Lu Xiuqiong: After the fever of new consumption subsides, 'real consumption' returns

“In today’s era, we have to return from new consumption to real consumption.”

“In the past, when doing new consumption, everyone inevitably went to VC in terms of mentality, and the development rhythm was pulse-like high growth, using money to buy scale. Today, in terms of mentality, everyone must return to To C, To the long-term value of consumers, the rhythm must turn to self Hematopoiesis increases and the fundamentals are consolidated.” Lu Xiuqiong said.

Lu Xiuqiong, global expert partner of Bain & Company, former CMO Chief Marketing Officer of Coca-Cola China, Korea and Mongolia. With more than 25 years of experience in brand operation in global and local markets, he has keen insight and forward-looking strategic vision in consumer trends. He has repeatedly led the team to successfully shape multiple brands worth more than 1 billion US dollars, and has won wide recognition and praise both inside and outside the industry.

So, what is the essence of new consumption?

What is the real moat of a new consumer business?

How to return to real consumption and establish a basic disk?

How to create a core large single product?

How to do a good job in channel construction?

How to build a complete management system?

Today, Mrs. Lu Xiuqiong is a guest of Chaos and brings the course “Cultivation through Cycles: Returning to True Consumption”, using the “One Thinking” style to explore layer by layer, to help everyone return to the “One” of new consumption and move towards a sustainable high Quality development.

The following are the course notes: (limited by space, the content of this article is only one-tenth of the course, please go to Chaos APP to listen to the full course!)

Teaching teacher |Lu Xiuqiong Bain & Company Global Specialist Partner

Editor | Chaos Business Research Team

**Support |Chaos Frontier Class

return to real consumption

Uncertainty is surging in 2022. Consumption is under pressure and growth is hindered; consumers’ shopping behavior has undergone many changes, with category upgrades and consumption downgrades; supply chain pressures have increased sharply; traffic has peaked, and capital has subsided.

New consumption is not enough? Of course not, it is not a low tide, but a fever. This wave of fever has caused many new brands that rely on burning money to buy scale to re-examine themselves. It brings us back to our original aspirations.

So back to the source, what exactly is new consumption?

At the end of 2020, I had an in-depth discussion with He Yu from Black Ant Capital. The real anchor of the new consumption era lies in the changes in the underlying logic of consumption brought about by the interpersonal generation gap. The business logic of the whole era has changed from the B2C, Brand to Consumer, which we often say, to the popular circulation orientation of Brand to Consumer, to the circular demand-driven Consumer to Brand.

That’s why I love the Jobs-to-be-done talk by Harvard professors so much. The relationship between consumers and brands has become a trinity of cognition, transaction, and relationship, and the three occur almost simultaneously. The work of the brand has become the C-end creating demand, empathizing with consumers, doing innovation iterations together, and expressing together; while the B-end has to fulfill the contract and use the most efficient method to arrive at the store, home and delivery.

So when the consumption track has undergone irreversible changes, why does the new consumption feel cold? A big reason is that some new consumer brands have fallen into the growth trap:

“Buy traffic but can’t attract new customers, launch new products but can’t bring GMV, and enter channels but can’t promote sales.” These are the three common problems that have caused headaches for new consumer brands recently.

The ROI of Perfect Diary ranges from 2.4 in 2019 to 1.5 in 2021 and 2022. Relying on traffic can be described as building a tower on the sand; Nai Xue’s tea will launch a new product every 5 days on average in 2021, and start price reduction in 2022, and the average daily sales per store in the past six months has dropped by about 30%.

These cases are just a microcosm. How many brands think they’re doing the right thing when they’re indulging in a “false moat”? The moat cannot be made by burning money alone. The real moat of consumer goods lies in focusing on structural growth opportunities and creating endogenous competitive advantages.

Therefore, we must introduce the most important concept today. In today’s era, we must return from new consumption to real consumption.

In the past, when doing new consumption, everyone inevitably went to VC in terms of mentality. The development rhythm was pulse-like high growth, and money was used to buy scale. Today, everyone needs to return to To C in terms of mentality, to the long-term value of consumers, and the rhythm to turn to self-hematopoietic growth and consolidate the fundamentals.

