-01- Branding or De-branding? I've been pondering two questions over the past few years. The first: Apart from tech innovation brands like Apple and Tesla, and channel brands like Amazon and Google, globally (excluding China) there have been almost no new influential consumer product brands in the past four decades. Procter & Gamble, Coca-Cola, McDonald's, Samsung, BMW, Nike, and LV seem to have no successors. My former colleagues at 4A agencies have also been discussing this: why is it that outside of China, new product brands struggle to scale? In fact, when you go to supermarkets in Europe and the US, people no longer care about brands. As long as it's from Walmart, Costco, or Home Depot, and the price is reasonable, they just toss it into their shopping carts. The second question: In recent years, the core logic for listed consumer companies is that big brands take market share from small brands, and small brands take share from white-label products. The reason is simple: brands are entering previously neglected lower-tier markets, and consumers there are increasingly brand-conscious, abandoning white-label products like "Kangshuai Fu" (a knockoff of Master Kong). At the same time, urban young consumers, who were once very brand-conscious, are no longer paying excessive brand premiums. Instead, they seek high cost-performance brands, including Uniqlo and Nanjiren in apparel, Xiaomi in electronics, and Proya and Perfect Diary in cosmetics. In some markets, white-label products are fighting back. Three Squirrels, once highly anticipated after its IPO, saw its market share decline as small brands counterattacked with the rise of live-streaming e-commerce. In summary, the consumer trend in Europe and the US is 'de-branding,' transitioning from product brands to channel brands. In China, the mainstream is 'branding,' but beneath the trend of increasing concentration in consumer brands, there is an undercurrent of decreasing concentration. Is the latter a precursor to 'de-branding'? These two questions are too forward-looking, and I haven't fully thought them through. I didn't plan to write about them, but a recent event prompted me to explore them initially: the two consecutive limit-downs of Nanjiren E-commerce after New Year's Day, which revived old rumors of "off-cycle fraud." Because I previously wrote an article analyzing Nanjiren's business model, and Nanjiren E-commerce is in my stock pool, I've received many inquiries from followers these days. This issue is actually related to Nanjiren's commercial innovation. Regarding the off-cycle fraud allegations, the data in that Industrial Securities PPT is from 2016-2017, and the acquisition of Shijian Internet has interfered with financial data, making it impossible to confirm. Looking only at the last two years' financials, if the fraud amount is small, it's hard for outsiders to find concrete evidence without insider tips or auditor involvement. If the fraud amount is large, it contradicts the ubiquitous presence of Nanjiren products around us. If there was fraud in previous years but the last two years are real, then the GMV growth rate would be terrifyingly high, making the company even more worthy of study. So, it's not that the fraud rumors caused the decline, but the decline revived the rumors. What truly affects the company's investment value is the controversy over Nanjiren's business model, especially its licensing model, cross-category operations, and channel traffic dividends—whether these underlying logics have been disrupted. To unravel these issues, we must return to the article's theme: Is the consumer trend 'branding' or 'de-branding'? We must step away from channel changes and brand operation models, and return to "first-principles thinking."
