In business, BESUNHEN is a good marketing case, once using functional promotional gimmicks to rise rapidly and grow wildly, but ultimately had to suffer the consequences. This article is about 2991 words | It takes about 4 minutes to read "Give your intestines a quick bath." Remember this ad that long dominated buses? Recently, BESUNHEN, the leading Chinese health functional tea company, released its 2016 results: revenue of 514.70 million yuan, down 22.3% year-on-year. Net profit attributable to listed company shareholders was a loss of 68.70 million yuan, down 174% year-on-year. For 17 years, BESUNHEN relied on its weight-loss tea and regular laxative tea for nearly 80% of total revenue, transforming from an obscure small tea company into a famous listed company, and then experiencing a cliff-like sales decline. BESUNHEN is now embroiled in renaming and production suspension issues, and with years of accumulated problems, in the painful transition of extensive health supplements, how much further can the advertising-driven BESUNHEN go? ▲BESUNHEN founder Zhao Yihong Two Bags of Tea, Selling a Listed Company Can't Chinese people do well with tea bags? Zhao Yihong didn't believe that. As the founder of BESUNHEN, he certainly won't forget Beijing 17 years ago. In 2000, Zhao Yihong ended his ten-year beverage sales career and settled in the suburbs of Fangshan, Beijing. There, he established Aoteshu'er Company and created the "BESUNHEN" brand, ready to make a big move, aiming to become China's Lipton or Nestlé. Initially, BESUNHEN was obscure, with almost no sales network. To do FMCG, and in the stage of product trial and market education, continuous investment in equipment and factory expansion was needed to achieve economies of scale. So, BESUNHEN was in a loss state. Tea bags, like instant coffee and instant noodles, were a new consumption habit at the time. Within a few years, BESUNHEN's sales network gradually improved, and the brand became increasingly famous. Production lines couldn't keep up, so Zhao Yihong began seeking insurance capital help. After GGV Capital injected $15 million, BESUNHEN imported world-class automatic tea bag packaging machines from Italy. But Zhao Yihong gradually had doubts: no matter how advanced the production machinery, it could be bought with money, but the true core value of the product is its functionality and brand differentiation. So, Zhao Yihong set his sights on "health tea." With GGV Capital's introduction, Zhao Yihong found phytochemistry PhD Cai Ya and his team, and with them as the core, established the BESUNHEN R&D center, developing two major products: weight-loss tea and regular laxative tea. Having products alone wasn't enough; the market is the ultimate test. BESUNHEN found a shortcut. In 2007, BESUNHEN invested 50 million yuan in advertising, sold 146 million tea bags, and achieved revenue of 160 million yuan. Tasting success, BESUNHEN invested 120 million yuan in advertising in 2008, doubling both sales volume and revenue. At that time, TV and buses were full of BESUNHEN's brainwashing ads. In 2009, BESUNHEN's sales growth reached 99.1%. To go faster, BESUNHEN struck while the iron was hot, registering a company in the Cayman Islands, then successfully listing on the Hong Kong Stock Exchange, becoming the first mainland health tea stock. After listing, BESUNHEN raised 1.3 billion yuan. Apart from repaying debts, more was invested in production lines. By 2010, BESUNHEN had nearly 500 distributors and 130,000 retail stores, with the "two bags of tea" placed at entrances of supermarkets and pharmacies nationwide, selling 800 million yuan that year alone. Zhao Yihong once said: "In the past fourteen years (referring to 2000 to 2014), BESUNHEN only did one thing: sold two bags of tea, one is BESUNHEN weight-loss tea, the other is BESUNHEN regular laxative tea, selling 3 billion bags, 4.5 billion yuan." ▲BESUNHEN ads from back then often appeared on buses Obvious Speculation, Bubbles Under the Ads Actually, besides Zhao Yihong, BESUNHEN had ten other founding partners. Several were responsible for financial management, and the rest were marketing veterans who understood one principle: the key to success in FMCG and health tea industries is marketing. BESUNHEN even admitted in its prospectus: "The increasing market share of BESUNHEN regular laxative tea and BESUNHEN weight-loss tea proves the effectiveness of our marketing and advertising, and we regard advertising as an investment to drive future sales and profitability growth." "Give your intestines a quick bath." "Don't be too thin!" These two slogans bombarded the public's ears no less than "Gifts only for Brain Platinum." However, after several years of glory on ads, BESUNHEN finally spent its way into trouble. Financial reports show that from 2007 to the first half of 2011, BESUNHEN spent a total of 780 million yuan on advertising, accounting for 30% of revenue, with an increasing trend year by year. Because of the large spending, BESUNHEN also became the only product-based enterprise at the 43rd World Advertising Congress. Success is due to one factor, failure is also due to that factor. BESUNHEN's approach of relying on advertising to stimulate sales peaked around 2010, with net profit showing a declining trend. The public gradually showed "ad fatigue" towards BESUNHEN ads, and from 2011 for three consecutive years, losses ranged from 40 million yuan to 342 million yuan. It's not hard to see that BESUNHEN is a typical purely advertising-driven product. The shortcomings are obvious: marketing