New consumption (don’t) be scared by Zhong Xuegao

This article deeply analyzes the key turning point of the Zhong Xue Gao brand's decline from prosperity, and explores the reasons why the brand value is out of touch with market expectations. It is recommended to readers who are interested in the development of new consumer brands. I hope it will inspire you in brand building and market strategy.

Before this summer came, the once popular Chinese ice cream brand "Zhong Xue Gao" was on the verge of death.

Zhong Xue Gao was founded in March 2018. In just six years, it has been surrounded by negative news for one-third of the time.

Tianyancha shows that Zhong Xuegao has been involved in more than 50 legal cases in the past two years, including layoffs, wage arrears, forced execution, and consumption restrictions, with a total of about 35 million yuan in frozen equity. Currently, the company has only 24 insured employees, the brand's official Weibo account stopped updating in August last year, and the official website cannot be accessed normally. Capital's "sentence" on Zhong Xuegao was obviously earlier, and the brand's latest financing is still at the 200 million yuan A round of financing three years ago.

The success and demise of Zhong Xuegao faithfully records the experience and confusion of a new consumer internet celebrity brand in its attempt to transform into a long-lasting brand.

Daofa proposed two value formulas for brands in "From Internet Celebrities to Long-term Success - A Growth Model More Suitable for China's Emerging Brands":

The growth model of classic brands = category strategy x large penetration and large distribution

Long-lasting brand = brand value x compound growth model

Judging from the growth formula of the category brand, Zhong Xue Gao has surpassed Haagen-Dazs, which is also positioned as high-end, more than once, and won the first place in the Tmall Double 11 ice cream category sales list, and its annual sales in 2021 reached 800 million yuan. Even in the summer of 2022, when the "Ice Cream Assassin" was attacked from all sides, Zhong Xue Gao's sales in Tmall's base camp did not fall off a cliff. According to the data from Jiuqian's middle platform, from January to August 2023, its Tmall sales exceeded 32 million yuan, an increase of 1.9% year-on-year.

If Zhong Xue Gao retreated online, did a good job of user maintenance and repeat purchases, slowed down the pace of breaking out of the circle, and did not rule out the possibility of bottoming out and extending the brand life, why did it suffer successive defeats afterwards and missed the window of opportunity to transform from an Internet celebrity to a long-lasting brand?

After multiple online and offline surveys, Daofa discovered that Zhong Xuegao had tried the above two approaches, but for various reasons, its brand value was always disconnected from the market's expectations, and both paths were only halfway taken.

1. Price cuts were the final straw that broke the camel’s back for Zhong Xue Gao

Re-reading the tortuous story of Zhong Xuegao over the past six years, Daofa believes that the event that truly marked the decline of Zhong Xuegao was not the negative hot search "Ice Cream Assassin", but the fact that in the second half of 2023, some e-commerce platform merchants began to sell Zhong Xuegao products at a low price, and the brand gradually lost its bargaining power.

According to statistics from Apex Consulting, the sales volume of Zhong Xue Gao ice cream with a price of more than 10 yuan per piece accounts for more than 85%. For a long time, this high bargaining power has not only reflected the value of the brand in the minds of consumers, but also reflected the control ability of the omni-channel distribution system.

In September 2023, DaoFa observed that several stores selling Zhong Xue Gao appeared on a mainstream e-commerce platform. A package of 10 mixed classic flavors was priced at 40-50 yuan, which was 2-3 times lower than the regular price of the brand. A merchant customer service told DaoFa that they bought the goods directly from the manufacturer, the price was relatively low, and the production date of the relevant products was fresh.

A store customer service explained to Dao Fa the reason for selling at a low price

If Zhong Xue Gao wants to make full use of the "Chinese ice cream" category strategy, it must respect the large-scale penetration and distribution model of traditional fast-moving consumer goods and obtain the recognition of all channel parties.

Regardless of whether the price-cutting behavior comes from the brand's officially authorized dealers, this phenomenon is not conducive to the brand, disrupts the inherent price system, and affects the channel's judgment on product sales, sales profit margins and brand value.