Returning to true consumption is the evolution of the consumption era and the return of brand essence.

This is easier said than done. The three squirrels seized the traffic dividend and started from the Tao brand. After 2016, it has rapidly expanded into multiple categories. However, the traffic declined, and the repurchase of basic products declined significantly. In 2019, it vigorously expanded its offline stores. In the short term, it was booming. Blind distribution actually limited its own development. 200 stores will be closed in 2021. Therefore, in 2021, it will return to the core of nuts from the category, focus on the high-quality development of high-quality stores in the channel, and begin to improve the supply chain capabilities. The real deep-seated reason why it failed to play a good hand is mainly due to the unstable basic game and unreasonable rhythm.

So what exactly is a basic disk?

The first is the basic model. Do you have core items? The second is fundamentals. How are your channels, brands, and supply chains consolidated? The third is basic skills. Have you built a good company management system, not just a gang? Doing consumption cannot avoid these clumsy and hard-working practices.

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Due to space limitations, the content of this article is only one-tenth of the course.

What are the most common false moats?

What are the twelve questions of the new consumer soul?

For more content, please click on the poster at the end of the article and go to the APP to listen to the class!

Build the basics

1. The core secret of consumer goods is to create core large items

What is the core big single product? It is a category that occupies the mind and has absolute leadership. It needs to achieve 1.5 times VS the next competing product in the five dimensions of Popularity popularity, Penetration penetration, PSD single store single product single day sales, Purchase Repeat core group repurchase rate, Placement distribution quality.

Coca-Cola has a kind of self-service beverage vending machine in the world, which can provide 227 kinds of flavors. Among the 227 flavors, Coca-Cola Classic, Unsweetened Coca-Cola, DietCoke, Sprite, Fanta, Minute Maid Lemonade, these six SKUs accounted for more than 50% of the total sales.

When you give consumers all the options, your core pieces still stand out.

The core large single product is very important to the entire fast-selling industry. Winona’s total revenue now exceeds 4 billion. In fact, the sales of Shumin series account for more than ¹⁄₃, and the sales of core large single products account for more than 15%.

It’s even important for some retail foodservice businesses. A long time ago, mutton kebabs built their minds on Hulunbuir mutton kebabs; even with a company like KFC, where new products emerge in an endless stream, the family barrel still occupies the most important position.

The core large single product will become the recruitment camp for consumers, the leverage point of the channel, and the benefit pool for growth, and it can help the entire brand to grow sustainably.

2. Three different innovations

The question is, how to create a core big single product? Before answering, we need to sort out three different types of innovation.

The first is incremental innovation. Emphasize efficiency, and do some small optimizations and micro innovations on the basis of existing consumer needs. This is the core competency of traditional consumer goods giants. Many of their large items may have been formed 100, 50, or 10 years ago, and they are constantly optimized on one basis to make them look like new for a long time.

The second is disruptive innovation. Emphasis on breaking through long-term technical investment and forming overall creative ability. For example, it took Nestle more than ten years to make a comprehensive breakthrough in the capsule machine Nespresso.

The third, transformative innovation, is an area where new consumer brands are very good at. It is based on the underlying needs of consumers, but in the new era, old elements and new combinations are used to create explosive models. Winona’s skin care products for sensitive skin, three-and-a-half-dose freeze-dried coffee, and Yuanqi Forest’s zero-sugar, zero-calorie and zero-fat products are all transformative innovations.

3. How to use transformative innovation to create core large items

There are 6 steps to create a core large single product.

During the past period, I have interviewed many founders, and I have also re-reflected on my years of experience in foreign companies, and conducted in-depth discussions with many of the industry’s leading consumer companies.

