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istyle Inc.

istyle Inc. has succeeded in creating an efficient market for cosmetics, which is quite an achievement considering that larger companies have always had an advantage because of their ability to leverage economies of scale. istyle has now opened up the market to relatively unknown cosmetic brands, while simultaneously providing consumer reviews on a broader range of products. Through all its various business formats, istyle gives consumers the opportunity to enjoy a better selection of products and more extensive product knowledge.
istyle Inc. (hereafter, istyle) operates the @cosme website (a beauty portal site), the e-commerce site "cosme.com," and "@cosme" brick-and-mortar stores for cosmetic products, with the mission of "creating a consumer-oriented platform for beauty." Regarding istyle's composition of sales, 51.5% of sales are from advertisements (media business), 8.8% from e-commerce, and 29.2% from real stores (in the year ended June 2013). It had 2.5 million members (at the end of June 2013) and 7.9 million unique users per month (during June 2013), of which 3 million are in their twenties (48.3% of the population in this age bracket). Another 3 million are in their thirties (34.5% of the population in this age bracket) (as of June 2013). It offers product information for 220,000 items, representing 25,000 brands produced by 1,000 manufacturers, and also provides 10 million consumer reviews on its website (as of June 2013).
The company invests considerable time and energy to ensure that the consumer-generated product information it posts is reliable and neutral. Based on the consumer feedback it receives, istyle creates a ranking of cosmetic products. istyle has been able to establish the credibility of its ranking through its strong commitment to providing quality information (based on consumer reviews). While maintaining the credibility of product information, the company offers advertising and marketing services to corporate clients, and has succeeded in attracting advertisements from cosmetics companies. istyle operates a retail business that focuses exclusively on cosmetic products, both online and offline. It does not sell private brand products.
The cosmetic industry has long been dominated by a few strong manufacturers with large marketing budgets, and has become over-segmented to the extent that consumers cannot distinguish any difference between brands.

Unique Value Proposition

istyle, as a two-sided platform, has two kinds of customers. The first kind is cosmetic companies. These cosmetic companies range from very small companies to industry leaders. This breadth (775 companies as of June 2013) is unique because in the cosmetics industry, it is often the case that advertisements placed on the internet are sold primarily through advertising agencies to the usual dominant players.
Cosmetic products highly ranked on the @cosme site (indicating a high level of customer appreciation) are likely to be carried by a greater number of retail shops and will enjoy better shelf space allocation. Retailers often put POPs on those products that have been ranked highly on the @cosme site. This is one of the benefits istyle offers cosmetic companies.
istyle is uniquely positioned to provide advertising and marketing solutions to cosmetic companies. Advertisements on @cosme can reach consumers with a high interest in cosmetics. In addition to online advertisements, such as the banner ads, email advertisements and affiliate advertising commonly used in internet media, istyle provides unique advertisements like the "Brand Fan Club," which makes PR space available to cosmetic companies on a rental basis. Companies can rent this space continuously and develop their own contents. istyle also offers another unique service known as "branding-type advertising." This approach involves a kind of advertising tie-up, with istyle planning the client's advertising campaign. The advertisements that istyle provides can simultaneously appear on the company's website, e-commerce site, and retail shops. istyle's marketing solutions are made possible by leveraging the company's extensive proprietary database (compiled from customer feedback and other sources), participation in the Brand Fan Club communities, data acquisition (including usage of the @cosme awards logo), research, and consulting.
The other kind of customer for istyle are individual consumers who read, comment and/or evaluate cosmetic products on the @cosme site. Consumers can find and compare cosmetic products that match their specific needs. The company endeavors to create a market in which customers can find good products that truly meet their needs and match their preferences.
istyle's retail business carries those products that have earned a high ranking on the @cosme site. Customers can try samples of these products and enjoy their experience of one-stop shopping. The e-commerce business carries edgy products that appeal to trendsetters.

Unique Value Chain

istyle has two value chains--one is for website operation and the other is for the retail business, which includes both the e-commerce business and brick-and-mortal retail shops. These value chains are guided by the company's vision of creating a consumer-oriented market. Here, we focus on website operation.

Providing product information and forming a community-activities that encourage consumers(users) to generate content:
istyle encourages consumers to post comments about cosmetic products by providing extensive product information and by supporting various kind of communities.
Comments and evaluations by consumers are stored in the company's proprietary database. Visitors to the website are able to conduct a serach for cosmetic products using various dimensions. Consumer evaluations are also used to determine the ranking of cosmetic products. Consumers refer to the product ranking and othere information when trying to find products that are right for them. This positive experience further encourages consumers to post their comments and evaluate products.

