Luckin Coffee: The road to innovation from selecting hit products to building an independent brand of a major product

Over the past few years, Luckin Coffee has undergone changes in almost every aspect, from selecting popular products to developing raw coconut products to independent branding of major products, constantly exploring potential and trying to form its own brand advantages. Let's read this article together to see how the author interprets Luckin's brand evolution and transformation.

That soy sauce latte is back again, have you tried it?

I spent 19 yuan to try it this morning, and the taste was not much different from before. However, it felt different in my hand. The surface of the cup had a slightly bumpy texture, which felt delicate, and it also had a gold printing process.

I don’t feel it’s so noble or not, it just keeps my hands warm and looks good.

Maybe because I stayed up late last night playing Doudizhu on my phone, so when I held this red cup, I suddenly thought of the idea of ​​"red cup, double efficiency" . I recommend you to try it.

Data previously released by Luckin Coffee showed that when its sauce-flavored latte was launched in September, it sold more than 5.42 million cups a day, with single-day sales exceeding 100 million yuan. The revenue was quite considerable, making a fortune every day, which made Coca-Cola and Starbucks jealous.

Products that have become hot spots in the market through CP combinations mostly become best-sellers because they seize the short-term market demand, but this does not mean that the brand has established a real market advantage.

Because traffic is not equivalent to customer loyalty, if other brands offer lower prices and a more novel image, customers will be lost; in addition, brand advantages are supported by many factors, including brand awareness, product differentiation, technological advantages, etc.

So I was wondering, why did it return for the second time, and what is the core intention behind it?

01

If you are a businessman, you will definitely say that if the products sell well, you will definitely sell them again. This is undeniable. However, the essence of business is to make profits. If you sell a lot but don’t make money, will you continue? This is exactly the dilemma Luckin faces.

Let’s look at a set of data: Not long ago, Luckin Coffee (OTC: LKNCY) released its Q3 2023 financial report.

Regarding store expansion, 2,437 new stores were added in the third quarter, including 1,619 self-operated stores and 818 franchise stores, totaling more than 13,000 stores.

A rapid growth strategy requires a lot of upfront investment, such as rent, renovation, employee training, etc., which will seriously affect profit margins, especially when sales revenue from new stores cannot quickly cover costs.

In terms of pricing strategy, Luckin's 9.9 yuan subsidy can be said to have penetrated cognition. However, in the overall financial report, the price of a cup of coffee was directly reduced from 15 yuan to 13.5 yuan ; although the low price will attract customers and increase sales in the short term, it will also compress profit margins.

If this method fails to significantly increase sales of each store, it will have a significant negative impact on the company's overall profits.

In terms of corporate structure, Luckin Coffee made some significant management adjustments in the third quarter, and some executives born in the 1980s were promoted. Although it may bring new strategic thinking, changes in management usually lead to a temporary decline in efficiency.

It is worth mentioning that market competition is also an important factor. Luckin needs to compete with Kudi and Starbucks, which requires it to continue to innovate to maintain its market position. In addition, rising raw material costs and seasonal factors are also expected to further compress profit margins.

Taking all these factors into consideration, we can foresee that Luckin will face downward pressure on profit margins in the fourth quarter, mainly due to its rapid store expansion and low-price strategy. Therefore, Luckin urgently needs to find a new growth strategy to stabilize its market share.

Therefore, the return of Maotai Red Cup has at least two purposes:

1. It can arouse customers' memories of the brand. Those who have never tried it before, or who want to try it after having tried it, now have the opportunity to try it again. This can also help increase the store's sales, which can be regarded as a supplement to revenue.
2. Testing the development strategy of new hit products. In the past, promotion was simply based on IP. This time, we invited Professor Luo Xiang, a professor of criminal law, to conduct a second popular science lecture, and tried to combine IP, content, and products in a deeper way, which is more like a fusion of culture and content. After Maotai, Luckin Coffee also successfully registered a single product trademark.

Therefore, through these two points, Luckin Coffee can not only refresh consumers' brand memory and rekindle their passion for specific products, but also try to innovate a new product promotion methodology with cultural depth.

02

You may wonder, hasn't Luckin been pushing hit products? Why is it looking for new tricks? The answer is simple: users will inevitably get tired of it after a while. How did Luckin do it in the past?

Looking at the horizontal axis, there are three types: cultural and creative industries, sports, and the Internet.

The cultural and creative line involves cooperating with big-name IPs to create themed stores, such as the Forbidden City collaboration and the "Liao" theme store launched with writer Feng Tang.

The sports line involves cooperating with sporting events such as the Beijing Marathon, China Open, and FIS, and even involving gyms; the Internet line involves cooperating with Internet companies such as Tencent, Xiaomi, and Huawei to jointly create interesting activities and open pop-up stores.

