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Welcome to China’s KOL Clone Factories

They are admired by millions of young fans for their looks, style and seeming authenticity, but behind the scenes, many of China’s digital influencers are the product of opaque incubators, only adding to the ‘KOL confusion’ afflicting fashion executives doing business in China.
Chonny, one of Ruhan's KOL stars | Source: Courtesy of Ruhan
By
  • Casey Hall

HANGZHOU, China — In a grey high-rise office building, housed within an unglamorous industrial zone a stone's throw from a gritty garment district in the city of Hangzhou, is the headquarters of Ruhan, one of China's most influential companies you've never heard of.

Feng Min is Ruhan’s chief executive, a rotund chain-smoker partial to polo shirts, flat-top haircuts and soccer. Ruhan’s success with digital influencers means he has his pick of up-and-coming young women who want to work with him, and what he is looking for, he says, is deceptively simple: “They need to have good content and they need to be appealing to [other] young women.”

The business of influence is a glamorous one — outwardly, at least —which explains, in part, why it’s growing at an astounding rate in China. Recent research from Tencent, one of the country’s biggest tech companies, shows 54 percent of college-aged respondents identify “online celebrity” as their number one career choice. It’s easy to see the appeal: designer freebies, relatively easy money and millions of adoring fans. It’s the same the world over.

But in China, the pretty faces of online influencers — known as “KOLs” (key opinion leaders) or “wanghong” (Chinese for internet celebrity) — are often just the façade of an industry run behind the scenes by companies like Ruhan, one of the country’s most successful “wanghong incubators” or “KOL academies.”

These firms employ a range of services that go far beyond the remit of influencer agencies operating in Europe or the US. Over eight levels in their Hangzhou headquarters, several hundred workers, overwhelmingly aged in their twenties, diligently answer customer service queries, handle logistics, edit photos and create content for Ruhan’s stable of 50 KOLs. One-third of the content creation floor is devoted to the team of just one KOL, Zhang Dayi.

Ruhan, and several companies like it, continue to churn out an army of online influencers — largely young, beautiful girls passionate about fashion, beauty and fame — who make up the increasingly homogenised faces of the wanghong economy, projected to reach 116 billion yuan ($18.3 billion) by the end of this year, having doubled in value in just two years, according to CBNData.

Fresh off the assembly line

When Chinese netizens refer to a “wanghong face,” they usually mean a pointed chin, large eyes and small mouth. The look has become so pervasive that video tutorials teaching girls how to apply makeup or style their hair in “wanghong style” is now shorthand for glistening pink lips, dewy porcelain skin, peach-toned cheeks and tresses falling in gentle waves.

“These wanghong, they have a similar style, like an adorable Chinese doll... They look exactly the same and there are hundreds of thousands of these so-called ‘influencers’ on Taobao, Weibo and live-broadcasting [channels],” says Yu Xiao Ge, formerly editor-in-chief of Harper’s Bazaar China and now one of China’s most influential online personalities, who has taken a different route to success. With 50 million yuan ($7.9 million) sold through her WeChat store, BuyBuyBuy, since its launch in September of last year, Yu (also known by her English name Hugo Yu) wields digital influence by organically building communities of likeminded young women through her WeChat mini programmes iSnob and iDS.

But as Yu notes, many of China’s newer female influencers are cute, inoffensive carbon copies of one another who have been groomed by incubators after earning a core audience on their own. One reason for this homogeneity is undoubtedly the narrow definition of beauty traditionally accepted within Chinese culture, but another is clearly the influence of firms like Ruhan.

Ruhan’s roots are telling. Prior to 2014, it was a clothing manufacturer called Libeilin, making mass-market women’s clothing at factories in Zhejiang Province (of which Hangzhou is the provincial capital) generating 200 million yuan ($31.4 million) per year on Taobao, Alibaba’s C2C market- place site.

Rather than rely on a traditional approach to building its brands, which would have required significantly larger advertising spend every year to attract eyeballs on Taobao’s ever-expanding ecosystem of brands and store- fronts, Ruhan decided to try something completely different. Enter influencer Zhang Dayi, a model who, over a couple of years on Sina Weibo’s micro-blogging platform, had grown an audience of about 250,000 young female fans with her frank, amiable and approachable fashion and life- style-related posts.

