Before Dr. Wen emerged, he had already built Heyu Group, which had become a well-known presence in the Xiamen e-commerce circle.
In 2012, Taobao Mall officially changed its name to Tmall. In the same year, Xu Yonghan and his brother Xu Yongjie, both from Putian, Fujian Province, started their business. During that time, their cousins, relatives, and friends gradually joined the company. In 2014, the company was renamed Heyu Group, officially establishing e-commerce and beauty as its core business.
Traffic and popular products are ingrained in the DNA of Heyu Group. From 2012 to 2016, Taobao and Tmall were the largest online traffic pools. In 2015, Heyu Group’s products accounted for half of the top 10 beauty products on Taobao’s traffic list. In Xiamen’s e-commerce circle at the time, Heyu Group had two nicknames: “Horse Ointment Brothers” because their Horse Ointment sales far exceeded similar imported products from Korea, and “Millionaire of the Sea” because they enabled 100 people to earn their first one million in Heyu Group.
In fact, on the internal popular products list of Heyu Group, Dr. Wen, the fastest-growing beauty product on Douyin in the first half of this year, did not make the cut. The top spot on the popular products list was BUV Chlorophyll Amino Acid Cleansing Mud, a self-owned brand of Heyu Group that was launched in August last year and has sold over 3.5 million units. It was followed by another popular product, BUV Blackberry Scrub, which has sold over 2.65 million units.
“We also have dreams of building a brand. Our first self-owned brand, KAZOO, was built with a brand-focused approach,” emphasized Xu Yongjie, co-founder and executive director of business at Heyu Group, during my visit to Heyu Group’s headquarters located at No. 320 Tongji South Road, Jimei District, Xiamen.
Interestingly, when discussing the phenomenon of “Dr. Wen” and Heyu Group with a founder of a beauty brand, she believed that among the three self-owned brands promoted by Heyu Group, KAZOO had the most potential to become a brand, as it occupied a favorable ecological position in neck care.
However, from the current perspective, both in terms of products and strategies, KAZOO, which focuses on reducing neck wrinkles but also offers facial cleansers and lip creams, is still following the path of Dr. Wen and BUV’s popular products. The only difference is that its average order value is more than five times higher.
At a time when Chinese beauty brands have outperformed international brands, and in the fierce competition of Douyin, where everyone chases after traffic and popular products, the boundary between white-label products and brands is becoming increasingly blurred. Traffic and popular products have become a secret language known to all but unspoken.
Therefore, despite the controversy surrounding it, Dr. Wen, who became “overnight famous,” has attracted significant industry attention. Following the footsteps of the two leading Chinese companies, Pola and Betteny, the Oriental Beauty Valley Cosmetics Technology Research Center organized visits by raw material suppliers, manufacturers, brands, and media representatives, such as Huaxi Bio, Laibo, Dr. Aier, HFP, and Qingyan, to have in-depth exchanges with Heyu Group. This was the first public interaction of Heyu Group with the industry.
After an in-depth visit to Heyu Group, I discovered that the explosive popularity of Dr. Wen was not surprising at all. It was simply the result of Heyu Group’s continuous adaptation to changes in traffic, accumulation of experience in popular products, and optimization of organizational systems over the past 12 years. Moreover, even before Dr. Wen, Heyu Group had already achieved success with over 6 million units sold for a single product. After Dr. Wen, they also had other popular products like BUV, authorized products like Baiyunshan cosmetics, and operationally managed products like Lao Zhongguo Miqi, all of which Heyu Group successfully developed into popular items.
Setting aside the controversy between white-label products and brands, what matters most at present is how Heyu Group continues to produce popular products. What is its core competency? What kind of company does it aim to be? After two exchanges with Xu Yongjie, co-founder and executive director of business at Heyu Group, I saw a Heyu Group that was different from the perception of the outside world.
Best-selling Products
On the afternoon of June 27th, in a small conference room at Heyu Group, as the business manager of the Heyu Group Business Center introduced how to create popular products, the room, which could accommodate forty to fifty people, fell silent. Operations and product managers from brand partners, and even research and development personnel, took out their phones to record videos or snapped photos of the presentation slides.
According to Heyu Group, for a product to become a hit, it needs to meet the following six conditions: product strength, precise timing for market entry, unique selling points, user demand, positive feedback from customers, and pricing for profitability. When launching a new product, they focus on three aspects: 1) whether it belongs to a trending category (within traditional categories, fast-growing new categories, or hybrid categories); 2) user profile analysis (identifying core user data, consumption scenarios, and purchase motivations); and 3) addressing the primary pain points (the most direct and perceptible reasons to make a purchase).
