An illusion of prosperity. By Sister As you may know, Jiuzhitang, known for selling donkey-hide gelatin blood-tonifying granules and Liuwei Dihuang pills, is about to start selling toothpaste. From December 3 to 6, Jiuzhitang's five-year strategic launch conference for toothpaste products was held in Changsha. It is reported that Jiuzhitang will launch the Luohua Zizhu series toothpaste, attempting to break the category's bottleneck of "difficulty in combining efficacy with fresh breath." In fact, besides Jiuzhitang, many pharmaceutical companies have crossed over into daily chemical products by selling toothpaste, such as Yunnan Baiyao, Jiangzhong Pharmaceutical, Harbin Pharmaceutical Group, Pien Tze Huang, Du Yiwei, Guangzhou Pharmaceutical, and GlaxoSmithKline. It is worth mentioning that some of these pharmaceutical companies have earned their "first pot of gold" in the daily chemical field through toothpaste. According to statistics from the WeChat public account "Health Point," as of the end of July 2016, among the 39 Chinese medicine companies listed on the "2016 China Pharmaceutical Industry Top 100 List," 31 had launched traditional Chinese medicine toothpaste products. Why do pharmaceutical companies frequently favor or prioritize the toothpaste category when crossing over into daily chemicals? Herd Effect The sluggish growth of the pharmaceutical industry has been reported in the press for over a decade. For example, the 2007 pharmaceutical industry operation report released by the National Development and Reform Commission pointed out that the sustained high-speed growth of the pharmaceutical industry over more than 20 years was changing—efficiency levels were declining, entering a period of stable growth. It is reported that in 2006, the total profit of the pharmaceutical industry was 41.3 billion yuan, a year-on-year increase of 11.1%, at a historical low. Among them, 1,368 enterprises accumulated losses, with a loss-making rate of 22.62%; the cumulative loss amounted to 4.463 billion yuan, with the loss-making rate expanding by 27.37%. It was also during this period that pharmaceutical companies such as Yunnan Baiyao sought diversified development, and in 2004, Yunnan Baiyao toothpaste was born. After entering the "12th Five-Year Plan" period, affected by macroeconomic changes, drug price reforms, costs, and other factors, the overall situation of pharmaceutical enterprises still did not improve. Data from the China Pharmaceutical Industry Information Center shows that during the "12th Five-Year Plan" period, although the main business revenue and total profits of the pharmaceutical industry were growing, the growth rate indicators declined year by year, from 20% to single digits. In addition, an Ernst & Young report also showed that last year, the world's 21 largest pharmaceutical companies generally experienced a slowdown in growth, with overall revenue growing only 3.1% year-on-year. The reality of sluggish growth for over a decade has urged pharmaceutical companies to reform themselves. A batch of toothpaste brands owned by pharmaceutical companies, such as Pien Tze Huang, Sanjing Shuanghuanglian, Jingxiutang, and Du Yiwei, were born one after another. It was also during this period that foreign pharmaceutical giant GlaxoSmithKline introduced Sensodyne toothpaste to China. Clearly, under the influence of the macro environment, pharmaceutical companies during this period had begun to seek new business growth points, and the continuous entry of pharmaceutical companies into the toothpaste field, as well as "successful" examples like Yunnan Baiyao, gave them reference and courage to follow. In addition, the similarities between the pharmaceutical industry and the daily chemical industry in terms of products, channels, and capital operations made their cross-over into the toothpaste field seem logical. Technological Interoperability But why has the toothpaste category been widely welcomed by pharmaceutical companies? As many industry professionals have analyzed, the low threshold for pharmaceutical companies to cross over into the daily chemical field through toothpaste is a key factor. First, compared with other categories, toothpaste is a basic category in daily chemical products, and its requirements for fashion appeal are not as high as those for other daily chemical products. At the same time, it can be found that, unlike conventional toothpaste brands, pharmaceutical companies mostly launch traditional Chinese medicine toothpaste. The efficacy presented with a traditional Chinese medicine background is also a common prominent selling point of these