Click the image to register Many people think: as long as the quality is the same, a lower price will make it easier to win in the market. Actually, that's not the case. I remember seeing a joke before: A salesperson once asked the boss: "There's a small factory in the market with very low prices, hard to deal with. What should we do?" The boss replied: "If this factory is so formidable, why is it still a small factory while we are a big one?" 1 High Price vs. Low Price Regarding pricing, there are two basic laws in marketing:**

  • High-price launch: difficult at first, easy later; low-price launch: easy at first, difficult later.
  • High price defeating low price is the norm in the market, while low price defeating high price is an exception. The reasons are as follows:
  1. Consumers have two concepts of "price recognition" for products: one is the price itself, i.e., whether it's high or low, which doesn't trigger purchase behavior; the other is the association between price and value, i.e., whether the product is worth the price, which is the difference between price and value. Low price itself only generates the first recognition, not the second; the second recognition arises only after "consumer experience" and "market promotion." To generate consumer experience, a prerequisite is that someone buys first. But unless it's an innovative product like Tesla, to get people to buy, you must actively do market promotion; otherwise, you'll be drowned among other homogeneous products. And market promotion requires costs. Where do the costs come from? They are prepaid from the product's "profit margin." Take Yunnan Baiyao toothpaste as an example: without its astonishing pricing above 20 yuan, how could a single product afford to pay for CCTV advertising (the "vampire") while surviving in meat-grinder hypermarkets like Carrefour and Walmart? Yes, for most products: only a higher price (or profit margin) can support more promotional activities.
  2. Of course, as mentioned in "Marketing Warfare," high prices often bring a sense of "mystery"—consumers wonder, "Why is it so expensive?" At this point, you have a better opportunity to introduce your new product to people...
  3. Many people think consumers like cheap things—assuming "same quality, lower price is more popular." Actually, that's not true. Consumers don't like cheap; they like "getting a bargain." Setting a higher price also leaves room for "high opening, low closing" later, allowing consumers to enjoy more "discounts." If you start with a low price, it's hard to have any leeway later...
  4. If consumers buy your product because of the "low price," it means they are not your "loyal customers." If another brand offers a lower price, users can easily be taken away. To win back these "low-quality customers," you'd have to engage in price wars with competitors—further reducing profit margins, which is clearly not cost-effective... 2 Is Low-Price Strategy Not Viable? At this point, you might ask: Does that mean new products must always take the high-price route? Of course not. Ye Guofu (founder of Miniso) once said: There are three kinds of business people in this world—the first sells low quality at low prices, and such people are everywhere; the second sells high quality at high prices, and there are many successful cases; the third sells high quality at low prices, and few can achieve this... The fourth kind he didn't mention is "liars"... Let's not discuss his stance... (because Miniso itself focuses on low price and high quality) But his words do make sense. As mentioned above: high-priced products have a greater chance of winning, which is a general rule of marketing. Although we do see many brands that win with low prices, the low-price strategy is actually not something most startups can afford to do; it's quite difficult. (We won't discuss inferior products) In this article, let's specifically look at those brands that successfully adopted low-price strategies (like Xiaomi, Miniso, Wahaha, Uniqlo, Southwest Airlines, Costco, PX Mart, Walmart), and why they succeeded? Then you can simply judge whether you have the ability to take the low-price route. Prerequisite for Low-Price Success: Channel Advantage Why did Wahaha achieve such great success (previously)? The reason is simple: at that time, its channel resources in China were unmatched by any other brand (including Coca-Cola). So Wahaha's strategy was: once it found a product performing well in the high-end market, it immediately imitated it and quickly distributed it in the low-end market to seize consumer mindshare. For example, the following: Similarly, Xiaomi—at that time, all mobile phone manufacturers were basically going through offline channels, and Xiaomi was the first so-called "internet phone"—seizing the online channel first. Other manufacturers, out of consideration for dealer interests, couldn't follow quickly, allowing Xiaomi to harvest a large number of users. (Ranked first in national sales in 2015) Of course, the success of a low-price strategy based on channel advantage is generally temporary—when other relatively high-end (or focused) beverage brands achieved channel sinking, Wahaha's good days of making money by imitation basically ended; and when other phone brands opened up online channels, Xiaomi had to proactively advertise, open offline stores, and move toward high-end phones... Prerequisite for Low-Price Success: High Transaction Volume Those successful low-price brands share a pattern: compared to competitors, their transaction volumes are very high. What does "high transaction volume" mean? In summary, it includes the following two points: 1) Wide product categories: Xiaomi, Miniso, Walmart, Costco, Uniqlo, and Wahaha all have very rich product lines (or coverage), with Costco (a warehouse club chain) even including gas station services... 