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Cross-border vitamin ecommerce – with Lemonbox CEO Derek Weng

· Founders and VCs,vitamin,ecommerce,prescription,health

Tim interviews Derek Weng, CEO and founder of Lemonbox, a cross-border ecommerce company focused on vitamins. Derek shares how he leveraged his existing work at Wal-Mart to found a cross border opportunity, how to think about product and pain points, designing UX to cater to a specific user cohort, and running a cross-border organization and supply chain.

TL;DR 👇🏻

  • Chinese users under-confident in domestic brands and so buy from abroad
  • Lack of content and resources to educate Chinese on healthful lifestyles and nutrition
  • Vitamin is a great entry point into health habits of their core users: tier 1 and tier 2 women in their 20s thru 40s
  • Lemonbox wants to be the one-stop-shop to offer all health-related solutions via a user-inputted survey about their health and habits
  • User growth focused on brand marketing, following success stories of D2C brands such as Dollar Shave Club
  • D2C model cuts out retail stores, enabling higher margins
  • Wants to follow users throughout entire lifecycle of health needs – in 20s, 30s and 40s

Edited by Tim Chen. Images courtesy of Lemonbox.

[Editor's note: this interview has been edited and condensed for clarity. The opinions expressed in this article are Derek's own and do not reflect the views of Lemonbox; Tim Chen is Vice President at MSA Capital and Partner at TheHarbingerChina.]

Introduction

Today I have the pleasure of welcoming to our show Lemonbox founder Derek Weng. Before we dive in, we’d love to hear more about your background – what were you working on before Lemonbox and how did you come across this opportunity?

Derek: I spent the last 8 years in the US. I was a graduate student and then worked in the financial sector for a couple of years in Chicago. I didn’t enjoy my time in that industry and needed to find my passion in the startup role. So in 2013 I started doing startups on the side. I founded two ventures between 2013 and 2014. It didn’t go well as a first-timer and then I took time off and went to get an MBA at University of Chicago’s Booth School of Business.

After that I moved to Silicon Valley to join Wal-Mart e-commerce to oversee their cross border e-commerce business between the US and China. When I graduated this was a good opportunity for me to combine my background and experience from the US and China. I thought was unique and maybe could lead to something interesting in the future. While I was there I found China’s free trade zone and policy was booming and was very supported by consumer needs and the country. I was running this business and found many consumers were buying our premier products overseas and found out that vitamins were a great business – high margins, strong demand, and unmet needs in the China market. Since the product was doing well in my own portfolio, I thought maybe we can take it further – make it more advanced from a technology-first product to serve this market.

Market and Pain Point

So we have vitamins, which are high-margin, and cross border between China and US and users with unmet needs. Can you explain a bit more what is Lemonbox and why do users use your product?

Derek: We are a cross-border e-commerce company. We take health and living habits via a survey and provide customized daily vitamin packs for Chinese consumers. All of the products are made in the US and shipped directly to China. The problems we’re trying to solve for Chinese consumers are people are not confident in local vitamin products due to historical issues in the Chinese market. And secondly, people don’t know what to take, they don’t know what to buy. Even in the US a lot of people want to take vitamins but randomly take various products. People are in the same situation in China. People need professional advice from dieticians and doctors but there’s no provider right now. Our service combines this professional survey, empowered by our US dietician team, to create a one-stop-shop that brings you advice and a customized product for your daily use. So we think this format of service we’re providing can solve the problems Chinese users have.

So you pointed out two key problems – one, accessing premium vitamins that are trustworthy and two, knowing what vitamins to take. To give a little more context, Chinese historically prize overseas brands especially when it comes to health and quality foods. A couple years back there was a domestic dairy maker who had a faulty product that led to many infant deaths and sickened thousands more. This really destroyed Chinese trust in domestic health products, and vitamins is one of these products where Chinese believe the West is stronger in. How big is this opportunity? Do you define your market as vitamins or something bigger?

Derek: Vitamins is just an entry point as is the nature of D2C (direct to consumer) business models. As you can see Dollar Shave Club started with razors and then expanded to dominate men’s bathroom – soap, shampoo, and everything else. So we are the same. We found that the ideology you pointed out behind vitamins can’t be changed in a couple weeks or years. We’re confident the industry will become more trustworthy and advanced over time but currently people are still greatly needing overseas products, and we found that vitamins are a huge pain point and huge market. The current market size for vitamin minerals and supplements is 200 billion RMB with a 15% CAGR. It’s a huge market. As people get wealthier in top tier cities, you see the pet and health and living industries grow. You see that trend and we want to pick vitamins as an entry point. Once we have our early adopters; 80% of our users right now they are 20-40 year old females living in tier 1 or tier 2 cities. Around this target user we will gradually expand our product category for example protein, facial masks, beauty products...when you go to Japan or Korea you see these small beauty stores full of Chinese consumers who just buy everything. That’s our vision down the road on the product side.