If we examine the track record of Heyu Group’s popular products, it’s not difficult to see that the categories are mostly functional skincare or oral care products with strong selling points but weak brand presence. For example, the efficacy of “removing blackheads and tightening pores” has been thoroughly explored by various in-house brands under Heyu Group. Whether it’s Haiyang Poetry, which sold over 6 million units on Taobao, the currently popular BUV Chlorophyll Amino Acid Cleansing Mud, or Dr. Wen’s flagship product, B5 Salicylic Acid Mask.
Relying solely on product and category advantages, how can they maximize the platform’s traffic dividends, especially considering that the platform’s traffic rules are constantly changing? Regarding this question, Xu Yongjie believes, “The logic of e-commerce operations is universal, and Heyu Group will upgrade and adapt based on the different rules of each platform. What we can do is optimize the images, visuals, content, and selling points, and also upgrade and iterate on the advantages of traditional channels, applying them to new media.”
The cost ratio of white-label products, which is a concern for industry professionals, was also discussed during the event. In response to the industry’s circulated formula for white-label products, “2.5 yuan product cost + 3,000 yuan trademark fee + 80% cost ratio,” Xu Yongjie stated, “There is no formula in the business process of a company. Each brand has different positioning and strategies, and what matters more is the revenue of the enterprise and the product’s ability to survive.”
He explained that in the past, Heyu Group relied on a model of “many stores, many people, many products,” surrounding cities with rural areas. Now they have entered a stage of standardized and refined operations with “big stores, flagship products, and large teams.” Big stores refer to comprehensive store development from the perspective of profitability, product variety, and ratings; flagship products are high-volume, iterative, and well-established products; large teams integrate all resources from the front end, back end, and terminals to achieve concentrated efforts.
When I asked him, “If a product with the same selling point as Dr. Wen but at a lower price were to emerge and receive the same level of marketing investment, how would Heyu Group respond?”
Xu Yongjie replied, “For a product to become a golden flagship or a hit, it requires multiple factors from different perspectives. It’s not just about having a cheap product or a brand with traffic to achieve high sales. It takes a comprehensive approach, including capturing the product’s selling points, the promotional methods of the technical team, financial support, the responsiveness of the supply chain, the speed of warehousing and logistics, and even after-sales service, to make it a hit.”
Organizational Strength
Located in the Xiamen Guomin Investment Building, Heyu Group occupies seven out of the ten floors of the building. Three of these floors serve as operational centers, housing a team of several hundred people. Creating popular images, driving traffic through videos, and live streaming are crucial competitive advantages for Heyu Group. The entire group has over 30 shooting scenes, 13 live streaming rooms, and three large studios covering an area of over 1,500 square meters. According to Heyu Group, their professional imaging team produces over 10,000 images and videos on a monthly basis.
On job recruitment websites, Heyu Group has the most job openings among e-commerce companies in Xiamen, with over 110 positions currently available, half of which are related to operations. The salary and benefits offered are more competitive than those of their counterparts in Xiamen. For positions such as Director of Production and Procurement, the annual salary is over 280,000 RMB, with stock options as incentives. Next to the job posting for anchors, there is a small note stating that night shifts are accepted.
Heyu Group is known for its 24/7 non-stop live streaming, a unique feature of the company. Each anchor works for eight hours in a three-shift rotation, and there is only one anchor in each live streaming room. Meanwhile, the control room and operations team provide simultaneous support to multiple live streaming rooms. According to Heyu Group, the “345” compensation philosophy is their leading incentive concept, where three employees are paid at the rate of four employees, creating the value of five employees, thus “enabling the organization to create high value.”
It can also be seen that in this company with over 1,000 employees and an average age of 25.8, whether it’s a single anchor’s live streaming room, the SOP process for creating explosive products, or the efficient coordination between the front, middle, and back-end systems, organizational drive is everywhere.
Regarding this, Xu Yongjie is quite confident, stating, “Most companies that sell explosive products and generate profits may not invest several million (in consulting fees) in organizational transformation like Heyu Group. But we have this determination. Besides technology, talent is also a core competitive advantage for Heyu Group. From the beginning of our entrepreneurship until now, all the shareholders have remained the same, only increasing and never decreasing. The executive team is also very stable, with almost all members having worked for more than 10 years, 8 years, 5 years, or 6 years or more.”
Heyu Group has 68 partners, making it one of the companies with the most partners among Chinese beauty e-commerce companies. With so many partners, how do they make decisions?
“Two-thirds of Heyu Group’s shareholders are our relatives. When it comes to major decisions, we can sit down and have a cup of tea to decide together. Once the group makes a decision, we will mobilize all resources to support it. The shareholders of the group generally maintain a unified perspective with the group at the core. In the implementation of projects, the person in charge has the final say. Therefore, we allocate work according to the advantages and expertise of each shareholder member, including when solving problems.”
Xu Yongjie said that to become a partner of Heyu Group, one needs to have professional skills and management abilities. In terms of management capabilities, the ability to develop others is also required. “Large companies do not rely on specific positions and individuals; they rely on systems and processes to operate. People and positions are just part of the system and process.”