Looking at the vertical axis, a set of popular methodology has been upgraded three times.

1. Hot-selling contest

Luckin Coffee launched new products at a particularly fast pace in 2021, launching an average of 2 to 3 new products per week, and a total of 111 new products throughout the year; this number is more than that of Nayuki Tea, which is also known for launching new products, which only launched about 80 new products that year.

Luckin's new product list that year mainly included fruit elements such as prunes, grapes, watermelons, papayas, avocados, lychees, and raw coconuts; scented tea elements such as cherry blossoms, osmanthus, and jasmine; and grain elements such as oats, glutinous rice, pumpkin, and taro paste... as well as trendy tea elements such as thick milk, nuts, and matcha.

From these innovative elements, it is not difficult to find that Luckin's new product strategy is very clear:

(1) Strengthen the concept of reducing fat and sugar

I remember that at that time, after the rise of Nayuki’s Tea’s hit product “Baqi Yuyougan”, removing fat became the code for traffic in the beverage industry. After that, the trend of zero/reduced sugar, low calorie and plant-based became more and more popular in the beverage industry.

Therefore, whether it is the "fat-removing artifact" Prune Latte, or reduced-sugar and plant-based beverages, they can basically be seen as Luckin Coffee's new product research and development actions that keep up with industry trends and meet hot demands.

(2) Expanding the range of popular coffee products with creativity

The coffee that Chinese people like is different from the pure black coffee that Americans and Europeans like. 70% of coffee in the United States does not contain milk, while Europeans drink it more purely.

Luckin Coffee saw through this trend and started adding some milk or fruit to coffee. By doing so, it began to change domestic consumers' perception of bitter coffee.

As a result, there is a new "sweet coffee" structure that is more in line with the taste of Chinese people.

Moreover, Luckin Coffee has also done a great job in innovative coffee marketing. Its 2021 "Toilet Light" (which can cause diarrhea and help you lose weight) Prune Latte gives people the taste of love from the product color, packaging to the posters.

Another example is raw coconut latte. When people mention raw coconut, they will think of YYDS (the eternal god). When they see YYDS, the image of raw coconut will appear in their mind. Therefore, at that time, it was very popular to label new products, which also laid the foundation for Luckin to communicate with users.

2. Raw Coconut Big Product

In the beverage industry, product structures are basically divided into two categories: traffic-generating products and profit-generating products. The purpose of traffic-generating products is to attract attention and bring in traffic. For example, Mixue Ice City’s 2 yuan ice cream and 4 yuan lemonade can be seasonal products or holiday-limited products.

The latte jointly launched by Luckin Coffee and Coco Tree was designed with this idea in mind: it can not only maintain a high repurchase rate of customers, but also increase the popularity of the brand in a short period of time.

This type of lead generation product may not be very profitable, but it is crucial to the development of the brand and has the potential to become the next big thing. Most of the time, profitable products are not clearly positioned at the beginning, but stand out from the lead generation products.

After realizing the potential of raw coconut latte, Luckin Coffee has been constantly looking for the next "explosive code". From 2021 to mid-2022, Luckin Coffee took raw coconut latte as the first principle and began to use it to form various CPs.

For example: the combination of raw coconut and SOE series, raw coconut and Rena Ice series, raw coconut and meteorite, etc., created a series of SPU (standard product units).

3. Label marketing turns to IP marketing

Then, Luckin also made innovations in marketing, shifting from the initial label marketing to more story-telling IP marketing, such as collaborating with "JoJo's Bizarre Adventure: Stone Ocean" and inviting talk show actor He Guangzhi and curling athlete Ling Zhi to endorse the film.

In this way, Raw Coconut Latte gradually stood out from Luckin's product line and became a super independent large single product. This strategic shift is equivalent to moving from promoting the entire brand to focusing on the promotion of a single product.

And the effect is quite significant. This internet-famous drink brought Luckin Coffee sales of 1.26 billion yuan in just 8 months, with annual sales exceeding 70 million cups.

03

Secondly, branding of large orders: In 2022, Luckin adjusted its new product pilot strategy. They began to pilot in key cities, so that they can effectively determine which new products are worth investing more promotion resources in. At the same time, the promotion methods were also upgraded.

The launch of new products is no longer limited to cup body design, but also includes other empowerments, such as joint cooperation with well-known IPs, event marketing, advertising, product birthday celebrations, etc.

This action seems to have changed from selecting hits to using hits as the cornerstone.

Luckin Coffee co-founder and CGO Yang Fei also said in an interview before: Luckin will select the annual big single product and make the brand independent. This can be seen from the registration of the trademark of "Jiangxiang Maotai".

There are countless beverage stores on the market now. Although a brand can quickly become popular through joint ventures, the cost of raw materials is low and the products can be easily copied, making it difficult to form a competitive barrier.

