Is Huaxizi expensive? Li Jiaqi's failure reflects the decline of the dividends of live e-commerce

Li Jiaqi's live broadcast went wrong, and he lost millions of fans overnight. "Eyebrow pencils are more expensive than gold, how can they be expensive?" Starting from three reference systems, this article analyzes the pricing of eyebrow pencils and proposes the difference in value perception between consumers and brands. The article also observes the competition and decline of the live broadcast e-commerce industry, as well as the challenges faced by the Huaxizi brand in the market. Recommended reading for those who are interested in the development of live broadcast e-commerce and brand positioning strategies.

The whirlpool of public opinion caused by the pig girl complaining about the high prices instantly brought down the former live broadcast male god. Li Jiaqi is also the only one of the first generation of Taobao's top live broadcasters who is still alive.

“Water can carry a boat, but it can also capsize it.” When he was going crazy in the live broadcast room, he might not have noticed the nervousness of his assistant, nor did he care about the assistant’s attempts to change the topic or smooth things over. It was not until the public opinion surged after the broadcast that he felt nervous and uneasy. Li Jiaqi, who suddenly felt something was wrong, apologized late at night with tears in his eyes, but it failed to move people. Netizens did not buy into the subsequent apology. Some people who lost control of their emotions even shouted “let him bleed a little.” Mainstream media such as CCTV also published articles to criticize and criticize him. As an ordinary consumer who works as a bricklayer in self-media, TOP Jun empathizes with the heartbreak of Li Jiaqi girl. As a professional marketing media, after we have sorted out our emotions, we can’t help but think about these questions:

1. From three reference systems, is Huaxizi’s 79 yuan eyebrow pencil expensive?
2. Why do some consumers think it is expensive? What does the difference between price and consumer perceived value indicate?
3. Why would normal comments from consumers instantly trigger Li Jiaqi's emotional buttons, causing him to explode unscrupulously even in public?

1. Three objective reference systems to see whether a 79 yuan eyebrow pencil is expensive

Suppress the sadness and put aside the emotional hurt. The most discussed topic among netizens is whether Huaxizi's 79 yuan eyebrow pencil is expensive. Expensiveness is essentially a subjective feeling, but at the objective level, our industry practice of product pricing strategy, from the three dimensions of cost, history and peer pricing, let's take a look at whether Huaxizi is expensive.

1. Cost dimension: less than 10 yuan is in line with the "high gross profit" industry practice

According to beauty blogger @dede-lab, most of Huaxizi's products are still produced by OEM factories. The OEM factory of this eyebrow pencil in the incident is Yongli Pen Industry. A reporter from China Business News called Yongli Pen Industry to inquire about OEM orders. The other party said that it OEMs products for many brands with complete qualifications, and the cost of each eyebrow pencil is less than 10 yuan or even lower.

However, Feng Jianjun, a senior daily chemical expert, once told the media that the cost of OEM factories does not take into account the four major marketing competition parameters, such as product technology and R&D investment, brand advertising investment, whether it has a production factory and independent production, the number of goods sold and the scale of sales revenue. Feng Jianjun said that although the terminal price is high, the production cost of domestic and international cosmetics products does not exceed 20% of the product price, mainly because of the high marketing and channel costs. The net profit margin of the cosmetics industry is generally only around 15-20%. From this point of view, Huaxizi, with an annual revenue of more than 5 billion and marketing expenses of more than 3 billion throughout the year, has fallen into a non-virtuous cycle of high marketing and low R&D, along with many domestic cosmetics.

The factory price is very low, but the terminal price is high because the marketing channel costs are high, and live streaming like Li Jiaqi is part of the high marketing costs. From the perspective of production costs, the price of Huaxizi eyebrow pencil is indeed not cheap.

2. Historical dimension: You could buy it for more than 50 yuan

Consumers have been looking through their historical orders, trying to find evidence of price changes for Huaxizi's eyebrow pencils. However, product upgrades, style differences, buy one get two free, cross-store discounts and allowances... all kinds of fancy marketing strategies make it difficult for consumers to compare prices based on a unified standard.

