The FMCG industry entering the era of stock is not a new viewpoint, but here is some fresh data:

  1. From 2022 to the first half of 2023, Kantar Shopper and Nielsen Consumer data showed that for the first time since records began, the number of declining FMCG categories exceeded the number of growing categories;
  2. The average retail price of FMCG products fell for the first time since 2001;
  3. Nielsen's consumer desire index reached an all-time low since records began. But vitality remains, and it is spread across various categories, such as Eastern Leaf's 60% annual growth for three consecutive years, Deyou wet wipes' 100% growth for three consecutive years, and Proya's 30% growth for three consecutive years. This shows that some companies are doing well, so how do they find opportunities in the vast red ocean market? After finding a growth category, how do they define new products? And how do they quickly iterate to find the right channel mix? On December 1st, at the "Vitality · 2023 Daofa Annual Product Effectiveness Summit," Liu Ruizhi, co-founder and former CMO of "Jane," delivered a keynote speech titled "Finding Increment in the Stock Market: The 5 Easiest Pitfalls to Step Into." From marketing at P&G to brand director at Mengniu, and then co-founding Jane Yogurt, Liu Ruizhi has repeatedly broken through growth ceilings from 0 to 1, and has also stepped into countless pitfalls. In his speech, he conducted an in-depth review of his past innovation and entrepreneurship experiences, summarizing a set of practical methodologies and pitfall-avoidance guides for "mining categories - developing products - channel strategies." *The following is the essence of Liu Ruizhi's sharing at the summit, partially organized by Daofa: Locking onto New Categories: How to Find Growth Opportunities in the Stock Market? The era of running around and claiming territory is over; now most brands can only find opportunities in the cracks. So how do you find opportunities in the cracks? Combining my past experience in product innovation and business practice, I have summarized the following 3 methods for finding potential categories: First, look at penetration rate to find golden categories with potential scale of over 50 billion.
  • First, in large categories with penetration rate >30% and no continuous shrinkage, drill down to find growing sub-categories;
  • If that's not suitable, then look at categories with relatively low penetration but continuous rapid growth for 3 years, and where the penetration of target competitive categories and target scenarios is high. For example, wet wipes for toilet use currently have a penetration rate of only 5%, but the penetration of the target competitive category, tissue paper, is high. Second, look at demographic changes to find new scenarios for old age groups. Where to find scenarios? In the coming decades, I advise everyone to pay more attention to the following groups:
  • Unemployed graduates; young people who don't date, marry, or have children;
  • Silver-haired people who don't have grandchildren to take care of. Why? Because these people have a lot of discretionary time. Once their disposable income increases, consumer demand will emerge. For this, the rapidly rising categories today will have a better feel. Bicycles are an example. In the past five to ten years, bicycle brands basically served as OEMs for shared bikes. If a few years ago you saw the scenario needs arising from future demographic changes and positioned ahead in the road bike category, today you might be one of the few pigs in the wind. Of course, road bikes can still be done now; the current leading players are mainly foreign brands, not so competitive, or not as competitive as domestic brands. But doing new scenarios for old age groups must be careful; there will be pitfalls. Pitfall Case 1: The Pitfall of New Scenarios Some of you may remember that in 2016, many meal replacement powder and protein powder brands appeared. But not many are still alive today. Because until 2021, only 10% of people went to the gym more than twice a month, and they were killed by this data. Here's a sentence for everyone: For scenarios with penetration rate less than 30%, don't make peripheral applications for them; make mainstream applications. Otherwise, even if you make money hand over fist today, it will be difficult to become the core of a category that defines a major brand in the future. Back to finding growth categories. Some friends say they are already in a continuously shrinking category, such as soy milk or plant milk, which have declined significantly overall compared to the past. So how do you find growth categories within them? Third, look at the consumer goods history of the US and Japan to find the patterns of category rise and fall. First, draw four coordinate systems: the first is the ratio of household consumer goods spending to household income; the second is category penetration; the third is average unit price; the fourth is consumption volume. Then, find the coordinates of China, the US, Japan, and Europe on each of the four data dimensions. See which historical period of other countries overlaps with yours. After finding it, how do you "copy"? Look at the US to predict category structure changes, and look at Japan to learn product innovation details. But copying must be done with caution. You may have some doubts, because some bosses like to copy from Japan, relying on path dependence, but you must be cautious. How to understand? The US is a country with a large population, many ethnic groups, and vast territory, which has strong similarities with China, while Japan has a small land area and a particularly high population density. Many business models may not appear in Japan. Let me give an example from my side, such as coffee, a very hot category and track. Japan has a market of about 200 billion, but 50% is packaged coffee. Can you imagine? But in the US, packaged coffee only accounts for eight or nine points, same as China. Why? First, Japan is