Ruhan partnered with Zhang Dayi, investing in the growth of her audience — industry insiders estimate this investment at between five and 10 million yuan ($798,000-$1.6 million) per year at the beginning, though Ruhan declined to confirm the actual figure — and within 18 months, her audience had grown to around four million followers.

In China’s tightly regulated and closely censored parallel internet universe, inoffensive is a must.

In conjunction with Ruhan, Zhang Dayi opened an online storefront selling her own branded clothing, which quickly rocketed up the ranking of Taobao’s most popular stores, and it has stayed in the top 10 pretty much ever since.

Zhang Dayi supplied an active and engaged fan base and became the face for the brand, while Ruhan provided the manufacturing nous, logistics, customer service, inventory, design and content support. They divided up the profits and, in 2016, Guotai Junan Securities reported that Zhang Dayi had earned the equivalent of $46 million.

It was the beginning of China’s influencer incubator industry with Ruhan the first — but certainly not the last — business to set their sights on repeating this successful experiment, birthing new brands, each fronted by one of an ever-growing number of young, beautiful, inoffensive girls. And in China’s tightly regulated and closely censored parallel internet universe, inoffensive is a must.

It is not difficult to understand why young women are the focal point for companies like Ruhan: statistics from CBNData show 18 to 25 year olds having the strongest growth rate on Taobao, with women outspending men at a rate of two to one. But the market is evolving. “Consumerism among the ‘Post-90s generation’ has changed a lot, I think,” offers Feng Min of Ruhan. “Influence isn’t just about the packaging; you can’t fake it.”

In China, “Post-90s” and “Post-80s” generation demographic cohorts are used rather than “Gen-Z” and “millennial” labels as they are more relevant to Chinese consumer segmentation and present different behaviours.

“I think different generations need something different from their KOLs. People of my age, in China, our generation, the people who influenced us were all wearing very famous, very big brands. The concept of the Post-90s is more mixed. Everyone is paying attention to whether you are giving useful information, giving the correct information,” he adds.

According to the company, Ruhan topped one billion yuan ($158 million) in gross merchandise value (GMV) in 2017. Though full-year revenue figures for 2017 were unavailable at the time of writing, a Ruhan spokesperson did disclose that during the Singles Day sales period in November (the world’s largest annual e-commerce sales event), GMV for Ruhan stores came to more than 300 million yuan ($47.4 million).

Several KOLs who have been negotiating with Ruhan in recent months claim that a deal with the firm is typically a five-year term (with extremely stiff penalties for breaking the contract) seeing them take home 50 percent of net revenue. Other incubators with similar operations can take a much higher cut up to 75 percent.

It was Ruhan’s track record and selectivity that drew 24-year-old beauty KOL Chonny into the fold. “Other incubators had contacted me, but I wanted to work with Ruhan,” Chonny says.

Chonny, originally from Guangzhou, with a classic “wanghong face,” came to her career as a beauty KOL via a stint studying nursing in Australia, where, as a foreign student, she became familiar with beauty tutorial videos on YouTube. Like many Western social media platforms, YouTube is blocked in China, but beauty bloggers in China have access to a range of platforms like Weibo and its live-streaming affiliate Yizhibo, Meipai and the community-based Xiaohongshu.

“The advantage is really that Ruhan can offer a degree of professionalism. If I was by myself I wouldn’t be able to achieve the same level as I have with Ruhan. If I was doing this alone, I could have reached 700,000 or 800,000 fans, but to grow a really big fanbase, you need the investment. If you want more people to watch your videos, you need to invest in advertising. To do these things you need a lot of money,” says Chonny, who claims that Ruhan invested 20,000 yuan ($3,000) per day allowing her to quickly grow her fanbase above two million. At the time of publication, she had surpassed three million.