But overall, the daily selling price of Huaxizi Shouwu Eyebrow Chalk Pencil is 69 yuan per piece, and the historical lowest price is 62 yuan. After the discount, it can be purchased at a price of more than 50 yuan, and a replacement is included. The Huaxizi product sold by Li Jiaqi for 79 yuan, which comes with two refills, seems to have given a discount, but in essence it still includes the additional cost of the refill. What's more, the cost of the refill is relatively low, and it also saves production and transportation costs.

3. Price comparison with peers: The price per gram exceeds that of international brands

After all, cosmetics are bought for use. Consumers have been constantly looking for a balance between price and practicality, and thus choose some "cheap domestic products". After consumption downgrades, they gradually realize that many cheap cosmetics are even more expensive per gram than international brands. DT Business Observation found that the price per gram of Huaxizi Shouwu eyebrow pencil is 492.9 yuan, which once exceeded the price per gram of L'Oreal three-head eyebrow pencil.

Image source: DT Business Observation

In a price table circulating on the Internet, netizens also concluded that Huaxizi's price of 985.71 yuan per gram is even more expensive than gold. Of course, this does not include the weight of the eyebrow pencil refills, but the cost of a semi-finished product such as a refill is undoubtedly lower.

Image source network

2. The contradiction between consumer expectations and pricing

Objective judgments of price and value are actually meaningless. Consumers’ subjective perception of price is the essence of the problem. The essence of a brand’s value creation is to create a consumer experience. The difference between consumer perceived value and market pricing indicates that there are serious hidden dangers in the marketing system. The fermentation of public opinion also illustrates the problem: at the beginning, only a few consumers thought it was too expensive, but the development of the situation has formed a general rational cognition among netizens: Huaxizi eyebrow pencil is more expensive than international brands and more expensive than gold.

So the essence of the question is: In the consumer's perception system, is Huaxizi really worth such a high brand premium?

When consumers and merchants have conflicts over price perception, Li Jiaqi did not stand on the side of consumers, but stood on the side of the sponsor with a clear attitude. This is a typical marketing 1.0 thinking, that is, 4P thinking. The producer's expected price starts from the Price in the 4P theory. Enterprises formulate different pricing strategies based on different market positioning. The pricing of products is based on the brand strategy of the enterprise, focusing on the gold content of the brand. Huaxizi was born in 2016. In 2019, it was recommended by Li Jiaqi's live broadcast room and sold 700,000 boxes of loose powder on Double Eleven. From an obscure niche product, it rushed to the second place in domestic beauty products. From then on, Huaxizi gradually began to tell the story of "domestic high-end beauty brands". Therefore, the brand believes that the pricing should also be high-end.

But the consumer's perspective is different. Every expense she spends is a cost. How much consumers are willing to pay for your product is the core of business. Cost refers to the cost of consumers' satisfaction, or the cost price consumers are willing to pay to satisfy their desires and needs. The price here can be extended to the entire cost of the production and operation process, including product costs, consumer shopping monetary expenditures, time consumption, physical and mental consumption, and risk bearing.

The initial popularity of Huaxizi was, to a certain extent, due to the combined effect of affordable domestic products and Li Jiaqi's recommendation, which won the trust of consumers and made consumers willing to pay for these two labels; now the contradiction has broken out because Huaxizi has raised prices openly and secretly through reasons such as packaging upgrades and style changes. At this time, compared with domestic and foreign beauty products, its cost-effectiveness can no longer convince consumers who are becoming more rational. Therefore, the contradiction this time is that Huaxizi wants to increase profits within the price limit supported by consumers, but the brand story it tells lacks "flesh and blood" support. Compared with mature international cosmetics brands such as Armani and L'Oreal, Huaxizi lacks the moat forged by advantages such as raw material quality and production technology, and does not have a loyal user group formed by years of accumulation. When the brand story cannot convince consumers, its pricing based on its own strategy will inevitably conflict with consumer expectations.

