to learn where the C-beauty brands are investing, the products, service, and delivery factors the beauty industry is competing on, and an opportunity to explore strategic options. The teaching objectives are:
1. To provide students with a basic understanding of the Blue Ocean Strategy and Internet Strategy in creating a competitive advantage.
2. To explore the opportunities and challenges associated with sustaining a firm’s competitive advantage.
3. To familiarize students with the tools of strategic management and identify strategic options to regain success.
4. To facilitate a broader discussion on the dynamics of online business models, and e-commerce in Asia.