KOL marketplace ParkLu is in the business of bringing together brands and influencers. According to founder and chief executive Kim Leitzes, there are as many as 200 KOL incubators that have popped up since Ruhan first came to prominence in 2014, including Fanxing Youxuan, PBLAB and Yujia Yule (which alone has more than 1,000 influencers on its books) all of which have attracted venture capital. Alibaba has even dipped their toe in the KOL incubator market, investing 300 million yuan (approximately $45 million at the time) in Ruhan back in 2016.

Though they are all KOL incubators in a broad sense, there are significant differences between the business models they utilise in order to benefit from the booming KOL ecosystem in China.

“You have companies that are literally trying to train up thousands of young women to become live-streamers, teaching them how to talk, how to do more flattering lighting or whatever it is. Then you have Ruhan — its history and core is as an apparel manufacturer, and so what they provide is the whole supply chain, products, merchandising, research, support and manufacturing, and the value added was having genuine, authentic marketing face to front each brand, and they build a brand around each KOL,” Leitzes explains.

Then it gets even more fragmented because you see PR agencies, who are actually identifying people who could potentially be KOLs and they will promote them with their clients, take them to events, give them contacts. I was speaking with someone who has a small PR agency in Shanghai and they noticed there was a lack of male fashion KOLs, so they were working with models they selected that they hoped could become KOLs.”

For luxury brands looking at influencer marketing in China, it has been the A-list names that have attracted attention so far. Collaborations between Givenchy and fashion blogger Gogoboi, or Tod’s and sales conversion machine Mr Bags, were high profile examples from 2017. Fang-Yimin, better known as Li Beika on her WeChat profile, is tapped to be one of the top earners in 2018.

These kinds of deals don’t require the intervention of an incubator, as it is easy enough for brands to identify the properties of the big-name KOL who best fits their own messaging and audience and work directly with them.

But things are getting harder. Increasingly diverse, demanding and sophisticated online audiences are seeking more authenticity and near-perfect alignment between KOLs and brands. Even among top-tier influencers, there have been a number of “follower backlashes.” Papi Jiang’s partnership with Jaeger-LeCoultre and Dior’s with Angelababy are two such examples of when some fans believed the misalignment between brand and influencer became too big.

Either way, incubators in the ilk of Ruhan are largely useless for global fashion brands, as their focus is building their KOLs’ own brands and pushing their own products, rather than collaborating with third parties.

Alternative incubator models

It is the other major incubator model, more akin to a traditional talent agency, that is more relevant to foreign brands targeting young audiences in China.

“I think it really depends on the brand,” says Pablo Mauron, partner and managing director of consulting agency Digital Luxury Group. He cites the beauty segment as one that might use the scattershot KOL marketing approach.

“For the luxury industry, they know that a key criterion of success for collaborating with a KOL depends on the quality of the storytelling. [But] if we start to look at segments that might be more mass, beauty for example, seeding your lipstick to 200 online girls who are doing super-cool online tutorials probably, you need to pay less attention to what the collaboration is about and how you want to involve them in the process.”

The life of a wanghong is like the life of a vegetable, it grows quickly, but it also gets old quickly.

Janet Chen is the founder of Tophot, one of a host of incubators that partners with KOLs in a quasi-talent agency model. In all, Tophot has a staggering 30,000 influencers on its books, offering a range of services, from advertising solutions, right up to complete training regimes for KOLs wishing to improve their skills in a certain area. “We train them,” Chen explains. “How to put on make up, how to pose, we offer dance classes and gym classes, we have the best facilities and teachers so they can train themselves to be the best [on whichever platform they choose]. We also offer courses on short-video making and have a technical team that can support them.”

Brands working with the Tophot incubator include beauty players, such as L’Oréal, Max Factor and Shiseido, as well as fashion brands like Puma, Levi’s and Diesel.

Chen is surprisingly frank and circumspect about the future for the young people rising through the ranks of incubators like hers, most of whom will be forgotten tomorrow, displaced by the next young star on a rising new platform.

