“Today, we must shift from new consumption to true consumption.” “In the past, when doing new consumption, everyone inevitably had a To VC mindset, with a development rhythm of pulsed high growth and buying scale with money. Today, we must return to a To C mindset, focusing on long-term consumer value, and shift the rhythm to self-sustaining growth and consolidating the basic foundation,” said Lu Xiuqiong. Lu Xiuqiong is a Global Expert Partner at Bain & Company and former Chief Marketing Officer for Coca-Cola in China, Korea, and Mongolia. With over 25 years of experience in global and local brand operations, she has keen insights and forward-looking strategic vision in consumer trends. She has led teams to successfully build multiple brands valued at over $1 billion, earning widespread recognition and acclaim both inside and outside the industry.

So, what is the essence of new consumption? What is the true moat for new consumption companies? How to return to true consumption and build a solid foundation? How to create core hero products? How to build channels effectively? How to establish a complete management system? Today, Lu Xiuqiong is a guest at Hundun, delivering the course “The Practice of Crossing Cycles: Returning to True Consumption,” using a “one-thinking” approach to help everyone return to the “one” of new consumption and move towards sustainable, high-quality development.

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Returning to True Consumption

In 2022, uncertainty surged. Consumption faced pressure, growth was hindered; consumer shopping behavior changed significantly, with category upgrades and consumption downgrades; supply chain pressure increased sharply; traffic peaked, and capital cooled down. Is new consumption failing? Of course not; it’s not an ebb, but a fever breaking. This fever-breaking has made many new brands that relied on burning money to buy scale re-examine themselves. It lets us return to our original aspirations. So, returning to the source, what exactly is new consumption? At the end of 2020, I had an in-depth discussion with He Yu from Black Ant Capital. The true anchor of the new consumption era lies in the changes in the underlying logic of consumption brought about by generational differences. The business logic of the entire era has shifted from the common B2C (Brand to Consumer) mass distribution orientation to a circle-driven demand orientation: Consumer to Brand. This is why I love the Jobs-to-be-done theory taught by Harvard professors. The relationship between consumers and brands becomes a trinity of cognition, transaction, and relationship, almost simultaneously. The brand’s job becomes creating demand on the C-end, empathizing with consumers, co-innovating and iterating, and co-expressing; while the B-end must fulfill orders, using the most efficient methods to reach stores, homes, and delivery. So, given the irreversible changes in the consumption track, why does new consumption feel a chill? A big reason is that some new consumption brands have fallen into the growth trap: “buying traffic but not attracting new customers, launching new products but not driving GMV, entering channels but not pushing sell-through.” These are the three common problems troubling new consumption brands recently. Perfect Diary’s ROI dropped from 2.4 in 2019 to 1.5 in 2021 and 2022. Relying on traffic is like building a tower on sand; Nayuki Tea, on average, launched a new product every 5 days in 2021, started price cuts in 2022, and average daily sales per store fell about 30% in the past six months. These cases are just a microcosm. How many brands think they are doing the right thing, but are actually indulging in a “false moat”? A moat is not built just by burning money; the true moat for consumer goods lies in focusing on structural growth opportunities and building endogenous competitive advantages. So, we introduce the most important concept today: in this era, we must shift from new consumption to true consumption. In the past, when doing new consumption, everyone inevitably had a To VC mindset, with a development rhythm of pulsed high growth and buying scale with money. Today, we must return to a To C mindset, focusing on long-term consumer value, and shift the rhythm to self-sustaining growth and consolidating the basic foundation. Returning to true consumption is the evolution of the consumption era and the return to the essence of brands. This is easier said than done. Three Squirrels seized the traffic dividend and started as a Taobao brand. After 2016, it rapidly expanded into multiple categories. But traffic declined, and repurchase of basic products dropped significantly. In 2019, it aggressively expanded offline stores, which was flashy in the short term, but blind distribution actually limited its development. In 2021, it closed 200 stores. So in 2021, it returned to nuts as its core category, focused on high-quality store development in channels, and began improving supply chain capabilities. The deep-seated reason it failed to play a good hand was mainly due to an unstable basic foundation and unreasonable rhythm. So, what exactly is the basic foundation? First, basic products: do you have a core hero product? Second, basic aspects: how solid are your channels, brand, and supply chain? Third, basic skills: have you built a good company management system, not just a gang? Doing consumption cannot avoid these dull and hard practices.

