New cost thinking for brands

This article discusses the new cost thinking of brands from multiple dimensions, and specifically explains products, channels, prices, promotions, and self-operation. It is recommended for partners who want to build big brands.

01

From 2012 to 2022, the popularization and application of mobile Internet and machine algorithms has given rise to the rise of numerous information platforms: Douyin, Kuaishou, Xiaohongshu, Bilibili, etc. The rise of these information platforms has promoted the development and evolution of circle business. The business world has entered an era of niche entry and strong growth beyond the circle from the era of mass brands.

In recent years, supernova brands such as Yuanqi Forest, Wang Baobao, Santonban, and Zhongxuegao have seized the opportunity of consumers' increasingly personalized and segmented needs, and quickly rose through the loyalty of segmented people. The giants are also expanding their product lines and actively incubating segmented brands to drive business growth under the new thinking of creating segmented brands. For example, Procter & Gamble has Metamucil, a segmented brand that specializes in weight loss meal replacement products.

In the past decade, many new brands have been launched on the market and faced a problem: why can’t they grow big?

For example, why can "Muwu BBQ" open thousands of stores across the country, while many BBQ stores can never open even a back street? Why can "Huaxizi" rise so quickly, while some brands' products are still piled up in the hands of distributors, even though they both sell cosmetics?

To become a small brand, you may only need an opportunity and a little ingenuity, but if you want to become a big brand, you also need management, marketing, technology, capital and other knowledge, as well as more soul-searching. So, why can't your brand become big?

02

The core reason why "brands have never grown" is that companies do not use "new cost thinking" to manage their brands.

What is the "new cost thinking"? It means that not only money is considered cost, but also your time, energy, innovation, management and so on.

Let's take a closer look at this question. "Not being able to grow big" means that something is limiting your development. There are at least three reasons that can limit the development of a brand: market form, competitive relationship, and self-operation. These three factors will generate corresponding operating "costs", and each cost will restrict the company's sustainable development: market form = opportunity cost, competitive relationship = competitive cost, and self-operation = replication cost.

03

Many people have heard of the term "market capacity". The size of your market capacity will determine your market size. For example, if you are a foreign beverage brand and you position your core market in China, you will have a market of several hundred million people. But if you position your market in Sweden, your maximum market size will be 10.18 million people. However, "market capacity" is only a basic factor and cannot be used as the only criterion for measurement. "Market capacity" is only one of the dimensions. Let's add five more dimensions to examine your market.

Dimension 1: Volume issue: Market size. Is the market a 100 billion-level market or a 10 billion-level market? Are there any unmet demands?

Dimension 2: Speed: Market growth rate. Is your current market close to saturation? Or is it still growing steadily? Is the growth rate 3% or 30%? For example, China's first- and second-tier markets are saturated for most brands, while third- and fourth-tier markets are promising. Another example is that China's pet economy and silver-haired economy will grow strongly in the future, but the kitchen appliance industry and mobile phone industry have been saturated in the past two years.

Dimension 3: Duration: Is it a rigid demand? "Rigid demand" refers to whether we always need a certain product and it will not become outdated easily. For example, in consumer goods, milk is a rigid demand consumer product, and a certain flavor of beverage may become outdated after a few years; in Internet applications, instant messaging software such as WeChat is a rigid demand, but expert question-and-answer software such as Xing is not a rigid demand;

Dimension 4: Frequency issue: Is it high frequency? "High frequency" refers to whether we consume products frequently enough. For example, facial tissue is a high-frequency consumer product, but the wedding photography industry is a typical low-frequency consumer product. A normal person will only get married 1-2 times in his life. Distribution issue: market concentration. "Concentration" means whether the industry is controlled by a few giants or divided up by a group of "ants"? For example, China's dairy industry is controlled by giants such as Yili and Mengniu, and the industry concentration is high. However, the catering industry is affected by its geographical location, which is a typical industry with low concentration. It is impossible for it to be divided up by a few big brands.

Dimension 5, user stickiness issue: the user aggregation effect. The market where your brand is located should be active, and users should stick together, so it is easy to aggregate users together.

04

When we find that a brand has not been able to grow, the first step is to do a self-examination of the market situation to see what is happening in the market we are in. For example, if you find that the market associated with your product is close to saturation, you may need to open up a new category market to obtain greater benefits at a lower opportunity cost. The market itself is only an objective constraint. If a brand has not been able to grow, most of the reasons are still due to competition and its own operations.

"If an enterprise can become big, it must have eliminated competition to some extent." This sentence tells us how to view competition correctly, that is, competition is not about two people chasing each other in a race, but about trying our best not to compete with the opponent on the same track.

