199 yuan/year, Oriental Select Member Store?

Today, Dongfangxuan officially launched a paid membership system, priced at 199 yuan per year. Compared with the membership rights of Taobao and JD.com, the price is definitely higher, but the membership system of Dongfangxuan is more like the gameplay of Costco and Hema, and the core is still to bind consumers.

On October 16, the Oriental Selection APP updated a details page: Oriental Selection will officially launch the paid membership system on October 17.

Specifically, the price of paid membership of Oriental Selection is 199 yuan/year, and the benefits include 12% off on hundreds of self-operated products, 12 membership coupons per year, and a 66 yuan coupon package membership gift. If we only look at the cost, compared with Taobao 88VIP and JD PLUS memberships of 88 yuan/year and 99 yuan/year, the membership price of Oriental Selection is obviously relatively high.

But it is undeniable that the membership system of Oriental Selection is obviously different from that of Taobao and JD. Compared with the ecological membership launched by major e-commerce platforms, the membership system of Oriental Selection is closer to Sam's Club and Hema. Its core is still to bind consumers, and Oriental Selection has already launched a corresponding points mall, which is actually a preparation for the paid membership system.

In fact, Dongfang Zhenxuan is also aware of the fact that its membership fee is relatively expensive. When launching the membership system, it further launched a corresponding refund system. That is, if a user does not enjoy a full 199 yuan discount within one year after purchasing a membership, Dongfang Zhenxuan will refund the remaining card fee in cash. For example, a member spends 199 yuan to open a membership card, and within one year, he purchases self-operated products at an 18% discount and gets a discount of 100 yuan. He only used a 10 yuan coupon. If he applies for a refund before the one-year membership expires, Dongfang Zhenxuan will refund 89 yuan in cash.

This refund system does seem very conscientious, but to some extent, it can indeed be considered that Oriental Selection is backing up its own membership system. Or we should also ask, is it really necessary for a live streaming e-commerce brand to have a membership system?

1. Is it really necessary for Oriental Selection to adopt a membership system?

To answer this question, we may first need to understand the difference between the so-called membership-based supermarkets and traditional stores. The ultimate difference between the two is the completely different profit model or profit structure. The former attracts old customers to repurchase by binding customers through the membership system, while the latter attracts traffic by building concentrated commercial formats and monetizing the traffic.

Specifically, whether it is a traditional store or shelf e-commerce like Taobao and JD.com, almost all of them will contract part of the store space to vendors or brands, realize monetization by collecting rent and commissions, and then attract consumers to shop through a rich SKU to achieve profitability.

In contrast, membership stores make very little profit from selling products, and almost all of the profits come from membership fees. For example, Costco's gross profit margin in fiscal 2020 (September 2, 2019 to August 30, 2020) was 13.09%, lower than Walmart's 24.83%; and its net profit attributable to shareholders reached US$4.002 billion, of which membership income accounted for US$3.541 billion.

Therefore, we should maintain a lower gross profit margin and more streamlined SKUs to increase the scale advantage of purchasing a single SKU, thereby reducing costs, and then attract more consumers through low prices, so that consumers will feel that they have not only paid the membership fee, but also the price is so cheap that they will lose money if they don’t buy it, which will lead to higher repurchase and turnover. In this way, we can strengthen the control over the supply chain, better complete the bargaining, and finally form a virtuous circle.

After careful study, it is found that membership stores and live streaming e-commerce do have certain similarities in their business models.

On the one hand, the number of SKUs in most live e-commerce platforms is relatively small, and since the beginning of live e-commerce, affordable prices and discounts have always been the main theme of live e-commerce. On the other hand, the streamlining of SKUs in membership stores also helps consumers to screen in advance. How to directly help consumers choose cheap and high-quality products is also critical. For live e-commerce platforms, product selection is the most important ability.

In addition, since 2022, the traffic of Oriental Selection on Douyin has indeed declined, not to mention that within the Douyin system, no one can actually own their own traffic.

As a result, it is natural that Dongfang Zhenxuan gradually began to try to break away from Douyin and build its own platform. With its own APP, traffic can no longer be driven entirely by live broadcasting. By selling memberships and targeting users who meet Dongfang Zhenxuan's product goals, membership fee income can become a new profit growth point. Especially when the traffic dividend weakens, relying on self-built APP and membership system, not completely relying on external traffic is conducive to developing autonomy.

Paying users can enjoy more professional and considerate services, which improves the user experience. The payment threshold can filter out some "casual browsing" users and improve operational efficiency. Generally speaking, for Dongfang Zhenxuan, which does not completely expect to stop at one MCN, this is a natural path to take.

But can Oriental Selection be a good membership store?

2. Compared with its competitors, Oriental Selection is still a bit thin

It is undeniable that Oriental Selection is indeed not weak in terms of basic capabilities, but as a transformed enterprise, Oriental Selection has many capabilities. Compared with Hema and Sam's Club, which have nearly 4,000 SKUs, Oriental Selection only just achieved over 1,000 SKUs in August.