Innovation methodology in the traditional sense is made from scratch, which is very difficult. Combinatorial innovation in chaos is a new combination of old elements, which can be deconstructed, learnable, and executable. Such innovation is to associate different things to synthesize a new innovation. For consumer products, you can use the following 6-step mental process to expand:

The first step, choose the battlefield

To find the long-term basics, deconstruct the meaning behind it. Does the big track and small cut it represent have high added value? What real need does it address?

There is a bit of non-consensus here, and we generally think that it should be consumer-centric. But don’t ignore this point. When taking consumers as the core, you must find a representative goal to deconstruct the deep meaning behind it, so as not to go astray.

Winona is a particularly good example. First of all, skin care products are a track with a large market size and relatively scattered head competition. Winona has found a very good small incision, functional skin care products. In 2019, functional skin care products accounted for only 5.5%, but more than 35% of consumers felt that their skin was problematic.

So it defines the core group very clearly, the sensitive skin. This core group has a very high demand for product iterations and can repurchase frequently.

Winona takes “solving common skin problems in Chinese people” as its original intention. On the one hand, it lays out a popular series of sensitive skin products and establishes the mentality of “a functional skin care brand focusing on sensitive skin”; on the other hand, it lays out a more vertical and finer Develop the scene, dig deep into the demand. For example, in the past two years, freeze-dried face masks and light face bottles have been launched to better create high added value. Repurchase of their entire product range is as high as 30%.

It meets the real needs of consumers, that is, the primary need for long-term cycles - healthy and beautiful skin. Based on such a real need to do the whole layout.

The second step is to grasp the demand

After finding the real needs, we must grasp the difference. One thing to note here is that basic needs do not change because they are human. It just extends and reconstructs with the changes of times and scenes.

For example, oral care, this underlying need has not changed for thousands of years. If the focus is on fresh breath, the functional benefits of the product are fresh breath, confident expression, and social worry.

Thousands of years ago, people used twigs to clean; a hundred years ago, the invention and education of toothpaste made everyone establish the habit of brushing their teeth in the morning and evening; a few decades ago, people may choose mouthwash to freshen their breath. However, today’s younger generation is more likely to enter and leave the night market, and use products as their own personal expression, so they need more fashionable and portable products, that is, mouth spray.

BOP keenly grasped the changes in this scene, launched a very cool mouth spray, led the iterative upgrade of the entire category, and seized the new mind of “fresh breath” among young people in this era. This allowed it to blaze a trail in the oral care track of the Red Sea and opened up the expansion of the whole category. Today, BOP mouth spray actually only accounts for 25% of the overall sales, and other categories are gradually catching up.

The common myth (myth) in innovation is to try to find the point of difference in demand, thus limiting a niche market, and even deviating to pseudo-demand. In fact, find the extension of the scene and emotions of the basic needs in this era, iterate, upgrade the category, and seize the mind, and you will find that you have succeeded 50% in creating the core big single product.

The third step, the point of sale

The thinking in this step is, how to deconstruct the basic elements and reorganize across borders?

The very popular cheese stick track in the past two years is actually based on a high-frequency just-needed scene, children’s snacks. At 3 o’clock in the afternoon, the children are picked up at the gate of the kindergarten. What are you holding in your hand? In such a scene, a particularly common category was lollipops, but parents felt that lollipops were unhealthy.

Cheese Stick is very clever at finding this scene while deconstructing what its essential elements are. Consumers’ needs are nutrition, delicious food, and easy access.

The calcium content of 2 cheese sticks is equivalent to 200 ml of milk; the baby still wants to eat it, and the demand for repurchase is large. Therefore, Miaokelando adheres to the principle of connecting supply and demand, seeks inspiration across borders, and reorganizes elements to innovate; it even puts the supply chain all in at the beginning and establishes barriers.

The fourth step, build a surprise

Today’s products must deliver the Wow experience, with unexpected and unexpected surprises.

For example, Estee Lauder’s recently released Intensive Repair Muscle Mask. Estée Lauder is known for its anti-aging and repairing, moisturizing properties, and it’s no surprise that it launched an anti-aging mask. The point is that it offers high added value beyond expectations.

I sum it up in three points:

The first point is the screaming point of the product, corresponding to the functional requirements, its ingredients make everyone overjoyed.

