After talking with several emerging brands, we summarized three directions and 10 suggestions for reducing costs and increasing efficiency.

"The situation this year is that the wealthy top brands are operating on their own cash flow, and white-label brands are doing OK because they are cheap enough. The emerging brands are having a hard time, and the emerging brands without money are having an even harder time."

The words are rough but the truth is true. Although there is no standard answer to which year is the first year of new consumption, everyone knows which year is the cold winter of new consumption. The four words "reducing costs and increasing efficiency" have not only become the general tone of the entire consumer market, but also run through all walks of life in 2022.

As the year draws to a close, when all brands are summing up this year and planning for the coming year, the Knife Skills Research Institute found several consumer brands at different stages and categories, including the coconut light meal brand "Ye Man Man", the low-temperature yogurt brand "Oarmilk Wudao" and two functional skin care brands "Fuqing" and "Tou Xiang" , and talked with them about the practical process of reducing costs and increasing efficiency this year.

The experiences of these brands this year are a microcosm of the overall market environment. For example, due to shrinking investment and financing and a sharp tightening of budgets, many originally planned projects were forced to stop; warehouses were sealed and unable to ship goods, and many orders from outsourced factories were also stranded due to express delivery suspension; offline stores and agency channels were shut down, and store closures and layoffs became necessary, which in turn affected the overall structure of business departments and organizational personnel, etc.

However, after a period of exploration, brands have also achieved initial results in reducing costs and increasing efficiency:

• Founded in 2020, Yemanman has most of its warehouses in Shanghai, but it achieved the highest profit margin of the year in May during the lockdown, with sales in the first three quarters increasing by 200% year-on-year.
• "Tou Xiang" was founded in 2021. Under the condition of overall capital tightening, its sales exceeded 10 million in the first half of its listing. It not only promoted the launch of new products as planned, but also achieved the improvement of its influence on the toB side.
• "Fuqing" was founded in 2014 and entered the e-commerce channel in 2019. Although offline business was restricted this year, it seized the opportunity to cultivate a closer cooperative relationship with agents, and completed the sorting and adjustment of the income structure, achieving a 40% growth in online business;
• "Oarmilk" was founded in 2020 and is positioned as a high-end dairy brand. It completed its Pre-A round of financing against the trend in the middle of the year and achieved its established sales target of over 100 million.

Based on their experience, Daofa has summarized 3 major directions and 10 suggestions for brands to reduce costs and increase efficiency, hoping to provide some reference for brand operators.

01. Cost reduction: faster iteration, more detailed disassembly, and more comprehensive coverage

Direction 1: Focus on the cost segment with the largest proportion, and conduct periodic analysis and review.

Each brand has its own cost structure. The sector with the largest share theoretically has the greatest impact on the overall operation of the brand and may also have the largest room for optimization.

Wudao shared with Daofa that, generally speaking, the normal production cost of fast-moving consumer goods brands accounts for 30-40%, the marketing cost accounts for 20-30%, and the fulfillment cost accounts for about 10%. So when it comes to cost reduction, many people will naturally break down their own production costs first, and then break them down into raw materials, packaging materials, freight, etc.

In addition to focusing on the most important sectors, one change this year is that the analysis cycle has become shorter. Ye Manman said that if the business fluctuations of mature companies do not exceed 10%, they can do annual analysis, but this year they will do a monthly review, the method is "first from top to bottom, then from bottom to top". The CEO will give each independent business department numerical requirements, and the business department will analyze product costs and operating costs every month, report to the upper level and make timely adjustments; similarly, Fuqing also said that they will review their business every month, focusing on profit indicators.

Direction 2: Break down the costs finely enough to know where the money is spent.

Taking Wudao as an example, its product cost involves the cost of packaging materials and raw materials. Packaging materials involve cardboard, which can be further broken down into materials and processes. The processes can be further broken down into color processes and laminating processes. The laminating processes can be broken down into single-sided or double-sided films. These can all be optimized for cost after detailed disassembly.

Similarly, in terms of fulfillment costs, Wudao will first look at the structure of fulfillment costs to determine whether the lines can be merged, and then look at loading and city distribution to see which module still has room for optimization.

After analyzing its own product costs, Touxiang found that the unit price of raw materials such as "blue copper peptide" was very expensive. Even if in-depth cooperation was reached, there was not much room for reduction. As for the outer packaging, although it carried its own brand expression, consumers' actual perception was not great. Therefore, adjustments were made to the outer packaging, and the cost was reduced by half.

When broken down to the smallest granularity, brands can discover the possible space for each module and make more detailed optimizations while ensuring quality.

