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Author: Wang Yong (Dahai), Partner of Zhuoshi Capital / Well-known Consumer Investor If you want to invest in a brand, you should invest in a long-term one. Over a long cycle, you need to see through changes in these brands and sales, and then look at the substantive things in between. What remains unchanged, solidified, and precipitated is the inner strength. We divide brands into five stages: Stage 1: Channel-driven From the development of American and Chinese consumer brands: Many American consumer brands started in department store formats, and channel capability is particularly important, indicating that brands must have strong channel characteristics. Throughout the history of commerce, this is no exception. Chinese consumer brands basically started in supermarkets, such as P&G-type FMCG products. Supermarket and department store formats are both based on population concentration. The U.S. began urbanization around 1920. After urbanization, the first thing was to start department store formats when the population wasn't yet dense, and then within six years, supermarkets also began. But this created physical space constraints. When cities develop to a certain extent, it's difficult to expand carrying capacity. At this point, 'online' is needed to break through this barrier, such as third- and fourth-tier populations being brought back up through Pinduoduo. Population concentration determines channel characteristics, and channel characteristics determine brand characteristics, because there is channel dividend. Stage 2: From channels to traffic Traditional channel thinking gradually transforms into traffic thinking. Channels are essentially traffic. All e-commerce that just started gaining volume are traffic brands because they play traffic well. But traffic is divided into on-site and off-site traffic. On-site traffic includes Alibaba, JD.com, etc. Off-site traffic is fragmented; its reading, purchasing, and user management are split. Youzan achieved a relatively good combination, providing tools for merchants to convert customer traffic into actual purchases. But this tool is transitional; in the future, it must become integrated. How Youzan will survive then remains to be seen. Traffic must be converted into commercial value; one way is advertising revenue, another is real-time transactions. Toutiao is constantly trying real-time transactions. With such large traffic, plus commercialization of resources, plus channels, it will almost certainly become the third pole of Chinese e-commerce in the future. In recent years, many channel brands have been killed by traffic brands. But while traffic brands kill them, they also create many opportunities. Still taking the beauty industry as an example: originally, people's needs in beauty might have been only one category. But now, 1,200 categories is easy. However, online cosmetics brands now typically have a 3-6 month life cycle, which is normal. Because without traffic, the brand dies. Surviving three years is considered good, and those that can steadily rise are rare. But even if a brand survives three years, it doesn't mean it has long-term viability. It may still lack a genuine system that can produce product strength. Group photo at dinner Stage 3: Interactive brands For example, Perfect Diary is an interactive brand. There's a company in Foshan making commercial appliances and kitchen equipment; for any customer purchase, they have customer service girls add them, and then turn a 1,500-yuan order into a 30,000-yuan order. They use a scattered brand strategy. There are many opportunities in various industries. Beyond beauty, many industries don't even know how to play traffic, let alone interactivity. After we invest, the first thing we do is have them poach talent from the beauty industry. After poaching, they come from high to low positions to tackle this. Because beauty is extremely sensitive to traffic, interactivity, and long-term user management, and is relatively mature. The beauty industry can raise China's commerce to a certain level, so the rise of domestic beauty brands is absolutely rapid. But many brands do interactivity well, yet the core is that they haven't solved their product problem. Interactivity can solve temporary problems, but not permanent ones. We need to wait until traffic is large, then do things with integrity, do things that precipitate. We talk about mainstream brands and major group brands worldwide, including P&G and Nestlé. Nestlé has 270 brands globally, P&G about 80. Their starting point is important; they caught the traffic dividend. But whether offline or online, once you get big, you can start building your own production system and R&D system. On the other hand, if you start purely as an R&D brand, that might also be problematic. For example, a certain brand in the cosmetics industry is a typical brand with strong R&D, but the core issue is it can't solve its traffic problem, unable to support operating costs. All these entities with real accumulation are costs—your R&D, production chain management, quality management—but if your sales aren't enough, you can't cover costs. And when this wave of interactive brands rises, it will bring the fourth stage. Stage 4: Product strength From abroad, there are many personality brands, i.e., family brands, and China will definitely have them in the future. But will Chinese brands pay attention to supply chains and product R&D? Most internet celebrities don't have this capability, so up to now, most of our internet celebrities are breakthrough internet celebrities, not product internet celebrities. Product strength itself is currently the biggest weakness of all e-commerce enterprises, especially internet celebrity brands. Still taking cosmetics as an example: the highest gold content in cosmetics is cosmeceuticals. Any cosmeceutical company needs to give 30% of revenue to R&D. Japan's cosmeceuticals account for about 60% of the entire cosmetics market, but in China it's only about 5%. Up to now, China's beauty industry has almost no enterprise-level national laboratories; most traffic brands have weak product strength, only doing well in marketing and traffic. The aesthetics and design sense of beauty brands are things we need to look at long-term; they are the door opener. But the core is still product strength; product strength is the true cornerstone for building repurchase and social dissemination. China's cosmeceuticals only have seven brands like Lipoptide, Winona, and Peking Union Medical College Hospital, which have laboratories. Only two of them are marketized, but look at the marketized ones; their growth is sustainable. Product strength is the most important factor that can penetrate cycles. When we look at brands now, we all look at factories. Do you have your own factory? If you have your own factory, OK, extra points; if you don't, but your quality control personnel are particularly strong, that's also fine. As long as you find a good product and a demanding founder, we can help with the rest. We find the best MC agencies; we've already invested in traffic sides, find the best leading team, and directly support them. Stage 5: Customer lifetime value management Every time Alibaba releases a report, we study it in detail and then train internally. This year, Bain & Company's report highlighted customer lifetime management, connecting the entire chain from seeding new brands and new SKUs, to launch, to user usage, to user feedback, to repurchase. I feel that before 2017, everyone knew you couldn't build a brand without offline. But I clearly felt that after 2017, Alibaba's business system was sufficient to abandon offline, completely online, forming a good closed loop. Especially their shift from selling goods to 'thousand people, thousand faces'. Thousand people, thousand faces is just a transition, from goods to people. But when they proposed customer lifetime value management this year, it has completely shifted to focusing on people. In terms of user management tools provided by platforms, Alibaba has the most complete. Of course, many of Alibaba's tools may not work well; they need to further shift from the logic of selling goods to lifetime management. When we invest in brands now, we look backwards. First, which brand places more importance on customer lifetime value management. This is extremely important. Why? Because soon the cost of marketing and traffic acquisition on every platform will rise sharply. Now Douyin has dividends, live streaming has dividends, because the platform supports it. If the platform doesn't support it, costs will immediately triple. Within a year, costs triple; Toutiao's revenue is now tripling in a year. How do you cope with this tripling of traffic? So consumer brands walking this path are all walking on a knife's edge. Brands need to make products well in a very short time, expand the number of SKUs, and also build their own private traffic pool. Private traffic pools are on WeChat and Toutiao, but Toutiao will definitely charge for commercialization in the future. Now we see 2D clothing; its traffic entry points are all on Toutiao. Toutiao will restrict content that is both content and advertising, and will soon charge. So your users are the only resource you can mine. Source: Fan Retail Community (ID: fanlingshouer)