The second point is the visualization of posting points, which corresponds to social pursuits. This mask is covered with a layer of metal mask, so it is also called Iron Man mask. Do you feel Wow right away? Visual posting can make consumers incarnate as fans and actively spread the word.

The third point, the addictive point of habit, corresponds to emotional demands, and be kind to yourself.

The reputation of this product in Xiaohongshu is “effective, unlimited repurchase, must be applied every week, be kind to yourself, and I will also become a good Iron Man.”

From the intensive repairing muscle penetrating mask to the Iron Man mask, small changes have created completely different innovative possibilities.

The fifth step is to polish

The founders of many new consumer brands are the Internet generation, bringing the grayscale testing concept of the Internet to consumer products.

From universal co-creation, polishing new concepts; to scientific development, dismantling innovations into MVPs with the smallest variable factors, and recombining AB Tests; to passing various agile pilots, including DTC’s channel fans’ quick test , the virtual test of e-commerce, and the behavior test of convenience stores, all attempt to use big data methods to run small steps and optimize iterations.

Step 6: Convergence and focus

The first five steps are all about how to make a large single product. Anyone who has really done innovation knows that it is not easy to have a child, and raising a child is even more difficult. The most important point is that when you are very lucky to find the core big item, you must converge and focus, and iteratively increase the dimension, instead of just doing stacking innovation.

Let me tell you a case from my own experience. In 2004, Minute Maid Oranges began to be launched in some markets. It launched “drinkable fruit, juice with meat”, and it became a super-large single product that detonated the market at that time. By 2009, Minute Maid was actually very focused in the past five years, and it was repeatedly emphasized.

From an innovative point of view, it is also very restrained, with little extension of taste, such as the introduction of white grapes, the use of aloe vera fruit, which tastes very similar to grapes, further strengthening the mentality of big brands.

In 2009, the sales volume of the large single-product Fruit Orange was close to 6 billion, making it one of the most successful consumer brands.

Unfortunately, after 2010, on the one hand, the market has undergone tremendous changes, and the innovative single product rock candy Sydney suddenly swept the market. On the other hand, the management team was replaced, the team rhythm was wrong, the price of fruit oranges continued to rise, and a series of flavors that were numerous and messy were quickly launched. Most importantly, the concept of “drinkable fruit”, the core asset of the brand, has been drastically diluted. Under the influence of these series of factors, the sales of core large single products fell by 30%.

Looking back, from 2004 to 2009, Minute Maid not only insisted on “drinking fruit” and insisted on cautious innovation, but also needed to do scene-based packaging extension, which it lacked.

After re-running, after 2010, it suddenly faced sharp challenges from competitors. To be stable, focus on me and focus on what kind of dimensional upgrades can be made for the core big single products, instead of trying to deal with a lot of stacking innovations, which in turn affects the core assets of the brand.

This is the true meaning of “less is more” in consumer products.

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Due to space limitations, the content of this article is only one-tenth of the course.

How to expand the category after creating the core large single product?

For more content, please click on the poster at the end of the article and go to the APP to listen to the class!

Consolidate fundamentals

The iron triangle to consolidate fundamentals is channels, brands, and supply chains. This is also a question that a lot of founders are asking recently.

I believe that everyone is fully aware of the importance of omni-channel channels when the traffic dividends of major platforms are at the top and the cost of pulling new ones is increasing day by day.

The logic of online channels is to simulate infinite shelves, emphasizing the niche matching of people, goods and markets, and long-tail products can also find their own piece of the world; the logic of offline channels is limited shelves, which are the masses of people, goods, and markets. Configuration is the greatest common divisor of consumers entering the store.

It is especially difficult to do well offline, and its logic is different from online. But the good news is that once the offline is done, it will bring very good net profit.

Comparing the six companies and a group of three old consumer brands, Dali Foods, Qiaqia Sunflower Seeds, and Taoli Bread, these companies basically account for more than 60% offline.