Controlling the quality of consumer-generated inforamation:
istyle ensure the quality of information posted on its websitte by monitoring all consumer postings. istyle has installed a Chinese wall between the division responsible for monitoring the reviews and the division that handles advertising, to that the advertising business will not affect consumer reviews. Credible information enables consumers to make reliable comparisons.

Using the retail business as a tool for marketing its website and product ranking system:
istyle operates its own e-commerce site and brick-and-mortar retail shops. The arrangement of products on store shelves reflects the consumer ratings for those products. Almost all products appearing in the ranking can be tested by consumers. The success of its stores demonstrates the effectiveness of @cosume's rankings in influencing consumers' dicisions to purchase specific products. Seeing the company's success, many retailers have started modifying their merchandising, taking into account the ranking of the products at @cosume.

System development:
istyle has international capabilities for designing websites, developing services, and analyzing consumer behavior. The company has also developed a database that integrates data form the website, the e-commerce business and retail shops.

Human resources management:
The sales staff at the retail shops are istyle employees. These individuals have studied the prduct information, and are knowledgeable about the evaluations products have received on the @cosme website. They have also been trained not to allow price or brand status bias their sales approach when handling the entire lineup of products. This is how employees work to realize istyle's mission of creating a consumer-oriented market.

Fit amang Activities

istyle's activities are chosen with the aim of creating a consumer-oriented platform for beauty. The core activity is website operation, and the company's website features a database of impartial and reliable consumer reviews. istyle makes great efforts to ensure that the data is not partial to specific cosmetic companies or brands. In order to ensure the credibility of the consumer-generated reviews, istyle conducts extensive monitoring activities. It obtained support from cosmetic companies for its declaration of the impartiality of its website operations, and cosmetic companies provide product information to help istyle expand its product database. The company does not give preferential treatment to cosmetic companies that conduct a large amount of advertising -- all cosmetic companies are treated the same. istyle also operates its own retail businesses, and these businesses modify their merchandising to reflect the ranking of the products at @cosme. (Please refer to istyle's activity system map, which appears at the end of this report.)

Innovation that Enables Strategy

  • It has developed a marketing approach that focuses on creating a community of enthusiastic users of cosmetic products. Consumers' messages on the website have attracted more casual users and have expanded site membership.
  • It has created an ecosystem in which consumer feedback has an impact on in-store merchandising and contributes to new sales. Many companies would have been satisfied merely with providing consumer-generated content for the purpose of helping other consumers make better choices in their purchase of cosmetic products.

Consistency of Strategy over Time

istyle's mission, the creation of a consumer-oriented market, has remained unchanged. However, the company could not immediately implement and achieve its current strategy, which is the vertical integration of the website, the e-commerce business and the retail shops. istyle began offering the e-commerce service in November 2002, but soon realized that cosmetic companies only allow a very limited number of products to be sold online (in order to protect their traditional sales channel). In 2005, istyle started offering a solution-providing service to wholesalers and retailers, leveraging the database it had developed incorporating consumer-generated contents from the @cosme site. The result was that those products receiving the most favorable evaluations on the website would become more widely distributed. However, the company soon discovered that wholesalers and retailers were reluctant to pay for solution-providing services because cosmetic companies offered such services for free. This fueled the company's conviction that it would have to operate its own retail shops if it wanted to influence the product assortment carried by traditional wholesalers, shelf arrangements at retailers, and the behavior of cosmetic companies. In 2007, istyle opened its first retail shop, which allocated shelf space based on the @cosme ranking. Its huge success has attracted the industry's attention, and has enabled it to influence the merchandising practices of distributors and cosmetic companies.
From its start, istyle has been putting a priority on adopting a neutral stance in its provision of the product reviews and evaluations of actual buyers.

Trade-offs

  • Does not enter areas other than beauty and cosmetics.
  • Maintains ownership and management of the database, although it makes the database available to its business partners.
  • Does not develop and sell private brands.
  • Does not sell its services at a discount.
  • Does not rely solely on commoditized services such as banner ads, email advertisements, and affiliate advertising.
  • Does not provide consulting services, as such services are labor intensive and it is difficult to ensure consistent quality given the varying degree of competence among individual employees.
  • Does not limit itself to online services if going real is necessary for achieving its mission of changing the cosmetic industry through the incorporation of consumer feedback. This is not a natural choice, because the ROS for real store operation is lower than the ROS for the online media business.

Profitability

Return on sales exceeds the industry average.

Activity System Map of istle Inc.

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