All the brands that have become big in recent years have complied with this basic competition logic. Let’s take Luckin Coffee, which is the most familiar to everyone, as an example. Luckin Coffee went public in 18 months and eroded the market share of the giant Starbucks in China. Although both Luckin Coffee and Starbucks sell coffee, their business models are completely different.

What is the biggest difference? Luckin's customer acquisition method is completely different from Starbucks. Traditional coffee shops acquire customers offline. They open stores in places with suitable traffic and consumer groups through reasonable site selection, thereby converting coffee people within a few kilometers around the store into consumers. For example, they generally like to choose shopping malls, office buildings, and office areas like SOHO to open stores. Under the influence of multiple factors such as financial fraud, delisting, and the re-emergence of the epidemic in 2022, Luckin still survived and regained profitability, which is enough to show the strength of Luckin's brand operation capabilities.

05

Product: The best competition is to eliminate competition at the product level. If you develop a product that a lot of people need and other competitors don’t have it, this is the best business.

Unfortunately, there are very few such products, and they generally only exist in some high-tech enterprises. The most common practice in the industry is brand positioning, and the most common positioning method in brand positioning is "category innovation", which is to make a slight adjustment to the original product, add or upgrade certain elements, so that the product becomes a new type of product that no one has ever seen.

Channel: How much does it cost you to build your business? The so-called channel refers to who sells your products and where they are sold.

Because China is so vast, for many years, the scope of channel distribution is often equivalent to the sales volume of the product. If the product is the emperor, then the channel is the "kingdom" of the product. Wahaha, Nongfu Spring, Jiaduobao in the beverage industry, Dali in the food industry, Niulanshan in the liquor industry, Yili Mengniu in the dairy industry... There are many companies in China that are famous for their strong channel power, or it can be said that the biggest factor in their growth may not be the brand, but the channel power. Back then, the Wahaha Group could launch a new product this month, and the next month this product could appear on the shelves of major supermarkets, mom-and-pop stores, and even newsstands across the country.

Therefore, among the four factors of marketing, the moat of channels is the highest. As a new product, the cost of competing with giants in this field is the most expensive. What you pay may not be a price, but a price of life and death. We can see that many new brands have emerged in recent years. Their success is largely due to bypassing the channel war and reducing the cost of building a kingdom to the lowest.

Price: Pricing is not about profits, but about competitive costs. Many people think that pricing is about finding a number that consumers can accept and that can earn the most. This understanding is too superficial. In fact, pricing is the ultimate embodiment of your company's marketing model.

Is the reason for setting a low price just to achieve “small profits but quick turnover”? More than that. When Procter & Gamble and Unilever entered China, their shampoo brands such as Rejoice and Pantene were priced very low. When Chinese consumers saw that foreign brands endorsed by celebrities were cheaper than domestic brands, they naturally chose foreign brands. Today, the market for domestic shampoo brands has been suppressed by Procter & Gamble and Unilever and is shrinking. This pricing strategy is to first occupy the market with low prices to form a monopoly effect, and then find ways to raise prices to harvest the market, or develop other high-profit brands to harvest the market. Is the “competitive cost” brought about by this pricing strategy high or low?

Why do Jiaduobao and Red Bull define high prices for beverages as fast-moving consumer goods? High prices can bring more profits and target high-spending groups, but the significance of high prices is more than that. The high profits brought by such high prices can support their huge advertising investment every year. They can suppress other competitors with overwhelming advertising. Even if competitors have price advantages in the market, they will always be weaker than themselves in brand power. Therefore, such high prices also lower the "competitive costs".

In marketing, the price will directly affect the final sales volume of the product, but the lower the price is, the better. The pricing also depends on the specific consumers, the category they are in, etc.

How to fight a price war is an enduring topic in the competition between enterprises and competitors. Moreover, price war must be fought, but it needs to be fought skillfully. Apple also fights price wars, but its price war is fought skillfully. Anyone who does not fight price war skillfully will end up like " Luo Yonghao " . When Luo Yonghao T1 was launched, he insisted on pricing his mobile phone at 3,000 yuan, and criticized that 1,999 yuan was a monkey trick. In the end, he had to face the cruel reality, reduce the price, and set the price according to the principles of psychology.

Pricing is not simply cost plus profit, but requires product category positioning and product positioning first, and then pricing based on the different values ​​generated by the product category. For example, if a new beverage costs 6 yuan and the company wants to make a profit of 4 yuan, then pricing it at 10 yuan seems to be a reasonable choice, but it is not the case from the consumer's perspective. This highlights the importance of positioning. When this beverage is positioned in a high price range, the manufacturer will gain more profits.