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Building Basic Products

1. The core secret of consumer goods is creating core hero products

What is a core hero product? It is a category that occupies the mind and has absolute leadership. It must achieve 1.5 times the next competitor in five dimensions: Popularity, Penetration, PSD (per store per day sales), Purchase Repeat (core group repurchase rate), and Placement (quality of distribution). Coca-Cola has self-service beverage machines globally that offer 227 flavor choices. Among the 227 flavors, the six SKUs—Coca-Cola Classic, Coca-Cola Zero Sugar, Diet Coke, Sprite, Fanta Orange, and Minute Maid Lemonade—account for over 50% of total sales. When you give consumers all choices, your core hero product still stands out. Core hero products are crucial for the entire FMCG industry. Winona’s total revenue now exceeds 4 billion yuan, with the soothing series accounting for over one-third of sales, and core hero products accounting for over 15% of sales. It is even important for some retail and restaurant companies. “Long Long Ago” lamb skewers established mindshare with Hulunbuir lamb skewers; even KFC, a company with endless new products, still has the Family Bucket as its most important item. Core hero products become a recruitment camp for consumers, a leverage point for channels, and a profit pool for growth, helping the entire brand grow sustainably.

2. Three different types of innovation

So, how to create a core hero product? Before answering, we need to sort out three different types of innovation. The first is incremental innovation. It emphasizes efficiency, making small optimizations and micro-innovations based on existing consumer needs. This is the core capability of traditional consumer goods giants. Many of their hero products may have been formed 100, 50, or 10 years ago, and they continuously optimize on that basis to keep them fresh. The second is disruptive innovation. It emphasizes breakthrough long-term technological investment to form overall creative capabilities. For example, Nestlé took over ten years to achieve the full breakthrough of its capsule machine Nespresso. The third is transformative innovation, which is an area where new consumption brands are very skilled. It is based on consumers’ underlying needs, but in a new era, it uses old elements and new combinations to create hits. Winona’s sensitive skin skincare, Satuday’s freeze-dried coffee, and Genki Forest’s zero sugar, zero calorie, zero fat beverages all achieve transformative innovation.

3. How to use transformative innovation to create core hero products?

There are six steps to creating a core hero product. Over the past period, I have interviewed many founders, re-reflected on my years of experience in foreign companies, and had in-depth discussions with many leading consumer companies in the industry. Traditional innovation methodology is about creating from nothing, which is very difficult. Hundun’s combinatorial innovation—old elements, new combinations—is deconstructable, learnable, and executable. Such innovation links different things together to synthesize a new innovation. For consumer goods, you can use the following six steps:

First step: Choose the battlefield.

Find a long-cycle basic product and deconstruct its meaning. Does it represent a large track with a small entry point that has high added value? What real need does it solve? There is a non-consensus insight here: we usually think we should be consumer-centric. But don’t ignore this: when being consumer-centric, you need to find a representative target to deconstruct its deep meaning, so as to be targeted and avoid going astray. Winona is a great example. First, skincare is a large market with fragmented head competition. Winona found a very good small entry point: functional skincare. In 2019, functional skincare accounted for only 5.5% of the market, but over 35% of consumers felt their skin had problems. So it clearly defined its core audience: sensitive skin. This core group has very high product iteration needs and can repurchase frequently. With the original intention of “solving common skin problems for Chinese people,” Winona on one hand laid out mass-market sensitive skin series products, establishing the mindshare of a “functional skincare brand focused on sensitive skin”; on the other hand, it laid out more vertical and refined scenarios to dig deeper into needs. For example, in the past two years, it launched freeze-dried masks and Qingyan bottles, better creating high added value. The repurchase rate for its entire product line is as high as 30%. It satisfies consumers’ real need—the long-cycle first-order need for healthy, beautiful skin. It builds its entire layout based on such a real need.

Second step: Capture the need.

After finding the real need, you must capture the differentiation point. One thing to note here: basic needs actually do not change because they are at the human nature level. They only extend and reconstruct with changes in times and scenarios. For example, oral care: this underlying need has not changed for thousands of years. If you focus on fresh breath, the functional benefits of the product are fresh breath, confident expression, social ease, etc. Thousands of years ago, people used twigs to clean; a hundred years ago, the invention and education of toothpaste established the habit of brushing morning and night; decades ago, people might choose mouthwash to freshen breath. But today’s younger generation frequents nightlife venues and uses products as self-expression, so they need more fashionable, portable products—that is, breath sprays. BOP keenly captured this scenario change, launched very cool breath sprays, led the category iteration and upgrade, and seized the new mindshare of “fresh breath” among young people in this era. This allowed it to carve a path in the red ocean of oral care and start full-category expansion. Today, BOP breath sprays account for only 25% of total sales, with other categories gradually catching up. A common myth in innovation is trying to find a differentiated need, thereby limiting to a niche market, or even deviating to pseudo-needs. In fact, find the extension of basic needs in this era’s scenarios and emotions, iterate and upgrade the category, seize the mindshare, and you will find that you have already succeeded 50% in creating a core hero product.