In addition, as the most important core product of membership stores, Oriental Selection also seems a bit thin in terms of private brands. As of March 2023, Oriental Selection had 132 private brand SKUs. As of October, it had only 230 self-operated products, accounting for about 25% of the total. Compared with Hema's nearly 40% private brands and Sam's 35% self-operated products, it is still relatively weak.

For membership stores, self-operated products mean the ability to control the supply chain. Unique commercial products can not only bring differentiated competitive advantages to membership stores, but also ensure the pricing advantages of membership stores, thereby further enhancing the attractiveness of membership cards to consumers.

This is why, if we carefully observe the low-price competition between Hema and Sam's Club, we can easily find that almost all the products launched by Hema that are dubbed "Mountain Moving Price" are self-operated products.

On the other hand, there are the advantages of offline operations, especially at the moment, Oriental Selection’s offline weaknesses are almost all-round.

Although it is undeniable that nearly 70% of Hema's orders do come from online, what supports this huge sales volume are Hema's forward warehouses in various places. These forward warehouses ensure that Hema's products can be delivered to consumers promptly and effectively. Sam's Club, which used to be mainly offline supermarkets, has also begun to enter the forward warehouses and started to try to provide "speedy delivery" service to door-to-door delivery.

Forward warehouses have always been an asset-intensive game. Whether it was MissFresh, which almost went bankrupt not long ago, or Dingdong Maicai, which is still doing well now, both have tried to bet on forward warehouses, but unfortunately, neither of them has been able to gain a foothold in this field.

In addition to forward warehouses, offline stores are also an important source of traffic that cannot be ignored. However, in this regard, Oriental Selection’s disadvantage is more obvious.

According to the official website, Hema has opened 7 X-membership stores in Shanghai, Beijing, Nanjing and other places, and the model is highly similar to Sam's Club. The regular membership fee of Sam's Club is 260 yuan, and the annual fee of Hema X-Gold membership is 258 yuan.

In X Membership Store, the price war is even more "plain and unpretentious." On the wall of an X Membership Store in Shanghai, there is a straightforward message: "(If customers find) the same product at a Sam's Club store in the same city is cheaper, they can refund the price difference within 7 days with valid receipts."

Similarly, Hema opened directly into the core urban area of ​​CBD this year. The Hema X membership store in Wanda Plaza on Dawang Road in Beijing is about to open. It was previously a Walmart supermarket with a business area of ​​more than 19,000 square meters. Sam's Club is similar. The Shanghai Baoshan Sam's Club, which opened on August 27, 2022, is located on the second floor of Jufeng Shopping Plaza on Jufengyuan Road. It is close to multiple subway lines and has dense residential areas. It is a Feng Shui treasure land for supermarkets. Its original site was a Walmart hypermarket.

In addition to these two major players in the domestic membership store market, Costco recently opened its fifth store in China, and Metro Membership Store also increased its store opening speed in the Chinese market in 2022. Domestic capital is also pouring in. In April this year, Sun Art Retail launched the M membership store, declaring that it would not make a profit within three years; local supermarkets such as Renrenle, Jiajiayue, Hualian, and Yonghui have also opened at least one membership store each.

In fact, the fierce competition among membership stores is almost visible to the naked eye. We can almost say that for offline supermarkets, membership stores are currently the most imaginative business. The future will depend on who can collect membership fees from middle- and high-income groups.

Of course, for the current Oriental Selection, the number of SKUs of goods is not the key to comparison. After carefully observing Oriental Selection's self-operated products, it is not difficult to find that in fact, Oriental Selection's self-operated products are mainly centered around basic agricultural products such as rice, flour, grain, oil, meat, eggs, milk, fruits and vegetables. This is indeed in line with Oriental Selection's positioning as a product technology company with self-operated agricultural products as its core.

This also makes up for Oriental Selection’s weaknesses in products and offline to a certain extent, and enables it to differentiate itself from Sam’s Club or Hema.

On the other hand, if we only talk about the node, it may be a bit early for Oriental Selection to launch a membership system. After all, the content advantage within the App has not yet been established. It only meets the basic service of enjoying discounts by becoming a member, and does not reflect the App's unique value-added services.

But it is undeniable that there is not much time left for Dongfangxuan. From a data perspective, the GMV of Dongfangxuan's APP has been between 1 million and 2 million per day in recent weeks, which means that if Dongfangxuan APP does not make some innovations at this time, it may only cause more trouble. Instead of passively waiting to be forgotten by the crowd, it is better to take the initiative. After all, the nearly 4 months from now to the end of the year are the peak consumption season.

Perhaps, as subsequent brand building, membership mechanism and product expansion gradually become more perfect, coupled with the relatively unique agricultural product track, Oriental Selection may really be able to take a different path.

Obviously, even if multiple brands are fighting face to face for the same group of consumers, just like when Oriental Selection entered the track of self-operated milk brand a few days ago, the market is very saturated and the competition is fierce, but Oriental Selection may have to set off.

As for the offline aspect, Oriental Selection can only hope to work closely with express delivery companies including SF Express to make up for its disadvantages at the forward warehouse level.

Author: Innocent Roland, WeChat public account: Morketing (ID: Morketing)