-02- What is the Use of Brands? "First-principles thinking" was proposed by Musk, returning to the most fundamental factors of business. It is a thinking mode opposite to "analogical thinking." Most of our thinking at work is "analogical thinking." For example, saying that Taobao has switched to an information feed, so the search traffic that Nanjiren excels at is no longer viable—that's analogical thinking. Its characteristic is judging new things based on existing phenomena. When "analogical thinking" becomes severe, it turns into "conceptual thinking," where you apply a concept to everything. For instance, selling licensed products means not mastering technology, and selling licensed products means poor quality. The more complex the business model, the more we need "first-principles thinking" to cut through the fog and answer the following questions: From the consumer's perspective, why do they buy brands? What is the core driver in their decision-making? What consumption experience makes them repurchase? From the manufacturer's perspective, what does a brand bring to the company? Is it irreplaceable? For consumers, brands serve three major functions: providing trust, providing recognition, and providing tone. Among a pile of unbranded products, buying a branded product is "recognition value." Among brands you're not familiar with, buying one you've used and had a good experience with is "trust value." Among brands you've used, buying one that matches your current identity is "tone value." Among listed brand companies, all can provide "recognition," but only a few leading brands provide "trust," such as Haitian, Yili, and Shuanghui. For some special categories, consumers care more about "tone value," like Moutai's social value or Pop Mart's emotional value. Among the three values, "recognition value" and "trust value" solve the purchase problem, while "tone value" is the value derived from use. But for companies, a brand has only one function: providing premium pricing. For most consumer goods companies, product promotion and brand advertising are two separate budgets. Product promotion must show ROI, while brand advertising is a pure expense with no direct return. Manufacturers invest in brand advertising because it allows products to reach more audiences and command higher prices. In the e-commerce era, many new brands use low-priced bestsellers to "capture" new users, and brand advertising's role is more focused on "providing brand premium." This is the traditional brand model: consumers get the three types of added value they want, and manufacturers get brand premium. Everyone gets what they need. What's the problem with this? Let's return to first-principles thinking.
-03- High Cost-Performance The "first-principles thinking" in the consumer industry is that consumers always demand high cost-performance products. I know you're thinking of counterexamples, but I'd say even Moutai consumers are no exception. Moutai is the most cost-effective product because its social symbol function is irreplaceable. In fact, even for Moutai, once the price exceeds 3,000 yuan, the number of bottles opened drops sharply. Rich people's money isn't free either. Pop Mart provides emotional value on the premise of high cost-performance. At 69 yuan for an entry-level figure, owning one is the first priority. If you have money, you buy a cabinet full, including hidden editions; if not, you buy fewer. High cost-performance doesn't necessarily mean low-priced goods. It emphasizes that every penny spent goes toward use value. Among the three parts of brand premium, only "tone value" is use value; "recognition value" and "trust value" solve the purchase problem. So consumers' demand for high cost-performance naturally conflicts with companies' need for brand premium. The post-95s and post-00s prefer domestic brands not only because they have no inherent bias against them, but also because domestic products have less brand premium in their prices. From a first-principles perspective, since the costs paid for "trust value" and "recognition value" have no use value for consumers, the business model that solves "trust value" and "recognition value" at the lowest cost will be the future of consumer brands. In fact, two commercial forces use different business models to solve "recognition value" and "trust value."
-04- "Cognition → Purchase" vs. "Purchase → Cognition" Before e-commerce, new brands had to spend heavily on mass brand exposure to get consumers to try their products. This cost was naturally added to the price as brand premium. In the online shopping era, new brands develop a highly cost-effective product and directly promote it, or use controlled private domain traffic to "plant grass" (recommend). Traditional brand theory is "cognition → purchase," while online brands are "purchase → cognition." Traditional brands are built through advertising, while online brands are built through use. Brands like Perfect Diary and Florasis use low-priced bestsellers to solve the initial trial problem, build brand awareness, and also solve the "recognition value" problem at a much lower cost than traditional brands. This is the first step in removing "brand premium." As long as you balance "quality" and "price," you can deliver a dimensionality reduction attack on traditional offline brands. However, even before the online shopping era, offline brands had already begun attempts to remove "brand premium." This is the channel brand.