toothpaste brands, typically such as stopping bleeding, anti-sensitivity, and clearing heat and reducing inflammation. The low threshold may not only be reflected in technological interoperability, but also in the overall market profile and special attributes of the toothpaste category. Data from China Commercial Industry Research Institute shows that in 2016, the retail scale of China's toothpaste market was 24.28 billion yuan. In 2017, this scale is expected to reach 25.87 billion yuan. From 2016 to 2020, the compound annual growth rate of China's toothpaste market is expected to be 6.9%. ▍From China Commercial Industry Research Institute The steadily growing market scale has given pharmaceutical companies the opportunity to carve out a share of the toothpaste market. In addition, from the perspective of product positioning and pricing, the opportunities for pharmaceutical companies to make toothpaste are also relatively obvious. Also from data from the China Commercial Industry Research Institute, in terms of price, the best-selling products in China's toothpaste market are mid-priced (15-20 yuan/100g), accounting for as much as 48%. In terms of market segmentation, traditional Chinese medicine toothpaste accounts for 21%, second only to whitening toothpaste at 28%. Therefore, toothpaste brands such as Pien Tze Huang, Sanjing Shuanghuanglian, Jingxiutang, and Du Yiwei, which originate from pharmaceutical companies and have an average price of around 20 yuan, are theoretically in line with consumer needs. Role Models Are Not Replicable Although foreign companies such as Procter & Gamble and Unilever have formed long-term, absolute leadership advantages in the daily chemical field, with strong brands such as Colgate, Crest, and Darlie already occupying positions, there are also rising stars like Saky and Haochijian that give emerging toothpaste brands confidence. Moreover, for pharmaceutical companies, Yunnan Baiyao, as a "senior," is the biggest role model. According to the 2016 annual report of Yunnan Baiyao Group Co., Ltd., in 2016, Yunnan Baiyao toothpaste accounted for 16.49% of the national toothpaste market share, ranking second in market share among similar products and first among national brands. However, this does not seem to accurately represent the odds of success for pharmaceutical companies making toothpaste. It is not difficult to find that in the current toothpaste market, except for Yunnan Baiyao, which is thriving, the toothpaste products of other pharmaceutical companies are mostly poorly selling and have low visibility. For example, on Tmall, the highest monthly sales of Pien Tze Huang toothpaste is 4,072 units, and only 5 products have monthly sales exceeding 1,000; the highest monthly sales of Sanjing Shuanghuanglian toothpaste is just over 100 units; the highest monthly sales of Du Yiwei toothpaste is even only a dozen or so units. ▍Tmall sales of Pien Tze Huang, Sanjing Shuanghuanglian, and Du Yiwei toothpaste Compared with Yunnan Baiyao toothpaste's monthly sales of tens of thousands of units, the toothpaste products launched by other pharmaceutical companies inevitably seem to be "cannon fodder." As widely recognized by insiders in the daily chemical industry, the success of Yunnan Baiyao toothpaste is not accidental. Its strategy of "big advertising, big terminals, big brand, high price" gave it the opportunity to stand out from the toothpaste category at that time. It is worth mentioning that even though Yunnan Baiyao has made achievements in the toothpaste field, its later daily chemical products such as Yangyuqing shampoo, Zhaciji facial mask, and Qiancaotang body wash have not achieved corresponding market share and status. This is related to the varying levels of investment in these categories, but more importantly, perhaps, in these categories, a pattern of absolute leadership has already formed, and the requirements for hair care and skin care products in terms of brand fashion and communication with consumers are higher. Looking at the toothpaste products currently launched by pharmaceutical companies, although they continuously optimize concepts, products, channels, and other aspects around the core skill of "efficacy," they inevitably face practical problems such as product homogeneity and low brand influence. Under such circumstances, for new brands to break through in the toothpaste market, they certainly need comprehensive and three-dimensional planning, which can be described as requiring the right time, right place, and right people, all indispensable. After all, role models are not replicable. Source: Qingyan (ID: qingyanwh) -END-