An affluent user base and a commerce-friendly vibe have helped Xiaohongshu reach profitability and scale at the same time.
According to sources close to the Financial Times, Xiaohongshu (translated as “Little Red Book”)reached profitability in 2023, making a $500m on revenues of $3.7bn.
In 2022 the business made a loss of $200m on revenues of $20bn.
The app is China’s most recent social media unicorn and has done an outstanding job of attracting a young and affluent consumer audience.
The Rising Star of Social Commerce
Xiaohongshu, often heralded for its unique positioning, has gained traction among young, purchase-driven women, making it a goldmine for brands looking to tap into this demographic. An overwhelming 70% of Xiaohongshu’s users are female, with half of them under 30 years of age. This demographic is not only highly influential but also represents a significant portion of the consumer base that brands are eager to engage with.
An upscale, sales-friendly platform
Unlike its main competitors, such as Douyin and Kuaishou, Xiaohongshu stands out for its upscale appeal. In the past, the challenge for Xiaohongshu was in translating its users’ engagement into tangible purchases, as many would seek product recommendations on the platform only to buy from e-commerce giants like Taobao and Tmall. However, Xiaohongshu has carved a niche for itself with the introduction of “slow livestreaming” – a format that emphasizes a calm and luxurious shopping experience, markedly different from the high-energy, discount-driven sales tactics prevalent on other platforms.
This innovative approach to livestreaming not only enhances the user experience but significantly boosts the platform’s gross merchandise value, which saw a nearly fivefold increase during the last Singles’ Day shopping festival – a testament to the effectiveness of this strategy.
Building Brand Identity and Relationships
Xiaohongshu’s value extends beyond mere sales; it is a potent tool for brand-building. The platform allows companies to cultivate a deeper relationship with their audience, moving away from the aggressive sales tactics often seen on other platforms. This relationship-building capability is crucial for brands that aim to establish a lasting presence in the minds of their consumers.
Emerging Comms have leveraged this relationship-building aspect for audiences with much longer sales cycles, including universities, and property.
Xiaohongshu’s user base, though smaller than some of its competitors, is highly concentrated in affluent cities. This makes it an exceptionally effective channel for targeting high-spending consumers, a key advantage for brands seeking to elevate their market position.
Xiaohongshu’s Path to Profitability
The easing of China’s zero-Covid controls has further opened up opportunities for merchants to increase their marketing efforts on Xiaohongshu, reinforcing its position as a premium platform that doesn’t compromise on brand value with low-price incentives. This strategic positioning allows brands to maintain their integrity while effectively engaging with a desirable audience segment.
Xiaohongshu is not just another social media platform; it’s a strategic partner for brands looking to forge meaningful connections with their customers. Its unique blend of upscale positioning, innovative content formats, and a highly engaged user base makes it an invaluable tool for brands aiming to make a lasting impact in the Chinese market.
sources: https://www.ft.com/content/1716fcfd-31fd-4dc3-9475-f04283fe3eaf