Direction 3: Discover and reduce hidden costs.

In addition to the numbers reflected in the financial statements, each brand will have some "hidden costs", such as communication costs, talent turnover costs, etc. This part of the cost is often difficult to quantify, but it has a subtle impact on the business. A typical example is that in a slightly larger brand, there is frequent staff turnover, and during the adaptation period of new employees, it is easy to waste labor costs.

Fuqing has strengthened the construction of its talent system this year. First, a set of SOPs has been formed in each core department, and these SOPs need to reach a consensus across departments, so that new employees can quickly enter the working state after joining the company, and can also communicate across departments more efficiently; secondly, it has begun to attach importance to the construction of a "learning organization" and improve the internal training system, not only to allow new employees to adapt quickly, but also to allow old members of the team to always keep up with new changes in the market.

Direction 4: Cut off unprofitable marginal businesses in a timely manner.

In the past, brands wanted to expand their business, expanding and expanding continuously to produce good-looking numbers for investors. But in reality, brand resources are limited. Between "covering more people" and "serving a group of people well", more brands chose the latter this year.

Wudao has made corresponding business optimization this year. After breaking down the fulfillment costs, Wudao found that the cost of "drop shipping" in brand e-commerce mainly comes from delivery to remote areas. In response, Wudao has taken measures such as changing the use of packaging materials to self-purchase by enterprises to reduce packaging material costs, reducing the discount rate of contract quantities, and even calculating the amount of ice input according to weather temperatures.

After the optimization, Wudao reviewed its business in remote areas again and finally decided to focus on the top 6 cities such as Shanghai and Beijing and directly close the marginal businesses.

Such a decision not only reduces the brand's long-distance delivery costs, but also reduces the burden on warehouses, allowing users who remain to enjoy higher quality services.

02. Efficiency improvement: focus on resources that can be reused between links

Direction 1: Leverage R&D and co-creation to leverage the influence of expert KOLs

In the past, many brand marketing activities were directly targeted at the C-end market, using money to attract traffic in a large pool, but there is no doubt that traffic is becoming more and more expensive. At this time, for some emerging brands, they can choose to amplify the leverage effect of research and use products to leverage the active dissemination of expert KOLs; or directly co-create products with KOLs to increase the launch rate of products and achieve a one-stop service of R&D-launch-sales.

As a functional skin care brand that was established just over a year ago, Touxiang previously focused on the blue copper peptide ingredient. Recently, it began to launch products containing bakuchiol. Most of the costs were spent on basic research on raw materials, and brand marketing costs were significantly tightened.

With limited influence on the C-end, Touxiang turned to sharing the research results of raw materials with suppliers and formulators, using research and development to leverage their active dissemination and amplify the leverage effect. Now on Zhihu, Touxiang's evaluation sharing almost all comes from the spontaneous dissemination of B-end industry formulators. On Xiaohongshu and private domains, there are also expert KOLs who are actively promoting products.

Direction 2: Leverage channels to improve short-term operating efficiency

Rely on yourself or on agents? In all sectors of the brand, from the supply chain to the live broadcast room, this is a problem that every brand needs to face in the process of development. Fuqing told Daofa that the company originally planned to build many sectors by itself, but under the circumstances of this year, they slowed down this decision and chose to leverage channels instead.

On the one hand, Fuqing uses influencers as channels in its online distribution system. Fuqing has placed greater emphasis on influencer operations and has reached cooperation with top influencers such as Luo Wangyu, Zhang Kaiyi, and the Dada Suibian couple. Through short video promotion and live streaming, it has brought a large number of new users and sales growth to the brand.

On the other hand, Fuqing already has its own offline agent system, but usually an agent does not only represent a single brand, so how to grasp the agent's time is very critical.

This year, Fuqing has focused its investment on two aspects. First, it has made requirements for front-line sales, asking them to provide better services to agents, such as helping them with business diagnosis, so that they can spend more time on Fuqing's business. Secondly, the headquarters has set up a special training department, and relevant colleagues will go directly to CS stores in the sinking market to conduct brand and product professional knowledge training as a support for the agent service system.

Direction 3: Leverage the platform to conduct cost-effective and effective marketing activities

In 2022, Douyin upgraded the "Douyin Brand Growth Support Plan", and Kuaishou also proposed the "Kuaishou Brand Support Plan", both of which provided a traffic pool of over 10 billion to help brand development. From the initial Taobao brands to the current Douyin and Kuaishou brands, keeping up with the latest direction of the platform is undoubtedly a major way for brands to quickly accumulate dividends.