small, so there aren't many places to open coffee shops; second, because of the high population density, many business formats don't appear there, forcing Japanese brands to do a massive amount of innovation in packaged consumer goods. Pitfall Case 2: Copying the Latest Products from Other Markets into China In 2014, two brands in our category copied the most popular products from the US market in 2008 to China. The first copied product content, and the second copied the business model. Both copied to death. Because their strategy was at least ten or even twenty years ahead of the market at that time. Why do I say that? Back to our own case - Jane's second curve: Father's Love Formula. In 2017, the entire yogurt category did not grow. But Jane found PMF (Product Market Fit) and used the new category of Father's Love Formula to increase the brand's repurchase rate. We used the method of learning from history at that time. First, we put the penetration rate, average price, per capita consumption, and average gross margin of low-temperature yogurt on coordinate axes and benchmarked them against the US and Japan. The benchmarking found that in 2017, the average price and gross margin of low-temperature yogurt in China were equivalent to the US in 1998, and per capita consumption was equivalent to the US in 2008, so you couldn't bring in things from 2018. Seeing this, I believe everyone has a clearer sense of how the previous two brands died. After carefully studying the data, we found a very strange insight - the penetration rate of the US yogurt market increased by 45 points from 1998 to 2008. So we wondered which major categories drove this? After research, we found three categories: one is low-burden yogurt, two is functional yogurt, and three is children's yogurt. Then Jane laid out all three categories and executed and implemented them. Among them, the most well-known children's yogurt is Father's Love Formula. After two years of polishing, Father's Love Formula was launched in 2019. In its first full year on the market, it achieved sales of 180 million, becoming the biggest hit in the low-temperature dairy category for the year. So how did we go from the children's yogurt category to the product? Defining New Products: How to Design Differentiation with Barriers First, let's talk about the definition of a product. I don't think a product is packaging + content. In my view, a product is a value proposition that consumers can recognize, perceive, and afford. This is Tesla's first-generation Model X. If we remove Tesla's brand halo and Musk's persona, and test drive it, we can really feel the newer, smoother, and more enjoyable experience. In my opinion, this is an innovative differentiated value proposition. Then you might say, is it enough to brainstorm and find a feature or selling point that competitors haven't mentioned, or a technical feature that has never appeared in the world, to make it differentiated? Certainly not. So how to understand? Take Genki Forest's sparkling water as an example to understand the three criteria of recognizable, perceivable, and affordable.
  • Recognizable: Unlike beverages on the market that compete on function or taste, Genki Forest highlights 0 sugar, 0 fat, 0 calories, which is differentiated in cognition;
  • Perceivable: Compared to Coca-Cola, which is also 0 sugar, 0 fat, 0 calories, Genki Forest uses clear color and taste, making it quickly perceivable visually and in taste;
  • Affordable: Genki Forest's premium over major beverages at the time was 50%, which was a bit high but relatively bearable. Although Genki Forest has encountered some problems today, its growth over the past few years has also verified the effectiveness of its differentiation. After all, the leap in consumer health awareness is an uncontrollable factor that no one can predict. Here's also a negative case. Pitfall Case 3: New Categories Must Have Significant Perceivable Differentiation I bought two brands of wet wipes from the market, one is wet toilet paper, and the other is baby hand and mouth wipes. I felt they were similar, so I consulted a professional. The professional told me that the difference is significant, how much the moisture content differs, and how much difference it makes when wiping your butt. But in my eyes, this is not enough differentiation. How to measure whether your differentiation is sufficient? I'll give you a sentence: Perceivable differentiation should be measured by what a rational engineer can perceive; 80% of consumers cannot perceive the differentiation that bosses, brand managers, and R&D managers think exists. How to find differentiation?
  1. First, become a novice in a second, and find the underlying needs of the large category. Becoming a novice in a second is the ability to dig out underlying needs. Internet product managers often say that if you can't become a novice in an hour, don't do this job; it means you're not suitable. Before developing a product, think about what problem your product solves in what scenario, and what problems will arise when solving these problems.
  2. Use the population as the standard to find segmented sub-categories within large category needs. If you are making a segmented sub-category within a large category, we need to segment our demand model, using the population as the standard. For example, parents buying yogurt for their children is different from Gen Z buying for themselves. Parents focus on nutrition, especially for children, but Gen Z and the new generation care about taste memory and convenience, not safety and digestive health.
  3. Put the underlying needs into 4 quadrants to find the rarest differentiation.
  • First quadrant: Use technology to find what differentiation can be done in people's taste, touch, and vision;
  • Second quadrant: Look at the Japanese and European markets to see what differentiation we can borrow;
  • Third quadrant: Look at what differentiation can be done in scenarios. For example, turning a beauty salon's system into beauty instruments.
