In 2019, the new consumption wave once swiped the screen, and high cost performance has become the "king" of the new consumption industry. A lot of new brands are excited. However, this year's Double 11 e-commerce data shows that the top 10 sales in each category are almost still traditional big brands. (It remains to be seen how new brands will break through individually) The so-called cost-effective and de-branding seems to be good, but at least so far, it has generally not shown the desired effect. Whether cost-effective is the "king" of the new brand is still up for debate. But what is certain is that most new brands will die in the dream of high cost performance.
1. "Low price-high quality" or "high quality-low price" Brands
that believe in high cost performance are often based on the premise that consumers are willing to pay less for better products. However, this assumption can only represent the desired outcome of the consumer, but cannot reflect the process of consumer decision-making. The cost-effective decision-making process is divided into two situations: the selection of the best among the low prices (low price-premium) and the low price among the best (high price-low price). Recalling the experience of using shopping apps such as Taobao and JD.com, sometimes you will first sort by low price and then choose products, which is to choose high quality among low prices; Sometimes you set the quality criteria first and then compare the prices, which is to choose the lowest price among the highest. In these two different logical decisions, you can choose "cost-effective" products, but the price and quality of the two are usually not in the same grade. In other words, "low-price-premium" and "premium-low" represent two different consumer needs, or even two different consumer groups, respectively. Pinduoduo and Costco are striking examples. In the early days of Pinduoduo, a large number of merchants sold tail goods and cleared inventory. "Picking up leaks" (spending a small amount of money to buy good goods) in the low price has become the user's first impression of Pinduoduo. Later, social fission became a new growth engine for Pinduoduo, and the group and mass merchandising further strengthened this brand association. According to Penguin Zhiku's Pinduoduo User Research Report, 58.8% of Pinduoduo users are from third- and fourth-tier cities and below. Choosing high quality among low prices is the main consumer demand of Pinduoduo users. Unlike Pinduoduo, Costco, which is known for its "membership-based warehousing and wholesalers", relies on a small number of selected SKUs to make up for the defect of low profit margins by charging membership fees. Most Costco users are middle-class families, and the premise of choosing a low price is to ensure quality and save energy. Therefore, choosing the low price among the high quality is the decision-making logic of Costco users. The hidden consumption logic behind the high cost performance is completely different, so the user's purchasing power, consumption preferences, business models and communication focus of enterprises will be very different.
2. There is only a wall between cost-effective and "cheap goods"
Consumers prefer cost-effective products, not because the products are cheap, but because they like to "take advantage". Consumers feel that they will earn money when they buy an iPhone 11 for 4,000 yuan, but they will lose money when they buy a cost-effective copycat thousand-yuan machine. The reason why consumers like to "take advantage" is because high cost performance is scarce enough. If there are cost-effective products everywhere, then consumers will lose the comparison with other brands, and naturally they will not enjoy the pleasure of "taking advantage". At this time, the high cost performance of your brand will lose its foothold and be reduced to a pure "cheap goods". In order for a cost-effective brand to be established, you must establish competitive barriers that are sufficient to support cost-effectiveness. In general, cost-effectiveness can be achieved in three ways: Strictly control operating costs, reduce raw material prices, and reduce management expenses; Take advantage of scale effect, large-scale production, and reduce marginal costs; Grasp the technical advantages, improve production efficiency, and increase the daily output from 10,000 to 20,000. The competitive barriers of the three have been gradually raised, and the difficulty of implementation has also increased in turn. However, even if you build competitive barriers, there are still inherent disadvantages to high cost performance.
(1) It is difficult to cope with rising costs through price increases,
and high cost performance depends on cost control. Once the cost of the upstream supply chain rises, the original relatively low price will be challenged until the cost breaks through the profit boundary and turns into a loss. If the brand wants to increase the price to continue its life, it will break consumers' expectations of the brand and lose the brand's credibility. Conversely, brands with more margins will not be affected by this. According to the 2019 China FMCG Industry Annual Report, FMCG companies are generally facing rising cost pressures due to rising packaging materials, logistics costs, environmental protection costs and labor costs. In January 2019, traditional big brands such as Moutai, Wuliangye, and Hengshun have raised prices one after another, how can the vast majority of new brands that lack premiums tide over the difficulties?