In addition to deep binding with the platform, in fact, in daily life, brands want to carry out some marketing activities that combine product and effect. It is costly to set up the platform completely by themselves. At this time, they can leverage the platform's node activities to improve cost-effectiveness.

September 19th of every year is Fuqing's Brand Day. This year, Fuqing started from the white paper "100 Questions on Acne Science" and expanded the brand's influence through theme TVCs, detailed graphic explanations, knowledge quiz videos, etc. This event was promoted in conjunction with Tmall Health Brand Day.

In this event, Fuqing endorsed the brand through the official platform IP by directing traffic from Weibo and Weibo to the site, exposing it at the site venue, purchasing resources on the site, and promoting it on the big brand day itself, while also supporting the brand day self-broadcast to achieve a combination of brand and effect.

In addition to Tmall Super Product Day, other platforms also have corresponding marketing nodes, such as Douyin 921 Goods Festival, Kuaishou New Year Goods Festival, etc. Of course, to participate in such activities, it also tests the brand's daily rating, performance contribution, and proposal ability. Matching platform activities within the scope of ability is an idea that brands can consider.

03. Grassroots organizations: employ good people, manage good people, and distribute money well

Direction 1: Core management personnel with multiple functions

If the overall temperament of a brand is more determined by the founder, the middle-level management of the brand is the guarantee for maintaining the smooth operation of the business. Especially for small and medium-sized brands with a total staff size of less than 100 people, the ability of the core management is more critical, and many brands are constantly exploring high-quality talents in the market.

But it is difficult to find middle-level managers who can "plug and play", so Fuqing made a new attempt. This year, Fuqing made two adjustments to the overall structure, and moved the entire Douyin section to Hangzhou for refined operations, but did not introduce too many core managers from outside. Instead, the original core managers in the company took on multiple functions, giving full play to the core talents' abilities and matching the corresponding rewards.

This not only saves new employees the time of adjustment, but also makes the original middle-level managers more efficient in mobilizing internal resources, allowing the business to proceed more smoothly.

Direction 2: Cultivate the basic capabilities of team members

The larger the company and the more complex the business, the more cross-departmental collaboration there will be. In such a situation, the more we need to return to the cultivation of basic capabilities at the most basic level.

Fuqing shared that although everyone has different jobs, no matter what business it is, there are actually three steps involved. The first is to understand the business, the second is to break down the business, and the third is to implement it.

The first step may involve understanding and building SOPs, which tests employees ' ability to think in a structured way. The second step, disassembly, requires certain logical skills, and in the actual implementation process, it tests a person's ability to express and communicate. Business leaders may wish to start with these basic abilities to cultivate them.

Direction 3: Improve the incentive system

The most important job of a manager is to distribute money. However, it is easy to go from frugality to luxury, but difficult to go from luxury to frugality. Especially when overall profits are tight, what should be the core incentive indicator? What is the proportion of basic salary to performance? How to make every penny play the greatest incentive role? These are all things that managers need to think about.

This year, Yemanman re-divided its business departments and adjusted the proportion of basic salary and performance in May, so that employees' salaries were more closely linked to business performance . At the same time, it screened and adjusted the employees in service to ensure that those who stayed were truly productive for the company. The effect of the adjustment was also very obvious. In May, the brand's sales and profit margins hit new highs.

Similarly, Fu Qing mentioned "management from a human and scientific perspective". They adjusted the focus of the incentive mechanism to make the assessment indicators more related to business growth , and set clearer goals for everyone. Although no specific figures were disclosed, Fu Qing said, "If the target results can be achieved, it can be clearly reflected in the incentives."

04. Analyst Comments

Although the words "cost reduction and efficiency improvement" have been mentioned frequently this year, almost all the brands we talked to told DaoFa that it is not something that should only be done when the environment is bad, but should be integrated into every day of business management. It's just that this year's environment has magnified the importance of cost reduction and efficiency improvement.

But when all brands face difficulties equally, if they can respond in time and start exploring new directions, they may even discover more opportunities than usual.

For example, we can see that Yemanman, which started online, has gradually started to do offline chain coffee shop and tea shop business; Wudao, which started offline, has become the industry leader in low-temperature dairy products on the Douyin channel; Fuqing has discovered that there is still room for education on acne skin in the sinking market, and has begun to enter; and Touxiang is also exploring opportunities to go overseas.

There will always be opportunities in the consumer industry. In the short term, there will always be information asymmetry in the market; in the long term, the Chinese market will continue to grow. Stay on the table, and there will always be new stories happening.

Author: Siete

Source public account: Knife Skills Research Institute (ID: DigipontClub), insight into new consumption, empowerment of new brands, analysis of new marketing, and creation of good Chinese brands.