We also found a great need for our service. Interestingly a lot of users want a 1:1 consultation, a premium service, with our US dieticians. There aren’t that many professional dieticians in China right now. It’s in a raw stage whereas in the US a dietician is included in your health insurance. But in China this awareness is just picking up. By entering this small section and having our target user and establishing that relationship through branding, product and trust, we have a huge opportunity to expand our product and services down the road to serve their health and dietary needs.

Product and Users

So you mentioned earlier that vitamins is a wedge to break into targeting your users, who are 20-40 year old females. From my personal experience, most of me and my friends’ relatives who ask us to bring vitamins back from the US are generally older than 50 and they’re looking for fish oil and calcium pills. How did you shift from this demographic to finding your core users now?

Derek: These just happened to be our first adopters. One interesting fact is the people who are more health conscious in China are younger people. There’s a new lifestyle they’ve developed – being “punk” and healthy. They want to have fun, drink, and enjoy nightlife but are also conscious about their health. Through our primary and secondary research we found that 20 year olds are most health conscious when evaluated. They think they are the most unhealthy, which means there is a lot of anxiety and desire to be healthy. That translates into the demand we see for health related products for a younger generation. We’re also an internet product; we don’t have any retail presence in China. The way people hear about us is through social media – Weibo, Bilibili, Wechat, and naturally, these 20-40 year old female users became our first adopters. Our goal is also to focus marketing towards the older generation as well. We found out that a lot of younger users, after using us, will start ordering for their parents and relatives because the older generation isn’t social media savvy. That’s how we’ve maneuvered our product to reach different users gradually.

What do you see on the learning curve for these early adopters? For example if base case is users don’t know anything about vitamins, the easiest way is to educate and then sell. But you guys take it one step further to personalize. Have you seen a lot of your early adopters grow from base case educated to wanting that higher level of personalization? And how do you see this market grow over time with respect to your user maturity curves?

Derek: So we don’t educate our users. If there’s a market where you need to educate users, it means you haven’t found product market fit. We serve existing user problems, which around vitamins is people simply don’t know what to buy. For women in their 20s and 40s, they want to take vitamins because they don’t think they’re living a healthy life – eating takeout all the time, not going to the gym enough, not eating enough vegetables, 996 work life, etc. So people want to take vitamins but they don’t know what to take. They go on social media to search for answers and they ask friends but there isn’t a well-established or organized knowledge source. So if you have these types of problems, come to us – we’re a one-stop-shop that can help you with everything. We’re mimicking the offline service where through online we get users to tell us their dietary preference, lifestyle, smoking habit, workout routines, goals such as health, skin, joints, bones, etc. and we’ll then make a recommendation based on that information. People don’t need to think anymore, they just talk to us and we’ll tell them what to take.

That’s an interesting concept – people don’t have to think, they just come to you for the right answer. A lot of consumer digital first product have followed this model where they take out the friction in the middle and provide users with an answer. So who would you say are your competitors in this market? Is it the offline vitamin stores? What’s stopping a user from picking a generic vitamin off the shelf?

Derek: So the market already exists. There are 200 billion RMB annually. There are multiple players. One is the traditional Chinese brand, the other is the overseas brand entering the market via cross border e-commerce channel. What we see is an opportunity for unmet needs with these channels. For example, a lot of cross border shoppers don’t go to offline stores because they think it’s untrustworthy, unreliable, or simply not cool. There’s not a great user experience. Oftentimes users buy and forget. They don’t know if it’s the right product for them. Our concept is we don’t encourage you to take as many vitamins as possible, we’re the opposite – you only need to take the right amount of the right kind, eg if you’re a vegetarian you probably don’t need vitamin C; if you’re drinking lots of milk, you probably don’t need calcium pills. So that’s our angle. Our value proposition is unique to serve the specific need of younger generations because they don’t buy into the traditional marketing strategy. They don’t believe taking one product can solve everything. They want to be smart about it.

User Growth

So on reaching users effectively, what have you found to be the most effective sales channels and have you found the personalization aspect to be a large growth driver?

Derek: Similar to other successful D2C brands overseas like Dollar Shave Club, Care/Of, Stitch-Fix, we started our brand marketing on social media. That’s a very important base for new brands to be successful early stage. That brings us closer to our consumers via influencers because they can help us establish trust with consumers effectively. Social media also helps us improve our products; it helps us get closer to our users and their feedback on how we can improve our product accordingly. Comparing our products today vs. 6 months ago, we didn’t even know who our core users were. For guy users they wanted the survey to be shorter. For female users they wanted more sophistication so we spent more time making it longer and detailed. So social media can help us bring early adopter users and feedback for us to succeed.

One great point about having Wechat as a social media tool is it is better suited to create groups so you can really get that two-way feedback. So as you talk about evolving user preferences over the past 6 months, how do you think about form factor? For example gummies and pills in the US. What have you found Chinese preferences for vitamin taste, look, and feel?

Derek: We don’t have a specific preference. Our goal is to solve user needs and bring them an authentic, high quality, and cost effective market. If the market wants a specific type of product, we believe our supply chain can cater to that in a short amount of time. We’re very flexible on our supply chain since we’re D2C, making us very agile in launching new products.

