Click the image above for details Recently, news of its approved listing spread, and because the gross margin of its packaged water series reached an astonishing 60.2%, the classic advertising slogan gained a new version online: "We don't produce water; we're just nature's 'money printer'." Amid the jokes, many curious netizens discovered that Nongfu Spring's marketing expenses were also staggering, given how deeply the slogan resonated. According to the prospectus, the company's advertising and promotion expenses from 2017 to 2019 were 982 million yuan, 1.234 billion yuan, and 1.219 billion yuan, respectively. In contrast to the hefty marketing investment, the company's spending on product R&D was rather negligible—R&D expenses for 2017 to 2019 were 47 million yuan, 107 million yuan, and 115 million yuan, accounting for 0.27%, 0.52%, and 0.48% of total revenue, respectively. The huge disparity in Nongfu Spring's resource allocation between product and marketing has once again sparked a heated discussion on the old topic: "Which is more important, product or marketing?" Some argue that even 90-point marketing cannot support a 60-point product; only with a sufficiently good product can appropriate marketing achieve twice the result with half the effort. Others believe that Nongfu Spring's success in going viral through marketing and reaching the brink of listing demonstrates the importance of innovative marketing. Nongfu Spring's sparkling water endorsed by Liu Yuxin, Yu Shuxin, and Xie Keyin -01- Is taste really the only determinant of reputation? Liu Xi, an office worker in a second-tier city in the southwest, spends her spare time watching variety shows. Since watching "Youth With You 2," she became a fan of several contestants and enthusiastically voted for them, maintaining that enthusiasm even after the group debuted. "Nongfu Spring's new sparkling water is endorsed by Liu Yuxin, Yu Shuxin, and Xie Keyin. To support them, I bought a few boxes to try," Liu Xi said. In her view, although the sparkling water's packaging was aesthetically pleasing, the taste was somewhat hard to describe: "It mainly depends on personal preference, but I think none of the three flavors taste good."
Consumers with similar feelings to Liu Xi posted their reviews online: "Nongfu Spring's new TOT sparkling water is like a mix of Tea π and sparkling water, which insults Tea π; the tea and sparkling water flavors clash, so they might as well have made fruit-flavored sparkling water." "Nongfu Spring's new TOT sparkling water—my fault for not reading carefully; it's not zero-calorie, and under the guise of a fresh and transparent look, it has as many calories as cola, and it's super hard to drink. After drinking it, I felt awful, with a mouthful of white sugar taste." Despite such voices, on platforms like Weibo, Zhihu, and Xiaohongshu, more consumers are shouting slogans like "The packaging is so thoughtful," "Just looking at this beauty, I can drink three bottles," and "I'll definitely buy whatever Teacher Liu recommends," placing orders one after another to try the new product. Many consumers pay for TOT's appearance Clearly, taste is not the sole driver of consumer behavior. This suits Nongfu Spring perfectly, as it excels at linking different products with different IPs and scenarios, thereby imbuing products and brands with elements like fashion, sentiment, health, and benefit. Over the long term, most of its products have gained widespread consumer attention through this approach. Nongfu Spring's vitamin water, also in the soft drink sector, followed a similar path. To increase product exposure, vitamin water sponsored the phenomenal IPs "Idol Producer" and "The Rap of China," leveraging the shows' immense popularity to successfully ignite discussions. A more comprehensive example is Nongfu Spring's core product, purified water. Its slogans evolved from "Nongfu Spring is a little sweet" to "We don't produce water; we're just nature's porters" and then to "What kind of water source nurtures what kind of life," all consistently conveying brand philosophy to consumers to establish a "healthy" and "all-natural" brand image. The associated advertising forms are diverse, including print ads, micro-films, celebrity endorsements, sports marketing, variety show placements, and even media factory tours that have continued for years. "Nongfu Spring was among the first brands to conduct such activities. During factory tours, visiting media could see how their equipment processes water, and showcasing the production environment deepened consumer awareness of the brand," said Cao Yihong (pseudonym), a veteran media person who was once invited to visit Nongfu Spring's factory. He told Zinc Scale that the online environment back then was not as open as it is now, and the most obvious benefit of such activities was conveying more effective information about the brand to the outside world. These effective marketing methods were crucial for Nongfu Spring's early brand building and its later rise to the top of the drinking water industry. -02- Why is the NFC high-end upgrade unsuitable for the domestic market? "In the era when Wahaha dominated with celebrity ads, Nongfu Spring used water sources as an entry point for 'most fundamental' promotion. That was a good breakthrough, and their current market share proves the strategy's correctness," Andy, marketing director of an internationally renowned food brand, told Zinc Scale. He added that product competition is no longer limited to this. Relevant data shows that by retail sales, the packaged drinking water market reached 201.7 billion yuan in 2019. Although the market continues to expand and Nongfu Spring