Luckin Coffee's move to turn a single product into an independent brand is quite clever. This not only makes the product more personalized, but also makes it difficult for others to copy it, and ultimately increases profits.

Therefore, if this strategy is used well, Luckin Coffee can carve out a path in the monotonous market and come up with its own trump card. So, what is Luckin Coffee’s current strategy for selling hot products?

It can be summarized in one formula: hot-selling cornerstone + product innovation + all-round promotion.

Specifically: Luckin will first collaborate with other brands to attract customers through lower prices, push a certain product to a popular level, and then, based on the hot-selling products, develop innovative flavors.

Just like the raw coconut series they launched, from a popular single product, it extended to the "Iced Raw Coconut Latte" co-branded with the new Doraemon movie, the "Fishing Raw Coconut Latte" that is popular among workers, and a series of related products.

Finally, through in-depth cooperation with IP, not only will the product itself become more distinctive and attractive, but it can also leverage the influence of IP to enhance user awareness of the product and create a highly recognizable brand image.

04‍‍

Many people feel that Luckin Coffee is synonymous with low prices and discounts.

Looking deeper, it offers much more than just price. I think it gives users an emotional value of superiority.

Why?

The famous psychologist, Adler, said in his masterpiece "Inferiority and Superiority": The overall goal of human beings is to pursue "superiority", and everyone desires to feel unique and outstanding.

For example: I am not smart, but I am proud of my diligence; a person may not be able to write programs, but may be better than others in terms of interests.

Luckin Coffee sells a lifestyle of speed, fashion, and small happiness. Its products are constantly updated, closely integrated with trendy culture, and engage in fashionable collaborations. What it creates is not just a cup of coffee, but an emotional catharsis and an expression of attitude towards life.

This strategy not only allows customers to enjoy delicious food, but also allows them to feel a small happiness that can be accessed anytime and anywhere. To put it bluntly, it provides users with a simple but significant sense of superiority.

Just like last month, Luckin Coffee’s joint products with the classic animation IP “Tom and Jerry” brought back childhood memories for many people.

On Xiaohongshu, you will see a lot of people decorating their mobile phones or earphone cases with Tom and Jerry stickers. Creative netizens have also transformed these co-branded items, for example, turning themed handbags into three-dimensional collectibles, or ticket holders, cup sleeves, and even toys.

If we only look at the joint venture, many people are not particularly concerned about the taste of the coffee itself, they are more interested in how it is played. Everything seems to be Luckin Coffee playing the nostalgia card, but in fact, it seems to be a nostalgic marketing on the surface, but the deeper level is a deep insight into the users.

In the past, brands were actors and consumers were the audience; now, consumers are actors and brands are the stage.

Products and content are the "works" created by brands and consumers together. If a brand wants users to pay for it, it must understand user demands and transform products into a carrier to provide added value to consumers.

Luckin Coffee captured this change and won the favor of a large number of young people.

Looking back at the past three years of development, Luckin Coffee has undergone transformation in almost every aspect, and every element except the brand name has changed.

For example, grinding coffee may seem simple, but for Luckin, maintaining consistent quality and service across its 13,000 chain stores requires extremely complex supply chain management. From the source of coffee beans, processing to distribution, to the integration of upstream and downstream businesses, all of this takes time to debug and optimize, which requires not only the participation of a large number of suppliers, but also the collaboration of a wide range of social resources.

It is understood that in 2022 alone, Luckin Coffee purchased more than 6,000 tons of raw beans in Ethiopia. Such large-scale operation capabilities are truly astonishing.

The capabilities of CDP (Customer Data Platform) are also very important.

Data analysis capabilities enable Luckin to create popular products that frequently "go viral", and then use these popular products as the core to drive the development of the entire product line and brand image, forming a "point, line, and surface" strategy that uses a single point breakthrough to drive the development of the entire line.

Behind all of this is a team that has both deep market insight and strong execution capabilities, who can easily bring products to market and meet consumer needs.

Luckin also realized that the blockbuster product strategy is not enough to support the development of the brand, so it has the marketing strategy of "independent branding of large single products", which means that Luckin has begun to shift its short-term popularity ideas to long-term assets.

Obviously, Luckin is shifting from the success of a single product to building an influential and lastingly attractive brand cluster, which may be the most critical point in widening the gap with other players.

If this is the understanding, Luckin Coffee needs a hit product and will even create more big hit products.

Summarize

Luckin Coffee, the hit product is making great strides forward.

From the selection of hot-selling items, to the big single product of raw coconut, to the independent brand of the big single product, what will be the traffic code after the next sauce-flavored red cup latte? What will be the hot-selling item? It is worth looking forward to.

Author: Wang Zhiyuan WeChat public account: Wang Zhiyuan