For example, if the same beverage is placed on the shelf of a supermarket and compared with a bottle of cola that costs 3 yuan, then it is difficult for the price of 8 yuan to have an advantage; but if it is placed in a coffee shop, compared with a cup of coffee that costs 30 yuan, it may be priced at 15 yuan, which seems very cheap. This is why Yuanqi Forest must first make sugar-free beverages to succeed. Because it is a sugar-free beverage, it can be sold at 5 yuan per bottle at the terminal. If it is also a sugary soda, it is very difficult to sell it at 5 yuan per bottle.

The reason for the above situation is that consumers do not know how much a newly launched product is worth. The only way they think the price of this product is high or low is by comparing it with previous products. If a piece of fried chicken is sold at 5 yuan in a street shop, you will think it is expensive, but if it is sold in McDonald's, you will think it is so cheap. Therefore, when mature brand companies price new products, they must first position the product, or carry out category innovation, and then find products that match it, and then seize the consumer market through price advantages or other marketing activities in the same range.

The way to find an anchor product for yourself is:

First, you need 1;

Second, think about which competitors can meet these needs.

Let’s take the beverage mentioned above as an example. If this beverage can satisfy consumers’ needs for refreshment, then what products on the market have the same needs? We may drink tea to refresh ourselves, or we may choose coffee or functional drinks like Red Bull, which will become competitors of this new beverage. After finding the approximate range of competitors, the brand has a basic direction for pricing. Finally, after combining comprehensive factors such as the portability and taste of the beverage, the brand priced the beverage at 8 yuan, and placed this beverage next to the 12 yuan canned coffee on the shelf, so that consumers will try the newly launched boosting beverage at a glance.

This price is actually higher than what they originally expected. After a period of sweetness for new products, they can make fine adjustments to the price. Sales continue to grow steadily, and word of mouth and volume are also well promoted. Generally, brands raise prices every year. The reasons for the price increase include raw material and labor costs, but the more important reason is that consumers hope that the products they buy are valuable.

Promotion: The lower the traffic cost, the better. When we develop good products, have sales channels, and set a good price, we will immediately encounter a traffic war. No matter what type of brand, you must acquire customers through traffic, occupy the minds of consumers through traffic, and consolidate your brand positioning. The trouble is that good traffic is very expensive. Which brand doesn't want to sponsor CCTV's Spring Festival Gala? But do you have hundreds of millions of advertising fees? In the past few years, why did many APP brands start to do offline promotion? Because it was found that offline head solicitation is cheaper than purchasing online traffic; the current hot private domain traffic is to use the Internet infrastructure such as WeChat communities to reach and retain as many users as possible so that the business can last for a long time.

Own operation: Have you considered the "replication cost" of your company? From the perspective of business operation, if your development encounters a bottleneck, it is likely that your past business model is no longer effective. In other words, past success cannot be "replicated". There are many such examples, such as Lechun yogurt.

Le Chun is a typical "user"-oriented company. Its organizational structure is designed around user operations and experience. For example, employees conduct user interviews every week to collect product suggestions, which are then passed on to the back-end product development department. For example, Le Chun's durian-flavored yogurt was called for by Le Chun's fans. In the early days, Le Chun mainly relied on content marketing on platforms such as WeChat and Weibo. Through some interactive story marketing and public recipe production, it gained a group of loyal yogurt fans. Focusing on users rather than opponents, focusing on product experience, community operation... It can be said that Le Chun is full of all the labels of "future marketing model".

With these ideas and methods, Le Chun became a very successful small brand. But when it was not satisfied with its own weakness and wanted to enter the mass market, problems arose. It did not have its own production line, resulting in insufficient production capacity. In order to expand sales, Le Chun expanded its distribution range from the Third Ring Road in Beijing to the whole country; but the nationwide distribution of low-temperature stored yogurt brought about the second problem of "cold chain logistics", so Le Chun spent most of its financing to build a cold chain system; because the cold chain system consumed a huge amount of funds, Le Chun could not invest more in offline channel operating expenses and marketing expenses, and offline supermarkets, convenience stores, and Tmall and JD.com all required human and financial investment.

It can be said that Le Chun's early competitiveness was due to the fact that it captured a large number of fans at a very low cost, but this successful model cannot be completely replicated in the future Le Chun, making Le Chun a big brand. The "replication cost" I am talking about is the "standardization" and "scale" of the business model. A business that cannot "standardize" will not have "scale", and a business without "scale" will always be a small business.

06

Why can't your brand grow? There may be many answers, but no matter what your answer is, companies can use "new cost thinking" to think about your answer again. Is your market opportunity cost too high? Is your competition cost too high? Is your company's replicable cost low enough? In movies and TV shows, business heroes are often portrayed as adventurers who dare to take big bets. But in the real world, business heroes have always been conservatives who always keep "cost" in mind.

Author: Liu Yichun

Source: WeChat public account "Liu Yichun's Brand Business Innovation (ID: shangyeyiguohui)"