Third step: Create the selling point.

This step considers how to deconstruct basic elements and cross-border recombine. The cheese stick track, which has been very popular in the past two years, is actually based on a high-frequency, rigid-demand scenario: children’s snacks. At 3 p.m., when picking up kids at kindergarten, what do you hold in your hand? In the past, a very common category in such a scenario was lollipops, but parents all felt lollipops were unhealthy. Cheese sticks cleverly found this scenario and deconstructed its basic elements. Consumer needs are nutritious, tasty, and easy to grab. Two cheese sticks have the calcium content equivalent to 200 ml of milk; kids want to eat more, so repurchase demand is high. So Milkground adhered to the supply-demand-connection principle, sought inspiration across borders, recombined elements to innovate; and even at the initial stage, it went all-in on the supply chain to build barriers.

Fourth step: Build surprise.

Today’s products must bring a Wow experience, with surprises that are expected but beyond expectations. For example, Estée Lauder’s recent Advanced Night Repair Intensive Recovery Masque. Estée Lauder is known for anti-aging, repair, and hydration, so launching an anti-aging mask is expected. The key is that it provides unexpected high added value. I summarize it in three points: First, the product’s scream point, corresponding to functional needs; its ingredients surprise everyone. Second, the visual sharing point, corresponding to social pursuits. This mask is covered with a metal film, so it’s also called the “Iron Man Mask.” Doesn’t that immediately make you feel Wow? The visual sharing point allows consumers to become fans and actively spread the word. Third, the addictive habit point, corresponding to emotional appeals: be good to yourself. On Xiaohongshu, the reputation of this product is “effective, repurchase endlessly, must apply weekly, be good to yourself, I also want to become a good Iron Man.” From Advanced Night Repair Intensive Recovery Masque to Iron Man Mask, a small change creates completely different innovation possibilities.

Fifth step: Diligently polish.

Many new consumption brand founders are from the internet generation and bring the internet’s gray-scale testing concept to consumer goods. From co-creation with the public to polish new concepts, to scientific development that breaks innovation into MVP with minimal variable factors and recombines AB tests, to various agile pilots including DTC channel fan rapid testing, e-commerce virtual testing, and convenience store behavior testing, they all attempt to use big data methods to iterate quickly and optimize.

Sixth step: Converge and focus.

The first five steps are about how to create a hero product. Those who have truly innovated know that giving birth is not easy, and raising a child is even more difficult. The most important point is that when you are very lucky to find a core hero product, you must converge and focus, repeatedly iterate and upgrade, rather than just doing stacked innovation. Let me share a personal case. In 2004, Minute Maid Pulpy Orange began launching in some markets. It touted “drinkable fruit, juice with pulp,” and immediately became a super hero product that ignited the market at that time. By 2009, for five years, Minute Maid was very focused, repeatedly emphasizing this point. From an innovation perspective, it was also very restrained, with few flavor extensions, such as launching white grape with pulp (爽粒葡萄), using aloe pulp that tasted very similar to grape, further strengthening the big brand mindshare. The hero product Pulpy Orange sold nearly 6 billion yuan in 2009, becoming one of the most successful consumer brands. Unfortunately, after 2010, on one hand, the market changed dramatically, and the innovative product Rock Sugar Sydney Pear suddenly swept the market. On the other hand, the management team changed, the team’s rhythm went wrong, Pulpy Orange raised prices consecutively, and quickly launched many messy flavor series. Most critically, the brand’s core asset, the concept of “drinkable fruit,” was sharply diluted. Under this series of factors, sales of the core hero product fell 30%. Looking back, from 2004 to 2009, Minute Maid not only needed to stick to “drinkable fruit” and cautious innovation, but also needed to do scenario-based packaging extensions, which it lacked. Re-reviewing, after 2010, it suddenly faced fierce competition. It needed to stay steady, focus on itself, and consider what upgrades could be made to the core hero product, rather than trying to respond with many stacked innovations that would in turn affect the brand’s core assets. This is the true meaning of “less is more” in consumer goods.