In order to stabilize the confidence of its partners, Zhong Xuegao held an emergency dealer meeting at the end of last year, and did not hesitate to reduce the number of dealers in an attempt to reverse the impact of price cuts at some terminals on the overall business.

Unfortunately, things don’t go as planned. Taking several FamilyMart convenience stores in downtown Shanghai as an example, the Zhong Xue Gao ice cream currently on sale is 18 yuan per stick, but the production date is concentrated in the summer of 2023, and some stores have only single-digit stocks left - important channels such as convenience stores are already clearing their stocks, and the dire situation of other channels can be imagined.

On the other hand, the same product has different prices in multiple channels, which continues to affect the consumer experience of purchasing the product at the original price, until it is beyond the control of the brand.

In March this year, the topic #Zhong Xue Gao’s price dropped from 60 yuan to 2.5 yuan# once again became a hot search on Weibo. The saying that “Zhong Xue Gao is not worth 60 yuan” has become more deeply rooted in people’s minds than in the previous two years. It can be said that the brand is completely powerless to recover.

In the process of self-rescue, Zhong Xuegao was eager to maintain its bargaining power for its high-end product lines, which led to its subsequent strategy being a bit panic-stricken.

In March 2023, Zhong Xue Gao announced the launch of Sa'Saa, priced at 3.5 yuan. While courting the mass market, it emphasized that the product relied on AI technology from creativity, naming to design.

Daofa once mentioned a possibility in an article about the growth troubles of the first generation of new consumer brands: under the wave of new consumer entrepreneurship, hot money is surging, and entrepreneurs cannot escape the speculative mentality.

So, did Zhong Xuegao think of taking advantage of the AI ​​hype and using the Sa'Saa case to attract new investors to solve the urgent problem of layoffs and unpaid wages at the time? If there were new investors to help, would Zhong Xuegao be able to survive again when it comes to omni-channel distribution? Unfortunately, we don't know.

What is certain is that the market response to Sa'Saa was lukewarm, which announced that Zhong Xuegao's last attempt to save itself had failed so far, and once again verified that the new consumer entrepreneurship with the concept form > business model was no longer viable.

Not to mention that the investment and financing hotspots in food and beverages in recent years have been concentrated in the new tea and coffee, and snack discount chains. Some of them are supported by offline store terminals, and some have strong upstream supply chains. In comparison, Zhong Xuegao’s own resource endowment is really pitifully small.

From consumers lining up to buy it in the beginning to negative news every time it is on the hot search now, Zhong Xuegao, with annual sales approaching 1 billion, has seen its value shrink with repeated exposure, and has been abandoned by distribution partners, consumers, and investors, and eventually failed at the stage from 1 to 10.

2. Why does the value of Zhong Xue Gao’s brand become more unsustainable the more it emphasizes high prices?

Lin Sheng, founder of Zhong Xue Gao, once proposed a formula: brand = internet celebrity + time. "Internet celebrity is the only way to brand, just like CCTV was the only way to brand 20 years ago."

In other words, in Lin Sheng's eyes, Internet celebrities are not only about traffic, but also about popularity and reputation; and time represents loyalty. Only by withstanding the test of time can a brand with both scale and reputation be established, and a company can achieve sustainable operation and development.

When we deconstruct Zhong Xue Gao's brand value from the perspectives of reputation and loyalty , we once again feel the brand's confusion and find the reason why it ultimately lost all bargaining power with dealers and consumers.

First of all, in the past six years, there has been almost no new consumer brand like Zhong Xue Gao that has been mentioned repeatedly, and pricing cannot be avoided in every three sentences.

Is it that the market does not like high-priced ice cream? Is there something wrong with Zhong Xue Gao's pricing strategy? Not entirely.

Lu Yi, a Ph.D. in marketing from Yale University, once explained in detail the pricing logic of Zhong Xuegao. Ice cream is a highly saturated market. Low prices can attract mass consumers, but it must be based on low costs and scale, and it must also compete directly with big players like Yili and Mengniu, so the chances of winning can be imagined.