2) Many high-frequency consumer goods: This is self-explanatory; Miniso, Walmart, Costco, Wahaha—many of the products they sell are high-frequency consumer goods that consumers buy regularly. The above two points basically ensure a sufficiently large transaction volume. Why pursue high transaction volume? It's simple: small profits, quick turnover. Prerequisite for Low-Price Success: Profit Model If you see a company where all products have very low gross margins, even to the point of not making money, there are only two possible reasons: 1. The boss is a fool; 2. It has a new profit model that doesn't rely mainly on selling goods for price differences. 1) Xiaomi: Many people think Xiaomi doesn't make money solely from phones, but from more other products in the "ecosystem," like Xiaomi TV, Xiaomi Box, Xiaomi Luggage, Xiaomi Air Purifier, etc. Actually, these are not Xiaomi's true core business... Don't believe it? Let's look at its business layout diagram: Yes, the use of "capital" is Xiaomi's most important internal driving force. (Shunwei Capital, Angel Investor Lei Jun, Xiaomi Investment) Next are technology (cloud computing, big data, etc.), services (Xiaomi Entertainment, Xiaomi Finance, etc.), products (phones, ecosystem), and channels (Xiaomi Home, Youpin, etc.). Of course, Xiaomi's ability to do this is closely related to the CEO's resources—Lei Jun was previously an angel investor. 2) Costco: As a warehouse club, although Costco has many SKUs, it doesn't rely on price differences of these products for profit. Costco's average gross margin is only 7%, while typical supermarkets (including Walmart) are around 15%–25%. Additionally, Costco's employee wages and benefits are far above industry averages. In this case, after deducting various costs, there's not much left to earn. So, it needs to find a new profit point—charging "membership fees." (In 2014, Costco's net profit was $2 billion, merchandise profit was $1 billion, and membership fees were $2.4 billion—after deducting various costs, its net profit was roughly equal to membership fees) Here's a brief introduction to its membership system: Costco has two membership models: a $55 annual fee for non-executive members; a $110 annual fee for executive members. Among them, non-executive members can not only enter the store to shop but also bring additional people, allowing more people around them to enjoy low prices; executive members can also enjoy up to $750 in annual cashback and some insurance discounts. With so many benefits, it's not hard to understand why Costco's membership renewal rate reaches an astonishing 90%... 3) Miniso: According to Ye Guofu himself, Miniso relies on "winning by volume"—low gross margin, high sales. Actually, it's not that simple... Miniso adopts a "direct-operated + franchise" model—with direct-operated stores for "advertising" and franchise stores for actual profit. According to Miniso's official website: investors who franchise Miniso need to pay a brand usage fee of 150,000 yuan, a goods deposit of 750,000 yuan, and decoration prepayment per store, and they also need to find the storefront themselves. This is why many people question: Miniso is actually playing a "financial game"... But regardless, this is its unique model, unlike Muji, which can only be direct-operated and relies solely on selling products for profit. Prerequisite for Low-Price Success: Cost Advantage Walmart's success with low prices is mainly due to cost advantages. At the time, mainstream large supermarkets adopted a "decentralized management" strategy—each store had autonomous management rights and could choose different suppliers and logistics systems based on local needs. Walmart, on the other hand, adopted an "integrated management" strategy—through unified coordination, it enhanced overall logistics efficiency and strengthened bargaining power with upstream manufacturers, thereby significantly reducing costs. (PS: This is very similar to Miniso) Of course, Xiaomi and Southwest Airlines are also typical "cost control experts." Xiaomi needs no further explanation. As for Southwest Airlines, as mentioned before—it uses only a single aircraft model, only operates short-haul routes, doesn't provide extra services, and even uses the cheapest, reusable materials for supplies, etc. Prerequisite for Low-Price Success: Consumer Mindset The four points mentioned above (channel, transaction volume, profit model, cost advantage) are more internal factors, but we also need to pay attention to external factors—consumer mindset. As the saying goes: "You get what you pay for." And also: "If things aren't expensive, how can people be noble?" Actually, these reflect people's psychological dependence on high prices—not wanting to buy cheap things to avoid being cheated by inferior products; not wanting to buy cheap things to avoid being looked down upon. This is the