For ordinary employees, Heyu Group has a complete training system, known as the “Cocoon Plan – Becoming a Bee Plan – Bee Larva Plan – Queen Bee Plan.” Heyu Group refers to it as a three-fold speed training system that transforms individuals from novices to senior managers. Similar to internet companies, Heyu Group has established dual development paths for talent: the management path and the professional path, referred to as the M-level and P-level, respectively.
Taking into account the B2B Huo Junshi supply chain system, the ticketing service system by Shoutu Technology, and the self-developed Tianchi software that serves operations, Heyu Group can be considered a versatile e-commerce company with IT technical capabilities. In the beauty industry, in simple terms, it is a company that knows what to sell (with strong product development capabilities) and how to sell (with particularly strong sales capabilities). Of course, becoming the “most trusted e-commerce company for partners” is Heyu Group’s corporate vision for the next decade.
Brands
No one doesn’t want to build a brand, and Heyu Group is no exception.
Not only did they have the desire, but they also made attempts and paid a lot of tuition fees. “Brand story and brand planning were actually present before, but our ability to shape the brand was not that strong. We were just very good at selling products,” Xu Yongjie reminisced, summarizing it with a joke: “We are non-professionals doing professional work.”
Although Dr. Wen is referred to as a white-label product by the outside world, Xu Yongjie has his own understanding of brands. “There are actually few true brands in the Chinese cosmetics industry; most of them are trademarks. In my opinion, to be called a brand, it must first undergo the test of time and gain recognition in the minds of users. The two essential elements of a brand are providing functional value and emotional value to the products. However, most Chinese cosmetics brands have achieved functional value but lack emotional value.”
This evokes some reflection. Since the rise of ingredient-focused and efficacy-driven skincare, the boundaries between Chinese brands and international brands, emerging brands and traditional brands, and even white-label products and brands have become blurred. Ingredients, efficacy, and functionality have become the primary reasons for consumers to choose skincare products. As a result, established brands with accumulated experience must learn to tell scientific stories and narrate brand stories scientifically. For new brands or white-label products, if they lack research accumulation or scientific foundations, the most direct way to attract target consumers is through the support of traffic, using low prices and efficacy selling points.
Both Heyu Group’s proprietary brands and co-operated brands are validating consumers’ “rigid” demand for the functional value of skincare products. Looking at Heyu Group’s partners, they also prefer pharmaceutical brands that align with consumers’ perception of safety and efficacy, such as Guangzhou Baiyunshan Pharmaceutical and Huabei Pharmaceutical.
This also answers why Heyu Group focuses on skincare and doesn’t venture into makeup, which is more fashion-oriented. Xu Yongjie admits that Heyu Group is not particularly skilled in makeup, especially in terms of color, but they have had successful experiences with products that bridge the gap between makeup and skincare, such as foundation, cushion compacts, and lipsticks. He gives an example of the previously launched Haiyang Poetry lipstick, which sold over tens of thousands of units in a day.
When I asked him if Heyu Group has the foundation to build a brand, Xu Yongjie didn’t give a direct answer. He said, “We are also willing to let people who understand branding build the brand, and our compensation system for talent has no limit. However, the priority is to survive (as a brand).”
Survival is, of course, the foremost prerequisite in any era. Whether from the perspective of “existence justifies reason” or the development history of the local beauty industry, at any time, companies with strong selling capabilities like Heyu Group are needed. For example, in the traditional supermarket era 20 years ago, they were active in third- and fourth-tier markets and almost dominated the haircare sections of small and medium-sized supermarkets. Another example is the importers, especially agents of Korean cosmetics, from 10 years ago. Not to mention, in today’s oversupply of cosmetics production in China and the factory-centric environment, there are only products that cannot be sold, not products that cannot be supplied.
However, Heyu Group does not want to give up its dream of building a brand. Xu Yongjie said that the company’s recent plan is to transition from a traffic-based company to a brand-oriented one. “Of course, testing comes first. KAZOO is our testing case, and we have been investing in it for two to three years. It is also an important step for us to enter brand building.”
“We worry every day about what we will do if Taobao or Douyin fails. That’s why we never put all our eggs in one basket. We have a presence on all platforms, and we walk on multiple legs. We not only have a presence in China but also engage in cross-border operations.” Xu Yongjie, who graduated from junior high school and worked as a sailor, having experienced storms and rough seas, answered this question about Heyu Group’s reliance on a single platform.
For any brand that can enjoy “sustainable compounding,” this is not a difficult problem. Platform changes, channel variations, and fluctuations in traffic are just whirlpools in the river of brand development. It precisely indicates that despite the challenging road ahead, there is still a constant stream of people on the path to building a brand.