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Consolidating the Basic Aspects

The iron triangle for consolidating the basic aspects is channels, brand, and supply chain. This is also a question many founders have been asking recently. The importance of omni-channel is now fully recognized by everyone, given that traffic dividends on major platforms have peaked and customer acquisition costs are rising. The logic of online channels is infinite simulated shelves, emphasizing niche matching of people, goods, and places, where long-tail products can also find their own space; the logic of offline channels is finite shelves, with mass configuration of people, goods, and places, being the greatest common divisor when consumers walk into a store. Doing offline is particularly difficult; its logic is different from online. But the good news is that once you do offline well, it brings very good net profit. Comparing six companies: three old consumer brands—Dali Foods, Qiaqia, and Taoli Bread—have offline sales accounting for over 60%. The other three are new consumption brands we know well—Three Squirrels, Bestore, and Akuan Foods—which have not fully expanded offline and mainly rely on online. Shockingly, the net profit of the old consumer brands with offline focus is 3-5 times that of the seemingly internet-famous brands. This also shows that the breadth, depth, and complexity of offline channels are also a moat for the entire brand enterprise. So how to build the basic aspects of channels? According to Bain’s summary, start with the success image and role positioning of channels. Different channels play different strategic roles at different stages of a company’s development, and companies should have different focuses.

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Practicing Basic Skills

Practicing basic skills means building a complete corporate management system, as shown in the figure below. I hope everyone has an endgame perspective, understands what a complete corporate management system is, and then internalizes it step by step according to your current progress. How many people take time for deep strategic review? Look outward: what changes have occurred in the market, competition, and consumers; look inward: what you have done well and what can be improved. The annual budget can effectively help different departments, aligning sales, marketing, e-commerce, supply, and procurement. Convert to monthly and weekly plans, with product innovation, marketing, sales management, demand planning, supply chain management, and production scheduling all matched. The monthly operating meeting is also a very important meeting; it helps everyone put all company situations together for priority discussions, find real problems and tactical handles, and move forward together. This system may seem complex, but it is a gradual improvement process. Plan the annual P&L, strategic KPIs, and marketing chessboard in an orderly manner; determine the strategic roles and division of labor for regions and channels. Hold meetings with daily improvement: every meeting has decisions, everyone has consensus, everything has responses, and every matter has closure. This is the basic skill every enterprise must practice.

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The Practice of Crossing Cycles

Finally, some may ask: this year is so difficult, are there any companies doing well? Winona, a2, and Daily Fresh are three companies headquartered in Shanghai. They all grew over 40% in the first half of the year. Winona’s basic product is the soothing special care series. While the core hero product maintains high growth, it segments scenarios and starts making products like freeze-dried masks to promote repurchase and expand into new scenarios. From the basic aspects perspective, this year it not only did deep online channel work but also steadily expanded offline, becoming a top brand in the pharmacy channel. a2 milk powder actually has only two products: the China-labeled product and the Australia-labeled product. It has consolidated these two products very solidly, including reorganizing the daigou channel, RKA, and intensive cultivation in key provinces. The brand’s repositioning emphasizes differentiation from similar products, leverages supply chain advantages, and occupies consumer mindshare. This year, it has reached a new high in market share. In the first half of this year, the fresh milk industry faced significant challenges, but Daily Fresh still achieved 40% growth. It quickly seized the opportunity in community group buying in channels, turning crisis into opportunity. It was the first brand to fully expand community group buying, achieving terminal coverage to every group leader, capturing consumers’ stay-at-home scenarios, and establishing new habits. So finally, let me summarize today’s course: The practice of crossing cycles requires returning to true consumption. The change in the new consumption track is irreversible; today’s track must be people-oriented. Brands and consumers need to achieve a trinity of cognition, transaction, and relationship, truly realizing C-end creating demand and B-end connecting fulfillment. Today, true consumption requires a true model: do basic products well, consolidate basic aspects, practice basic skills, and thus establish a very solid basic foundation to survive. On this basis, further consider expanding categories, new engines, and internationalization. The way to practice true consumption is to have an endgame perspective, build the basic foundation, do the present things, and control the rhythm. I’ll end with a quote from Alice in Wonderland that I love: “You have to run as fast as you can just to stay in place.” In today’s era, if you want to reach the other shore, you must keep striving and move forward at double speed. Let’s encourage each other.

Source: Hundun Academy (ID: hundun-university) Instructor: Lu Xiuqiong, Global Expert Partner at Bain & Company Editor: Hundun Business Research Team Support: Hundun Frontier Course