  • Fourth quadrant: Find the connection between hot words in consumers' minds and category gaps. The yellow annotations are differentiations that can be found in the quadrants. There are many differentiations that can be found, but not all are useful; after finding them, use the three principles of "recognizable, perceivable, affordable" to filter them. Here are a few extreme differentiations that Father's Love Formula screened out:
  • Differentiation in convenience. Statistics show that for every additional step in consumption, consumers' willingness to consume decreases by 50%. Most of you here make packaged consumer goods, whether 3C or personal care, packaging is the foundation. Compared to Jane's zero-sugar products, Father's Love Formula's twist-off cap design reduces three steps from purchase to consumption.
  • Differentiation in ingredients. The zero-sugar series has the differentiation of no sugar and no additives, and Father's Love Formula maintained this differentiation. Parents buying yogurt for their children care more about nutritional needs.
  • Differentiation in packaging. All differentiations must ultimately land on packaging. The blue we used for packaging had not appeared in yogurt packaging in 2015. Here are four principles for packaging differentiation.
  • Principle 1: Break category rules. Like turning left when others turn right. Jane used this principle. When launched in 2015, we found a blue packaging that didn't exist in this category.
  • Principle 2: Trigger category desire. Like Eastern Leaf directly exposing the East and tea leaves, directly inducing people's desire.
  • Principle 3: Repeat important information. Packaging design should have communication priorities; first figure out what your importance is, then repeat it.
  • Principle 4: Respect reasonable conventions. Please have reverence for reasonable conventions. Some brands love to innovate, but they break rationality. For example, some brands, when selling outer and inner packaging together, remove the information on the inner packaging, causing many consumers to be unable to find information when they want to see the ingredients. After completing the first three steps, we usually find a dilemma: the product is differentiated, but consumers can't afford it. At this time, we need to do the fourth step.
  1. Do Pareto optimization of differentiation. One point to pay careful attention to is price. Generally speaking, if you have already priced a premium of more than 50% over the mid-to-high-end brands in your target competitive category, you need to be careful; this exceeds a reasonable threshold. For example, Father's Love Formula is 400% higher than traditional yogurt, but its scenario actually benchmarks against children's complementary food. Compared to that, it's cheap, so it's fine. After defining product differentiation, you also need to consider how to create barriers. There are two methods for creating differentiation barriers:
  2. The poor man's approach. The "poor man" first uses cognitive design to iterate out scarce differentiation, and after growing bigger, then builds the supply chain, upgrading to differentiation with more scarcity barriers. How to understand? Still take Father's Love Formula as an example. After Father's Love Formula achieved a certain scale and preliminary verification, and found that the repurchase rate of the core group increased, it upgraded the differentiation of no sugar and no additives to a scarcity upgrade: building supply chain scarcity barriers and constructing a unmanned factory.
  3. The rich man's approach. In a confirmed category, first build scarcity and differentiation, and let cognition iterate slowly. This type is the rich making early moves in large categories. The hot commodity in the business world - Nongfu Spring - is an example. They are powerful; even in a track as small as Carbon One with one or two hundred million, they have already laid out their own roasting bean factory in advance, built the barriers, and waited for the wind. Aiming at New Channels: 100% Resources Focused on First Purchase 100% Energy Focused on Repurchase After locking onto new categories and defining new products, it's time to fight. Most people's first reaction is to aim at dividend channels, but my specialty is not e-commerce, nor do I engage in special channels. So I want to talk about another method - 100% resources focused on first purchase, and 100% energy focused on product reuse frequency and repurchase rate. How to do it specifically?
  4. Find zero-point people and verify whether the reuse frequency is 200% higher than competitors? Jane found 3,000 parents back then to verify whether children would be willing to eat yogurt with complementary food every day. Please, no matter what new product you make, first find at least 100 zero-point people to verify whether anyone is willing to use your product daily. Zero-point people can be from private domain communities or friends.
  5. Find origin people and verify whether the repurchase rate is 200% higher than competitors? Father's Love Formula used Moments ads, official accounts, and Tmall traffic to find the origin people for purchase, and then looked at their repurchase rate. If the repurchase rate doesn't beat the target competitive category by 200%, don't proceed.
  6. Continuously verify the repurchase rate of the core group and see if the penetration of the segmented group is 30%? Father's Love Formula did ground promotion to continue verifying the repurchase rate; at the same time, it also verified the penetration of the core group. If penetration >30%, then you can do large-scale penetration with key channel combinations. Summary and Review Finally, let's review the main content of today.
  7. Lock onto new categories: In the stock market, to find a new incremental category, look at penetration rate, demographic structure, and US and Japanese history.
  8. Define new products: After locking onto new categories, how to design differentiation with barriers? First, dig out the underlying needs of the category and find blank connection points; then use the principles of recognizable, perceivable, and affordable to test whether these differentiations are reliable; finally, in the product lifecycle from birth to decline, find the appropriate time to intervene to build supply chain scarcity.
  9. Aim at new channels: Use 100% of resources to focus on first purchase channels and scenarios, but use 100% of energy to focus on product reuse frequency and repurchase rate. I hope everyone can dig out new growth opportunities from today's sharing, because opportunities dug out from the cracks often build century-old brands!