consumer mindset of most people for most products. For low-priced products to succeed, they must find ways to circumvent/overcome these mindsets. Generally, there are two methods: 1) Tell others "why my product can be so low-priced": For example, Xiaomi said it saved a lot of money because it had no offline stores, no dealers, and no advertising—thus convincing more people that despite the low price, the quality is still good. 2) Advocate new consumer mindsets: For example, Taiwan's PX Mart, to encourage more people to buy cheap goods, launched slogans like "Use the money saved at PX Mart to do other more meaningful things." This approach is very applicable in the context of consumption upgrading. (PS: A study on US consumption upgrading found that during the upgrading of the American middle class, there was a "consumption downgrading" phenomenon in some other categories—some very cheap brands became more popular) Yes, the essence of consumption upgrading is the upgrading of consumption "concepts," not simply selling products at higher prices... The so-called "concept upgrading" means consumers are more "clear" than before about where to spend more and where to spend less. So at that time, PX Mart, from a severely aging brand, suddenly became popular. However, this method of "advocating new concepts" is generally more suitable for well-known categories (like food and general merchandise), and less suitable for relatively new categories and markets. For example, Meizu also tried to convince people "don't spend money on phones," but rather on other more "meaningful" things... (like travel and buying gaming equipment...) But compared to PX Mart, its effect was far worse. (Most of those who actually bought it did so because of poor economic conditions, not because they appreciated its values) One reason is that most young people still can't let go of their obsession with "good phones"—they haven't had enough fun yet. 3 Summary In summary, the prerequisites for a successful low-price strategy include but are not limited to:
  • Channel advantage—having channel resources that competitors can hardly reach;
  • High transaction volume—more categories than competitors, achieving small profits but quick turnover;
  • Profit model—not relying solely on selling goods for price differences;
  • Cost advantage—comprehensive costs significantly lower than competitors;
  • Consumer mindset—overcoming/circumventing people's psychological dependence on high prices. Earlier we said: "The low-price strategy is not something most startups can afford to do; it's quite difficult." The difficulty mainly lies in the first four aspects. As a startup brand (especially a startup project), often you don't even know how deep the industry is; you haven't successfully made a single similar product; you've dealt with fewer than ten suppliers... Who has channel resources that competitors can't reach? Who can dare to have more SKUs than competitors from the start? Who can think of a completely new profit model from the beginning? And who can guarantee ultra-low costs? Such people do exist, but they are few. (If you are one, congratulations) For most startups, the high-price strategy is relatively easier to succeed, especially in today's fast-moving resource environment—although initially limited by scale (small), as long as the first wave finds it profitable, you can quickly do a second wave, third wave... If you find it's not profitable, immediately switch paths—fight if you can win, run if you can't. This is the "guerrilla warfare" most companies should adopt. Instead of rushing to subsidize to grab territory, then dragging along users of not-so-high quality to think "how to make money," and finally trying to defend such a large territory... 4 Although many people say: "In the new era of business, avoid traditional product-selling thinking; don't just think about making money by selling products." But in my view, the simpler, the more reliable. Because once variable factors increase, uncontrollable situations are inevitable. If I must use a trendy word, it's "entropy." Innovation in business models is indeed valuable. However, precisely because it's difficult, it's valuable—it's not the primary goal for most companies. (The business model of Huadian Shijian is indeed excellent, but other flower shops don't have the resources to imitate it) Most companies are familiar only with their own products, so they should directly do the value exchange of the product itself well. (Of course, if a good idea or opportunity suddenly arises, it's worth trying) Everyone loves to hear and tell legendary business stories, but the reason legends are legends is that they have low probability—succeeding at something that shouldn't have succeeded makes it a legend. (For example, Xiaomi's success path is not universally referential because its products are mainly used for layout and valuation, not for profit, and ordinary people can't play that game) Speaking of this, I suddenly recall an article from a few years ago about a hotpot restaurant owner who claimed that eating hotpot at his place would be free in the future—he didn't make money from selling hotpot but from "community" or "fans" or something... I wonder if Haidilao panicked when they saw that news, and I wonder how that hotpot restaurant is doing now... Source: Brand Circle (ID: Brand-Circle)