On your supply chain, a lot of your product is predicated on personalization. How do you balance a flexing your supply chain to provide a level of personalization vs. mass production?

Derek: As a tech company, the way we view a traditional consumer product is its ability to scale. So we are heavily invested in our technology. One third of our full time employees are developers. Our CTO is building our own backend ERP, order management systems, fulfilling, forecasting, and supply chain. When we started this idea we had scalability in mind.

How does thinking about the right level of personalized doses translate into your pricing model? Is it one-time? Subscription? How have you found that among Chinese user habits?

Derek: Pricing is the crucial advantage we have as a D2C brand. As you can see with Dollar Shave Club, Warby Parker, and Stich Fix. People come to us for cost-effective products. We’re better positioned to do so because compared to traditional players in the space we save 40-50% margin by not having retail locations. These companies are always looking for better channels to sell their products at a higher margin. We’re the opposite – our vision is to bring down the price. Because we’re D2C we don’t have retail branches; we keep it real – vitamins are affordable and we’ll tell you how much to take on a daily basis. So we want to be extremely competitive on pricing and bring pricing back to Chinese consumers.

A core part of the Lemonbox experience is to go through a 5-10minute survey. You mentioned women liked this better than men. Over time as you’re thinking about capturing a broader market, how do you measure the ROI on this feature?

Derek: For D2C brands it’s dangerous when you expand your business too far. For example, Dollar Shave Club expanded their business by offering more products to the same target user profile – men. That’s an insightful idea we believe. We don’t think it’s necessary to shift from women to men. We want to be laser focused to shape our products to serve one type of user – females. There’s lots of potential for these users because in families women are the decision makers for health products, buying them for their parents, partners, and kids. Men don’t really care.

In terms of retention, we found two types of users: one is event-based and one is lifestyle-based. We want to be rationale about our retention and not force users to take vitamins on a daily basis. We develop a product around user needs and who they are. For event-based users they may take vitamins when something changes for example moving from 9 to 5 to a 996 lifestyle. These users may realize their bodies change and begin to take vitamins. Other ones are lifestyle-based. For example smokers who want to supplement their habit with vitamins. The good thing is we have lots of data from users who tell us who they are from the survey. We can then iterate our product and retention strategies around our data. So we’ve been very methodical about learning about our users and their needs.

How have you over time built a relationship with your users? Do you check in every month? Every week? How do you make sure they are engaged and continuously purchasing from Lemonbox?

Derek: We found that Chinese users actually want to tell you more about themselves; for example, beyond the survey, some users want to share with you their physical check-up and DNA report. They want us to take all of these into consideration. The more data they give us the more accurate we are. So that’s an advantageous dimension. Another is time – users at different times of their life have different needs. For example, a 25 year old is into skin care and a couple of years later may think about having a baby. By having all of this user’s data, we’re confident we can provide a more advanced recommendation on your personal health changes. And all of this is free. We want to develop this customer and product relationship by telling users we’re you’re personalized virtual nutritionist. And along the way if you have different needs and goals, we’ll be there. That relationship is based on trust and data.

Organization and Partnerships

Your solution is actually the reverse of what we’re used to, where the supply is in the US and the users are in China. How do you manage this cross border organization?

Derek: That’s where my background comes into play. Having managed cross border e-commerce at Wal-Mart, I’ve built a lot of knowledge and experience along the way that comes handy. So one of our value proposition is cross-border products, it’s our strength. But this is a challenge for all multinational companies. At the early stage you have to manage various offices. And we’re constantly learning and improving, finding ways to improve communication, work schedules, collaborative working tools...these are things we spend lots of time thinking about.

As you further expand and scale, what type of investor or partner would be helpful to you?

Derek: We’re definitely looking for partners who are strategically aligned with us not just in the short term, but believe in us in the long-term: product portfolio and data. The second thing is we currently work with YC. We’re one of the first ones that YC China invested in. We think investors from the US and China side can bring different perspectives. For example US investors bring successful D2C experience, and Chinese investors who understand the China market bring resources in different platforms. So that’s who we’re looking for in terms of investors.

So as you’ve built Lemonbox, what’s one thing you’ve learned about the Chinese vitamin consumer market that others are overlooking?

Derek: Very importantly I think it’s about time to treat our consumers differently. I think previously, other products focused on their products, always marketing how great the product is – it can cure XYZ; it’s powerful; it has magical properties, etc. I think now for the younger generation they understand what vitamins are – they can’t cure cancer. They are supplements to help support your lifestyle. The younger generation is more scientific around the approach, ideology and development around vitamins because they know their lifestyle habits oftentimes aren’t the healthiest. So we need to start thinking about it from the customer’s perspective. And that’s what Lemonbox does, it uses a scientific approach to customers – you take only what you need to take, reaches customers in a simple way – customized for users daily, and at an affordable price. Everything is about customers and not about us. There’s been too much noise in this market historically and now is the time for an internet startup to serve this underserved consumer.

There has been a seismic shift from pushing product attributes to understanding consumer needs. And you guys take it a step further – come to us and we’ll give you what you need. Thank you so much for your time!

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