Therefore, Zhong Xue Gao did not compete head-on with the giants, but set the product price high to seek maximum profit, enter the high-end market, and find young people who are willing to try new things and have certain consumption power. At the same time, in order to be closer to the preferences of young people, Zhong Xue Gao launched a limited-time, high-priced ice cream at the beginning of its listing, and invited Tong Liya, Zhou Yiwei and Ao Ziyi of Times Youth League to be spokespersons and appear in Luo Yonghao's live broadcast room.

From stage 0 to stage 1, telling stories - creating a sense of scarcity - raising brand potential - pursuing high sales - sales performance continues to add halo to the brand. In fact, every step is in the right direction. So why does Zhong Xue Gao's brand value and price still give people a feeling of mismatch?

In the article "Unwilling to accept being a substitute for a low price, being mocked by the public for raising prices, how should domestic products be priced appropriately? | Anti-anxiety Special", the Knife Skills Research Institute once discussed whether Chinese brands deserve high prices.

In the opinion of the Knife Skills Research Institute, consumers are not unwilling to pay for domestic brands and their stories, but they need sufficient reasons. Prices should be determined based on the value of the product in the minds of consumers. This not only tests the brand's ability to communicate pricing with consumers, but also tests the brand's ability to maintain product value. However, Zhong Xuegao did not do well in both issues.

Originally, in the online e-commerce DTC channel, the high price of Zhong Xue Gao did not give people an intuitive sense of discomfort, but when it went to the offline mass consumption channel, the product packaging design and shelf position were fundamentally no different from 3-5 yuan ice cream. When consumers had a psychological expectation of 3-5 yuan, but ended up paying a price of about 20 yuan, they would inevitably feel unhappy. Over time, consumers initially joked that Zhong Xue Gao was like an "ice cream assassin" hiding in the freezer, "cutting" the wallet, and gradually changed its taste, causing the brand reputation to continue to be damaged.

After the "Ice Cream Assassin" incident, although Zhong Xuegao also consciously accelerated the installation of independent freezers, according to public reports, the number of its freezers was only around 100,000, and too few users could be reached. Moreover, it was not combined with effective promotional actions, and the attention was insufficient. It was futile to want to reverse user perception in a short period of time.

Even worse is Zhong Xue Gao’s ability to maintain the value of its products.

Between 2018 and 2019, Zhong Xuegao was administratively punished twice for improperly stating the raw materials of its products. Two products were involved, one was a stuffed red grape ice cream that claimed to use Turpan's premium red grapes, but actually used bulk raisins, and the other was a light milk ice cream that claimed to have "pure milk flavor without adding a drop of water." In 2022, there were doubts about the compliance of ingredients in the ice cream because it "did not melt at room temperature of 31 degrees for 1 hour," and it was administratively punished for false advertising.

Although Zhong Xuegao explained the reasons in the announcement and announced seven improvement measures, cracks have already appeared. The ice cream that "cannot be burned" and "cannot be left out" has destroyed users' precarious trust in Zhong Xuegao.

The stigma of high price and low quality is becoming deeper and deeper, and Zhong Xue Gao’s past “Internet celebrity” marketing moves have not only failed to eliminate these memories, but have aggravated the prejudice.

3. The thrilling leap from internet celebrity to long-term celebrity

The “Internet celebrity” label is not the original sin of new consumption. There is nothing wrong with Linsheng’s brand formula, but whether it is new consumption or time-honored brand, products are always the core of the business.

Doris Dao once shared her understanding of long-lasting brands in a conversation with Dr. Cao Hu, global partner and president of China at Kotler Consulting Group (KMG). In Doris Dao's view, brands are not physical entities. They are the associations that consumers have with products. And they are not only derived from products. All the content that appears at all touch points will affect this association.