expenses approach overall revenue, lack of core R&D capabilities, and besides the products with overwhelming hype, the rest is just bubbles. Years ago, there was also a health tea called "Zangmi Paiyou" that was popular for a while, with the slogan "Clears stool, lowers blood lipids, reduces weight, quickly flattens the belly" also seemed familiar. Actually, "Zangmi Paiyou" was just a rebranded outdated brand. With Guo Degang as the spokesperson and packaging with fictional Tibetan culture, it easily achieved sales exceeding 100 million yuan in just one year. But soon, due to false advertising, "Zangmi Paiyou" disappeared from the market. Over time, the story behind it surfaced: the manufacturer of "Zangmi Paiyou" was none other than Aoteshu'er Company, which Zhao Yihong founded in Beijing. Thus, Zhao Yihong's speculative desire for products is very obvious, and BESUNHEN's approach is purely commercial and utilitarian. ▲At the 2007 CCTV "3.15" show, the false advertising of Zangmi Paiyou was exposed, and spokesperson Guo Degang was pushed to the forefront, with people cursing him for deceiving customers BESUNHEN Is Just a Profitable Laxative As early as 2004, BESUNHEN obtained the "Blue Hat" (the health food mark approved by the State Food and Drug Administration) and has always used the "weight loss" and "health" labels. In JD.com's "weight loss" health supplement ranking, BESUNHEN ranks first in sales, and on Tmall it ranks third. Although sales appear booming on the surface, the product's value and competitiveness are questionable. Under the fame, there are various criticisms. It is understood that the main ingredients of BESUNHEN weight-loss tea include: green tea, honeysuckle, cassia seed, senna leaf, and hawthorn, among other common Chinese herbs. The ingredients of BESUNHEN regular laxative tea are similar, with functional components mainly tea polyphenols and total flavonoids. Checking the pharmacopoeia, taking senna leaf as an example, it can promote bowel movements, but in severe cases can cause diarrhea. Cassia seed is also potent; long-term consumption by women can cause irregular menstruation at best, and endometrial damage at worst. Some people have reported, "Even the color of my period is abnormal." BESUNHEN sacrifices long-term health for short-term weight loss effects. Additionally, what's astonishing is that BESUNHEN's gross margin reached as high as 90%. Taking 2009 as an example, raw material costs were 20 million yuan, and that year sales volume was 466 million bags, with an average cost per bag of 0.04 yuan. As sales scale increased, BESUNHEN's bargaining power with suppliers improved, and the raw material cost per tea bag was far less than 0.1 yuan. In the market, BESUNHEN weight-loss tea sells for 45 yuan for 25 bags, and regular laxative tea sells for 53 yuan, with an average price of about 2 yuan per bag, yielding a profit of nearly 20 times. It's clearly a lucrative business. Since Zhao Yihong started the business, BESUNHEN has mainly launched only two and a half products: besides regular laxative tea and weight-loss tea, the half is the upcoming BESUNHEN Meian Granules. Zhao Yihong's business logic is to do things one at a time, but the reality of doing one at a time is that BESUNHEN relies too heavily on a single product. Furthermore, historical financial reports show that BESUNHEN's R&D investment is pitifully small. There was no such expense in 2007, and from 2008 it was only 0.2%, compared to marketing expenses, one is underground, the other is in the sky. The era where large-scale advertising could conquer the market is gone. Now there are many health supplements under the "weight loss" banner, BESUNHEN's brand is aging, and market space is narrowing. Renaming Turmoil, Is BESUNHEN the Next to Fall Adding insult to injury, for BESUNHEN, 2016 was another tough year. In February 2016, the Food and Drug Administration issued the "Announcement on Matters Concerning the Naming of Health Foods." According to regulations, from May 1, 2016, health product names must not contain functional promotional words. So, BESUNHEN weight-loss tea has been in a state of production suspension until now. After two applications, "BESUNHEN Brand Weight-Loss Tea" had to be renamed to "BESUNHEN Brand Changjing Tea." It is reported that BESUNHEN weight-loss tea accounted for 42.5% of the group's total revenue in the first half of 2016, and the removal of the "weight loss" words dealt a heavy blow. Recently, BESUNHEN's 2016 annual report showed revenue of 514 million yuan, down 22.3% year-on-year; net profit loss of 68.71 million yuan, down 174.4% year-on-year. To recover losses, BESUNHEN had to label new products with "formerly BESUNHEN weight-loss tea," and its e-commerce platform emphasized: despite the name change, the efficacy remains unchanged. In business, BESUNHEN is a good marketing case, once using functional promotional gimmicks to rise rapidly and grow wildly, but ultimately had to suffer the consequences. BESUNHEN, Qumei, Lüshou, L-carnitine, the vacant weight loss market is like an "unruly world," with a variety of products following one after another. As an advertising-driven product, like a person determined to lose weight, it's hard to persist. China has surpassed the United States to become the world's largest obese country, with a 100-billion-yuan weight loss market "warring among lords." BESUNHEN, entering the field with illness, could easily stumble and be trampled under iron horses, disappearing into the bottomless pit of the health supplement market. -END-