-05- Multi-Category Expansion of Channel Brands Two years ago, investors' biggest confusion about the Nanjiren brand was: Why can an underwear brand successfully cross over into bedding? By the last two years, the confusion had become: Why is Nanjiren everywhere—home appliances, food, daily necessities? Is there anything it can't do? In traditional brand theory, consumers always associate a brand with a specific product category. For example, P&G is daily necessities, Nestlé is food. If a brand spans too many categories, it confuses consumers and weakens brand value. But in reality, cross-category brands have existed for a long time, such as supermarket channels like Walmart, Costco, and Home Depot, including domestic supermarkets like RT-Mart. They have a large number of low-priced private-label products. Aldi, known for cost-performance, has private-label products accounting for nearly 90% of its offerings. These are the "channel brands" mentioned at the beginning, mainly in daily necessities and food. Such brands are about 20% cheaper than regular brands, further removing "brand premium." "Channel brands" go from channel to product. Nanjiren takes the opposite approach: from product to channel. When it first expanded from underwear to bedding, it found that the online brand's low-priced bestseller model did not weaken product conversion rates. So it kept downplaying categories and strengthening the channel impression, successively entering luggage, men's and women's clothing, children's wear, and even daily necessities, health products, home appliances, cosmetics, and food, completely transforming into a "channel brand that doesn't control channels." This approach is to first establish high cost-performance brand awareness in one category, solve the trust issue, and then enter other categories, further improving "cost-performance." It's the second step in removing "brand premium." As long as this model balances category expansion and quality control, it could be a dimensionality reduction attack on traditional category brands. Of course, Nanjiren does this well, but Xiaomi does it best.
-06- Xiaomi's Tone Value Lei Jun once said that Costco had a profound influence on his creation of Xiaomi: launch a few high cost-performance SKUs in each category, so customers don't have to compare and don't regret, and then use membership services to compensate for low gross margins. Although Xiaomi started with phones, Lei Jun always wanted to build a channel brand. This idea directly led to the "Mi+" series products, and it truly materialized with offline Mi Home stores and online Mi Youpin. I am a loyal Xiaomi user. For any category, if there's a Xiaomi ecosystem product, I'll consider it first. I have typical Xiaomi user traits: I want good products but refuse brand premiums, and I don't like wasting time on shopping comparisons. But I almost never buy Nanjiren products. This might be the biggest difference between Xiaomi and other channel brands—Xiaomi is a brand with tone. As mentioned earlier, "tone value" is what consumers need. To maintain this tone, Xiaomi must squeeze R&D expenses from its thin profits to enhance the tech appeal of its products, and strengthen design to maintain the "Xiaomi flavor." In contrast, Nanjiren's problem is that its model innovation outweighs product innovation, with too little investment in R&D. Nanjiren needs to slow down its category expansion, invest more in helping upstream suppliers establish stricter quality control systems, innovate "flexible supply chains," and use more R&D funds to innovate products, changing consumers' entrenched impression of Nanjiren as "low-price, poor-quality, and aesthetically lacking—a product for people outside the fifth ring." Nanjiren E-commerce says it wants to learn from SHEIN, but I think it should first learn from Xiaomi.
-07- A World Without Brands in the Future To summarize, future brands should have the following characteristics: First, low gross margins, no brand premium, and profits driven by scale. Second, most brands will be cross-category. Coca-Cola can sell shoes, Nike can sell skincare. This reduces brand knowledge costs and increases scale. Third, in categories too specialized to cross, there will be only one or two brands to maintain sufficient scale. Fourth, brands will have their own tone, corresponding to relevant consumer classes, but they won't use this tone to extract premium. Over the past century, product brands haven't changed much, but channels have seen a disruptive company emerge almost every twenty years. As an investor, I naturally care about a company's current value, but as an observer of business models, I pay more attention to new channel brands represented by new business ecosystems like Nanjiren and Xiaomi. They appear to be brands, but in reality, they are de-branding. Before industrialization, there were no brands. After future informatization, brands won't be needed either. Brands are just an imperfect means to solve consumer trust costs in the industrial age. "De-branding" isn't something only Xiaomi or Nanjiren will do; later entrants will also do it. This is the real major investment opportunity representing the future. Source: Thought Steel Seal (ID: sxgy9999), Author: Ren Shen Gong Fen Tips will be paid 400-2000 yuan upon adoption.