Going back to the underlying logic, from being an Internet celebrity to becoming a long-term celebrity, a brand will go through three stages:

In the first stage, you enter the market with hit products or services to let everyone see the brand;

In the second stage, we will continue to work hard on the hot-selling products and build them to perfection, eventually becoming a brand that can represent this category;

The third stage is to become a super brand with super fans. No matter which category the brand develops or how high the brand premium is, consumers are willing to buy it and spread the word.

For Zhong Xuegao, to go from an internet celebrity to a long-lasting brand, it needs to cross two gaps: the category gap and the super fan gap.

Initially, Zhong Xue Gao emphasized that it was a Chinese ice cream brand, and through differentiated products and positioning, it accumulated a group of super fans on the Internet. If it continued with this strategy, it might be difficult to break the circle, but a small and beautiful business would not be in the dilemma it is today.

When Zhong Xue Gao moved from the first stage to the second stage and entered the offline channel, it made a strategic mistake. It failed to establish the brand's high-end positioning, nor did it rely on the continuous promotion of brand value to maintain super fans.

Zhong Xue Gao should have followed the example of Haagen-Dazs and placed independent freezers in mainstream offline supermarkets and convenience stores, or continued the practice of offline pop-up stores, increased the popularity of the brand flagship store, launched upgraded products that are different from online channels, and strengthened the brand's positioning in the hearts of super fans. However, it chose to appear in the same freezer as mid- and low-end brands, and lingered in the "snack street" scene on the first floor when it entered the shopping mall. As a result, consumers do not associate Zhong Xue Gao's brand impression with "high-end", and the only thing that is high is the price.

Finally, let’s talk about the low-end series Sa'Saa launched by Zhong Xue Gao last year. This move is equivalent to throwing away the super fans that have been hard-earned over the past few years and competing with Mengniu and Yili for users.

Sa'Saa, which hoped to sell more products at a lower profit margin, was not as popular as the high-priced Zhong Xue Gao, and it also shook the brand potential that Zhong Xue Gao had worked hard to build. Whether in terms of brand awareness, loyalty or channel penetration, Sa'Saa was using its arms to twist its thighs, and the result of its failure to save itself is not difficult to imagine.

From a product perspective, Sa'Saa is selling a concept, but do consumers really need to consume the concept of AI through a piece of ice cream?

The reason why humans need ice cream is essentially that they hope to obtain emotional value by consuming sugar. Considering similar functional positioning, more than one new tea and coffee brand has delivered satisfactory answers and become the first choice for high-frequency repurchases during leisure and entertainment.

A brand with long-term potential must always ask itself: What kind of demand is real demand? What kind of demand is false demand?

4. Analyst Comments

Brand value needs to convey two points to users: "I am good" and "It is related to you".

The year Zhong Xue Gao came out of nowhere, the traffic dividend was at its peak. As long as a brand comes out and says "I'm good", there will always be users willing to pay for it and try it.

In just two or three years, the public has rapidly become disenchanted with impulse consumption, and Zhong Xue Gao has become a "non-essential item". It has not caught up with the mainstream emotional value consumption centered on "pleasing oneself". In addition, due to food issues and arrogant attitudes in public relations events, it has pushed users away step by step, which eventually led to this situation. No matter how your brand struggles, whether it is lowering prices or launching new products, it has nothing to do with users.

Times have changed, the old approach has failed, and brands no longer simply pursue traffic stimulation and sales, but instead focus more on long-term repurchases and profits.

To achieve this goal, all brand actions will only be meaningful if the brand explores the real needs of users, engages in equal dialogue with users through sincere products and services, and establishes the perception that "I am good, and I can make you better."

References

2024.3, Daily Economic News, "From 60 yuan to 2.5 yuan? Investigation into the "crash" in the price of Zhong Xue Gao: Dealers say the manufacturer intends to control the quantity. How long can Linsheng last?"

Knife Skills Research Institute, "From Internet Celebrity to Long-term Success - A Growth Model More Suitable for China's Emerging Brands"

Apex Consulting, "2022 China Ice Cream Market Development Insights and Public Opinion Analysis Report"

Author: Chuchu, harassment

Source: WeChat public account "Knife Skills Research Institute (ID: DigipontClub)"