“The life of a wanghong is like the life of a vegetable, it grows quickly, but it also gets old quickly. Most people understand this, they have five years to make money as a wanghong, then they want to marry a rich person and get a better life,” she says. “We are in the first stage of the digital celebrity history. To date we have been dealing mainly with user-generated content, it’s new and eye-catching for the market, it’s fresh for the young people, but you can see that Weibo has already lost some influence to other platforms. These newer platforms are where the new KOLs will come out from now.”

Diminishing returns

KOLs — and the incubators that work with them — rise and fall with the fate of a particular platform or trend in social media. “In the Western world, at the same time people are using Facebook, Instagram, Snapchat, I’m not sure what. But in China a platform will become super-hot and then almost disappear, so the trend is very important. The upcoming platforms identify the people who have the talent to be powerful on that platform to grab that opportunity,” Yu says.

As live-streaming platforms such as Kuaishou and Bilibili have risen in the past two years, so too have incubators devoted to training KOLs to speak, dress and play to the camera in a way that appeals to the young users of these platforms, getting their return on investment by taking a cut of the “virtual gifts” offered to the live-streaming influencers.

According to Park Lu’s Leitzes, these virtual gifts, emoticons with small digital values that can be sent by fans to KOLs over social media platforms, then redeemed for cash by the influencers, make up the bulk of the value of China’s overall KOL economy, with own-brand stores and third-party brand collaborations often secondary streams of income for KOLs.

But the more players become involved and the more KOLs enter the ecosystem, the chances of getting another breakout star, like Zhang Dayi, become smaller and smaller. It is increasingly hard to replicate her level of success.

“Actually, now if Ruhan wants to do the same thing with other influ- encers the investment required for the same impact is totally different, this is why Zhang Dayi makes a lot of money, but others don’t have nearly the same profile,” says Yu.

A complicating factor is the charges that social media platforms are developing for sales and brand cooperation on their platforms. Unlike Western consumer-media cultures, China has never had strong separation between editorial and advertising content. But that is changing fast and major platforms now charge a pretty penny for sponsored content and advertising.

According to influencers interviewed by BoF, in the past three years the CPM (cost per thousand views) on Weibo has doubled and doubled again.

“With the rise of KOLs [came] the advertising budgets shifting from investing in platforms to investing in individuals. The new set of regulations from Weibo is a way to address that business situation. They are saying, ‘If you decide not to invest in my platform any more, but you invest in an individual to achieve visibility on my platform, I’m still going to charge you,’” Mauron explains.

“There have been cases where the fee for Weibo for a celebrity post, to make sure that celebrity post reaches out to a significant portion of its audience, was like 300,000 renminbi ($47,400) to Weibo, just to make sure that your post will have the reach you could expect. I would say it’s a 50 to 100 percent increase.”

“When other media brands saw the business model of Ruhan they had already missed their chance. Now if you want to buy CPM or advertisements on WeChat and Weibo, it’s incredibly expensive,” Yu says.

For many brands, widening their approach to influencer marketing in China is the way of the future. This will necessitate working across a greater number of KOLs and platforms rather than simply working with single big-name digital celebrities, with the exception of those at the very top of the luxury pyramid.

“If I look at the luxury industry, I have never had clients ask me to come up with a plan that involves working across the board with 50 KOLs involved in supporting a campaign [as a beauty or mass-market fashion brand working with an incubator might], they will always favour more tailor-made collaboration,” Mauron says. “But for the rest [using a larger number of influencers will probably become necessary].”

While fashion executives are indeed suffering from “KOL confusion” in China — often uncertain how to use influencers to best effect in an opaque environment evolving at lightning speed — fashion consumers here have made it clear they will continue to respond to recommendations from their chosen influencer of the moment. Whatever happens next, one thing is for certain: navigating the increasingly complex wanghong economy and mining for the right KOLs will continue to be a defining measure of success in the Chinese fashion market.

BoF's latest special print edition — including our special report on The Business of Beauty — is available for purchase at shop.businessoffashion.com and at select retailers around the world. If you sign up to BoF Professional before June 29, 2018, you’ll receive this issue as part of your annual membership, which also includes unlimited access to articles, exclusive analysis, invitations to networking events and the members-only app. Subscribe here today.

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