holds the top position in the water beverage industry, competitors are closing in. Not to mention Yili, which cross-industry launched the mineral water brand "nikin Yike Huoquan"; Lotte, which entered the drinking water fray with lava water; and Nestlé, which introduced its high-end brand Acqua Panna to China. Even counting established competitors like Evian, C'estbon, Wahaha, and Master Kong, the drinking water track is already crowded with FMCG giants. Nongfu Spring's recent development focus in the beverage sector is also not optimistic. Consumer goods industry consultant Shen Boyuan said, "Functional drinks, tea drinks, and juice markets are all areas where major companies are deploying, and competition is intensifying." In such a fiercely competitive landscape, a harsh reality is that these competitors have long mastered Nongfu Spring's marketing tactics, and some brands are even ahead of Nongfu Spring. "The recent major trend in the beverage industry is that all brands, including the big brother Nongfu Spring, are imitating Genki Forest in making soda sparkling water," Andy told Zinc Scale. While other tea beverages were still playing games with low sugar, flavors, and packaging, Genki Forest's launch of the soda sparkling water category was indeed a significant highlight. Genki Forest sponsored the variety show "Yuan Qi Man Man De Ge Ge" Regarding the trend-following by major brands, Andy also admitted that this is similar to previous efforts in packaging innovation, health concepts, zero fat, and sugar-free claims, which are effective promotional activities for professionals. "Factors such as technological innovation, novel packaging, good taste, and health concepts all drive consumer purchasing behavior." Following trends to launch similar products and adopting similar marketing models is actually the industry trend since Nongfu Spring became famous through marketing. For example, in the juice segment, there was a wave of NFC (not-from-concentrate) products, which attracted many brands to enter, but most fizzled out after a brief surge. "Nongfu Spring also has this product line, but due to high prices, it cannot achieve volume sales in conventional CVS (convenience store) channels." Andy further explained, "New higher-level upgrades are difficult in China because fresh-squeezed fruit teas and fruits are easily accessible and relatively cheap." Thus, after a round of NFC high-end upgrades, the juice market has essentially returned to the dominance of Weiquan. Based on this, Andy stated that even for the currently popular sparkling water, if related brands' products lack particularly compelling points, even if they go viral, they will only be popular for a while and eventually decline. "What consumers ultimately recognize is packaging and taste. For example, health is just a psychological expectation; in reality, the ingredients list shows sugar and flavorings." -03- How long can the shortcut of heavy marketing and light R&D last? Undoubtedly, the marketing wave led by Nongfu Spring has swept the entire beverage industry and is regarded as a benchmark by countless new and old brands. However, it is noteworthy that after Nongfu Spring's prospectus was disclosed, the huge gap in resource allocation between marketing and product has raised market concerns. As Andy said, "All marketing is based on the product itself; otherwise, even if it becomes popular for a while, it cannot last long." This aligns with the views of many industry insiders: "A development model that solely focuses on marketing cannot bring long-term development to a company. If a product's success is driven by marketing rather than R&D, it will eventually reap what it sows." Their concerns are not unfounded. Take Nongfu Spring's old rival Wahaha as an example. It once dominated the beverage industry through marketing-driven growth, but unfortunately, after 2012, this FMCG giant's performance declined continuously. The reason is not unrelated to its early development strategy of emphasizing marketing over R&D. "Wahaha placed great emphasis on marketing in previous years, especially in 2013 when the company invested heavily in this area. However, since 2016, the company has undergone an overall strategic transformation and has not continued to spend heavily on marketing," a relevant person from Wahaha's advertising department once said. Unfortunately, even so, Wahaha has never regained its former glory. Moreover, brands like Genki Forest have come from behind, entering the market with new brand forms and using the marketing tactics Nongfu Spring excels at to compete for market share. On closer inspection, the early development paths of Genki Forest and Nongfu Spring are strikingly similar. Zhu Danpeng, a researcher at the China Brand Research Institute, analyzed that from a deeper perspective, "Focusing on product R&D and driving sales through improved products and brand strength is the way to truly go far." According to the prospectus, the funds raised from Nongfu Spring's Hong Kong listing will be used for continuous brand building, steadily improving distribution breadth and per-store sales, further expanding production capacity, increasing investment in basic capability construction, and exploring overseas market opportunities. It is evident that whether due to the overall business environment and competitors characterized by product homogeneity, similar pricing strategies, and similar marketing methods, or Nongfu Spring itself, which has been persistently focused on marketing and innovative in marketing since its inception, it is imperative for the company to introduce new things after listing. Source: Zinc Scale (ID: znkedu); Author: Shunzi