(2) Limited profit margins lead to a lack of flexibility in promotion As a communication signal,
discount promotion can not only increase sales in a short period of time, clear inventory, and quickly seize the market, but also create momentum for marketing activities. However, low profit margins for cost-effective brands can lead to limited room for discounts, which in turn can affect the attractiveness of promotions. Tmall and JD.com once reported that merchants were forced to "break down the floor price" discount requirements. Li Jiaqi served the same brand in the live broadcast, but he had a 5 yuan coupon less than Wei Ya, and called on fans to return all the bad reviews. Whether it is 618, the Double 11 Shopping Festival, or the live broadcast of goods, discounting has become a "compulsory course" for bleeding for sales. If your brand doesn't have enough premium to support a discount promotion, it's easy to die in a price bargain.
(3) Cost-effective weakens brand effect
Cost-effective will guide users to focus on basic price and functional utility, thus ignoring other brand values. Consumers just want to "take advantage", and once a competing brand offers a lower-priced product, these users will be transferred and lost. And it is difficult for brands to drive consumers to buy on their own. As a consideration of functional value, cost performance is more likely to be a direct target for competing brands than emotional and spiritual value. Once the cost-effective brand credit goes bankrupt, the brand effect will fall apart. Xiaomi mobile phones are known for their ultra-high cost performance. But in the past two years, as nuts, 360, Meizu, and even Huawei, Honor and OV continue to deepen their efforts in cost performance, the cost performance advantage of Xiaomi mobile phones has become weaker and weaker. According to the latest quarterly report on mobile phone sales released by the International Data Corporation (IDC), Xiaomi's domestic mobile phone shipments in the third quarter of 2019 decreased by 30.5% year-on-year. This downward trend actually appeared very early. Moreover, high cost performance is made with conscience in the eyes of some users, and it is synonymous with low in the eyes of others. Therefore, Huawei's mobile phone will directly cut into the high-end market to fight against the inherent disadvantage of Xiaomi's cost-effective advantage - feeling low. As a result, Xiaomi's four major brands have implemented a strategic restructuring to try to change this brand image and competitive landscape, with Xiaomi focusing on the mid-to-high-end, Redmi focusing on the low-end, Black Shark focusing on games, and Meitu focusing on women. Peter Thiel's "From 0 to 1" mentions that corporate competition is to pursue monopoly and avoid competition, so that they can focus on greater innovation. If a brand can only hover at low prices and lacks higher-dimensional brand value, it will lose its pricing power and fall into low-level competition such as price wars. The flip side of the quest for cost-effectiveness may be a lack of innovation.
3. Four types of businesses driven by high cost performance
Generally speaking, high cost performance is more suitable for these four types of business: retailers, channel advantage brands, edge business, and drainage business.
(1) Retailer
Cost performance is a very important competitive criterion in the retail industry, which is very different from the consumer goods industry. One of the reasons why brands can generate premiums is that mature brands provide a tool value that can be quickly recognized by consumers and accumulate credit in the minds of consumers, saving time and effort in selecting products. For example, if you go to the supermarket to buy cosmetics, you may directly pick up L'Oreal to pay, but if you encounter an unfamiliar and unrecognized brand, you will pick out the words on the packaging and compare competing products along the shelves, for fear of being cheated. Retailers, on the other hand, usually do not produce their own products and are only responsible for selecting branded products. The value of a tool that was originally undertaken by brands to facilitate selection and accumulate credit has been replaced by retailers to a certain extent. In this way, the premium for the corresponding part of the brand is passed on to the retailer. The same quality and lower price have gradually become the embodiment of the retailer's existence value and competitive advantage. Li Jiaqi was able to sell brand goods at exaggerated low prices, also because Li Jiaqi replaced this part of the value of the brand through active screening and even personal credit endorsement.
(2) Channel Advantage Brands
Consumer brands adopt cost-effective strategies, usually out of the consideration of small profits and quick turnover. Having well-developed distribution channels is a competitive barrier to support this strategy. The advantages of the channel are reflected in the wide distribution of the channel network and the efficient turnover of products. This is in line with the compounding effect: Wahaha has created a huge and stable channel network with the joint sales body, which can intensively distribute goods on a large scale, improve the response speed of distribution, and then use high cost performance as the fulcrum of promotion, leverage the leverage of "small profits and quick turnover", and digest these products in the short term.
(3) Edge business
When the brand core business establishes a brand effect, it can reap the profits of peripheral products through brand extension. These edge businesses usually lack differentiation, but they can make full use of brand value and traffic through a cost-effective model. Most typically, Xiaomi has launched peripheral electronic products and daily necessities such as socks, towels, and toothbrushes based on its own users and brand traffic.
(4) Drainage business The product portfolio of popular explosive models, drainage models and profit models in the
e-commerce industry. Among them, the drainage model is a model of high cost performance, sometimes with a slight loss, but it can be used for other products to attract and promote.