3. The banana green of live e-commerce: the dividends fade away and become a traditional industry

The activation of Li Jiaqi's emotional button reflects the decline of the live streaming e-commerce industry, and also serves as a wake-up call for brands like Huaxizi that rely too much on traffic operations.

On the one hand, live streaming e-commerce is becoming a "traditional model". In the heyday of live streaming e-commerce, the profits were far higher than drug trafficking and arms smuggling.

However, as the industry matures, such high profits, high exposure, and high growth are gone forever. This is because the underlying logic of live e-commerce, "traffic cluster + price advantage", has been impacted to varying degrees, and the dividends have gradually faded. At present, more and more companies and brands regard live e-commerce as a necessary layout channel. With the entry of large and small brands, the original traffic clusters have been dispersed. Live e-commerce is no longer a new e-commerce that can easily gain growth through extensive operations, but has become a "traditional model" that can be seen everywhere over time.

At the same time, under the general environment of consumption downgrade, many merchants have started price wars in various channels. Before 618, JD.com, Taobao, and Tmall adjusted their price inputs one after another, eyeing Pinduoduo, which has always adhered to the low-price strategy. Under the Matthew effect, the mature pattern of live e-commerce allows the top anchors to get more commissions. Correspondingly, the product prices of live e-commerce are no longer so attractive. Data shows that in 2019, the sales of Huaxizi's Tmall flagship store soared from 10 million yuan in January to 250 million yuan in November. That year, Huaxizi's sales exceeded 1 billion for the first time. In 2020, Huaxizi's data reached 2.75 billion yuan, successfully surpassing Perfect Diary to become the cosmetics store with the largest transaction volume on the Taobao platform. After the impact of the epidemic, coupled with the lack of core competitiveness support, Huaxizi began to show signs of fatigue. This year's 618, Huaxizi rarely fell out of the top ten of the 618 pre-sale list. This is the first time that Huaxizi has fallen out of the first echelon since 2019.

On the other hand, Huaxizi’s excessive reliance on traffic operations has exposed the commercial risks of its shallow brand moat.

According to Pinguan statistics, in February 2020, more than 80% of Huaxizi's sales came from Tmall, and 40% of its sales on Tmall came from Li Jiaqi. It can be seen intuitively from the data that the deep binding between Huaxizi and Li Jiaqi has brought it rapid popularity and rapid growth, but it also means sharing risks with the anchor. After all, live e-commerce only provides a pulsed promotion scene, and brands cannot achieve high premiums simply through traffic operations such as live e-commerce. Since Huaxizi is positioned as a "high-end domestic beauty brand", it should focus on increasing consumer added value, creating multiple channels to shape its brand image, and doing a good job in the long-tail operation of the brand, thereby increasing consumers' psychological expected prices. "Huaxizi, whose marketing expenses exceed 3 billion yuan throughout the year, still does not have its own factory", in a sense, contains consumers' expectations for Huaxizi's transformation.

Finally, every marketer should remember that pricing is about strategy, and pricing is about life and death. Among the common pricing strategies such as market price, cost + profit pricing, value pricing, perceived value pricing, and discrimination pricing, the most reasonable choice for fast-moving consumer goods, especially high-premium fast-moving consumer goods, is perceived value pricing. That is, as we mentioned above, how much consumers think you are worth and how much cost they are willing to pay to buy your product. The premise of perceived value pricing is 3C analysis (company, customer, competitor), and the key to perceived value pricing is two points: one is the continuous output of brand experience, and the other is the differentiated brand product value.

For Hua Xizi and others, if they really want to become the pride of domestic products, the road to systematic brand value is still long and arduous.

Author: TOP

Source: WeChat public account " TopMarketing (ID: TMarketing)"

This article was originally published by @TopMarketing on Operation Pie. Reproduction without permission is prohibited.

The title image is from Unsplash, based on the CC0 protocol.