The other three are not yet fully developed offline, mainly relying on online, and they are also new consumptions that we are familiar with, Three Squirrels, BESTORE, and Akuan Foods.

What is shocking is that the net profit of each brand, and the old consumption mainly offline is 3-5 times that of the brand that sounds very popular on the Internet. This also shows that the breadth, depth and complexity of offline channels are also the moat of the entire brand enterprise.

How to build the fundamentals of the channel?

According to Bain’s conclusion, starting from the successful image and role positioning of the channel, different channels will play different strategic roles at different stages of the enterprise’s development, and the enterprise should also have different focus.

……

Due to space limitations, the content of this article is only one-tenth of the course.

How to consolidate the fundamentals?

For more content, please click on the poster at the end of the article and go to the APP to listen to the class!

practice basic skills

Cultivating basic skills refers to building a complete enterprise management system, as shown in the figure below.

I hope everyone has a final view, understands what a complete enterprise management system is, and then internalizes them one by one according to their current progress.

How many people take the time to do a deep strategic review? Look outward, what has changed in the market, competition and consumers; look inward, where you can do well and improve.

The annual budget can effectively help different departments, so that sales, marketing, e-commerce, supply, procurement and other departments have the same desire. Transitioning to monthly and weekly planning, product innovation, marketing, sales management, demand planning, supply chain management and production deployment all need to be matched.

The monthly management meeting is also a very important meeting. It helps everyone to put all the company’s situation together to discuss priorities, find real problems and tactical grasps, and move forward together. This system may seem complicated, but it is a gradual process of refinement.

Plan the annual PNL in an orderly manner, strategic KPIs, marketing chess, and determine the strategic role division of the entire region and channel. Hold meetings diligently every day: decisions will be made at the meeting, everyone will have a consensus, everything will have a response, and everything will be settled. This is the basic skill that every enterprise should cultivate.

Cultivation through cycles

Finally, some people may want to ask, this year is so difficult, are there any companies that have done better? Winona, a2 and Daily Fresh are all headquartered in Shanghai. They both grew by more than 40% in the first half.

Winona’s basic model is the Shumin special care series. While the core large single product still maintains rapid growth, it has divided the scene and started to make products such as freeze-dried mask to promote the repurchase of consumers and the extension of new scenes of expanding categories. From a fundamental point of view, this year, it has not only done a lot of online channels, but also steadily expanded offline, becoming one of the top brands in cosmeceutical channels.

In fact, there are only two products of a2 milk powder, the winning product and the Australian standard product. It has solidified the two products, including the reorganization of purchasing channels, RKA and intensive cultivation in key provinces. The repositioning of the brand puts more emphasis on the difference from similar products, gives full play to the advantages of the supply chain, and occupies the minds of consumers. This year is a new high in market share.

In the first half of this year, the fresh milk industry faced relatively big challenges, but Daily Fresh still achieved 40% growth. In terms of channels, it quickly seized the opportunity of community group buying and turned crisis into opportunity. It is the first brand to fully carry out community group buying, so that the terminal covers every head of the group, captures the scene of consumers staying at home, and establishes new habits.

So finally, let’s make a summary of today’s course: Cultivation through cycles requires a return to true consumption.

The change of the new consumption track is irreversible, and today’s track must be people-oriented. Brands and consumers need to achieve the trinity of cognition, transaction, and relationship, so as to truly realize the C-end creating demand, and the B-end to continuously fulfill the contract. To do real consumption today requires more real models, good basic models, solid fundamentals, and basic skills, so as to establish a very solid basic plan, in order to survive. On this basis, we will further consider expanding categories, new engines and internationalization. The way to cultivate true consumption lies in having a vision of the endgame, establishing a basic plan, doing things at the moment, and controlling the sense of rhythm.

To end with a quote from Alice in Wonderland that I love so much - you can’t stay where you are until you keep running. In today’s era, if you want to reach the other side, you have to make persistent efforts and move forward at two speeds. Share with everyone.

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Due to space limitations, the content of this article is only one-tenth of the course.

For more information, please click on the poster to listen to the class!**