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Recently, everyone talks about the decline of FMCG giants in relation to consumption upgrades and the internet. Why did consumption upgrades and the internet kill these brands? In fact, it wasn't the internet that killed them; the internet just exposed the problems. What truly brought down these giants is that they lost the ability to meet user needs. The content shared today by Denny Liu, founder of LePurui Yogurt, illustrates this point well.
Every friend engaged in FMCG should watch the video below carefully. Video source: Zhen Yi Zhan, text organized below. ▲Denny Liu, founder of LePurui Yogurt, graduated from the Wharton School of the University of Pennsylvania with a degree in finance. He worked at Blackstone Group, the world's largest private equity firm, and returned to China in 2011. He served as the head of brand marketing at Dianping, and during that time, he was also a special consultant for PepsiCo China, Lenovo, and other Fortune 500 consumer companies. Returned Entrepreneur Starts Twice, Insists on Healthy and High-Quality Yogurt Denny started his first venture in 2011, a local life service project similar to a mid-to-high-end Dianping. After a year and a half, he joined Dianping as the head of brand marketing. In July 2014, when Dianping was facing a transformation period, Denny learned about the problems facing the entire consumer goods industry. "At that time, I was thinking about how to put into practice my accumulated experience related to the internet, traditional FMCG, and modern FMCG company operations." For big companies like Pepsi, Denny could only change superficial things, not the company's organizational structure. From that point, he started LePurui. Health and high quality were the principles when selecting the product category, so they chose yogurt, a very good product category. In Sanlitun, Beijing, LePurui opened its first offline brand store, which served as both its storefront and production base. In one year of entrepreneurship, from 1 million yuan in startup capital, they now have the only fully automated factory in China that produces whey-filtered yogurt. From Beijing to the whole country, they now deliver to over 90 cities. With warehouses and branches in 6 cities, LePurui has developed very rapidly. Due to rich internet experience, LePurui focused on online sales from the beginning, and to this day, online channels still account for the majority. Starting this year, LePurui will gradually enter some offline channels that are well-recognized, including top hotels, high-end dining, gyms, and convenience stores like 7-Eleven and FamilyMart that cater to white-collar workers. The following is the content of the video: Facing declining sales in traditional FMCG companies, some say: "The internet and e-commerce killed traditional big brands." Others say: "In the era of 'consumption upgrade,' customers are becoming more rational, so traditional marketing models are no longer applicable." Still others say: "Customers' desire for the new and dislike of the old has led traditional brands downhill." But contrary to the overall market slump, a group of new "internet consumer goods brands" is rising against the trend. They rely on e-commerce channels for sales and use social media sharing for promotion. However, when many traditional companies also start to enter e-commerce channels and invest in online marketing, they find that copying the same approach does not yield the expected results. Denny, founder and CEO of LePurui, believes that the main reason for the failure of traditional FMCG companies is that their organizational structure can no longer effectively understand and meet consumer needs. The future FMCG company structure should be a flexible one that stimulates the core consumer group, reflects consumer needs in products, and promotes spontaneous sharing. The core competitiveness of excellent FMCG companies should be the ability to operate products and consumers. Current Situation and Future Trends of the Consumer Goods Market under Consumption Upgrade We chose a category—yogurt. When selecting the category, there were two important considerations. First, it must be a healthy consumption, which filters out many products. Second, it must be very high-frequency, so high that it is a refill product; that is, when it runs out, you need to continuously refill (repurchase). Products that meet these two characteristics, especially the second, have the potential to become user-driven models, meaning you can bypass channel dependence in terms of business logic or user experience. In the internet world, we say that the lower the frequency, the higher the dependence on channels; the higher the frequency, the lower the dependence on brands. This is a basic business logic. Yogurt is currently the most competitive industry in China's food market. You can see all the giants spending heavily on advertising, and yogurt is where they spend the most. It is also the fastest-growing category in the past five years, the only one with double-digit percentage growth, so that is one of its advantages. At this point, you have to think about where your differentiation lies when competing with these giants. In essence, LePurui's operating system is completely different. Even if you make the exact same product as me today, I will still differ from you in the operating system. This allows me to have some competitiveness in the final user-perceived price, quality, and freshness. These were some of the thoughts at the time. We give our products a cost budget far exceeding that of competitors. Our cost per box of yogurt is basically 5 to 6 yuan, while many yogurts retail for only 5 to 6 yuan. Even if Mengniu and Yili could achieve the first and second points, they would find it difficult to allocate such a large budget. But to support this budget, you need your entire cost structure to support it. Because in retail channels and mass distribution channels, if your BOM is 6 yuan, you have to sell it for at least 20 yuan. You can't sell it for 15 yuan; it's impossible. So selling at 15 yuan and still making a profit is challenging. The challenge ultimately comes back to your operating system and organizational structure. So what I think about most is: if you are essentially an FMCG company, what is your core operating system, and where are its replicability and scalability? That is the question I think about most. In fact, the core of the entire company is to build your core operating system. If your product becomes less popular after a few years, it might be another product that becomes popular. If you rely solely on the product, it is definitely a single thing. If your core competitiveness is more competitive than Mengniu, Yili, Guangming, and Master Kong, and they can't copy it, then it's the organizational structure I mentioned earlier, because organizational structure is the hardest thing to adjust. What killed the big brands? The answer is neither the internet nor so-called brand marketing. My answer here is the ability to meet user needs. At this point in time, everyone is talking about so-called consumption upgrades. The so-called ability to meet user needs means you can continuously meet new user needs, as users have more and more choices. Some consumer goods companies that do well, like Uni-President, launch new products very quickly, and consumers' emotional needs are increasing. Why were Uni-President, Master Kong, and even Mengniu so successful in that era? People needed a big brand, which represented safety and security. But now people don't care about big brands. What they need more might be: this reflects my identity, this gives me a strong sense of security, which Mengniu cannot provide. Some also want to show off, etc. These are emotional needs of consumers. The third point is the iteration speed, which is also very, very fast. If you look at Japan's entire consumer goods market, you can understand that China can reach that state in the next five to ten years, with very fast iteration speed. In fact, I think FMCG is very similar to fast fashion companies; they face the same market. So in terms of internal company operations, including how to do promotion and branding, there is much to learn from each other. You see, Coca-Cola has similar departments. Coca-Cola has IT, supply chain, logistics, and customer service, but all serve the channel. We believe that for sustainable development, where does your competitive advantage come from when competing with other big companies? Our view is that it comes from what we are refining. And any company that wants to copy this would need to undergo a major overhaul. I have always held the view that in the future, a brand group company like Pepsi will have its core competitiveness in its ability to simultaneously operate dozens or even hundreds of niche brands. First, niche brands are highly competitive. My judgment is that in the future, cases like Wanglaoji, where a single SKU can generate 30 billion yuan a year, will be very rare, and even rarer for entrepreneurs. But a brand in a category generating several billion yuan is very reasonable. At that point, your scale effect truly comes from being able to operate 10 brands with 5 billion yuan each. And each brand is more competitive than mass brands because it targets a very specific group of people. From brand positioning to packaging, pricing, and communication strategy, everything is tailored to this group, so it must be more competitive. How to Combine Consumer Operations to Create Products and Brands with a Sense of Participation When doing product development, we also start from our large user base. When we talk about the user base, we divide it into 1%-9%-90% segments. The 1% are what internet people call UGC users; they are content creators. They have extremely strong creativity. They can work with you to develop a formula, help you take many photos, and may even write articles themselves. Then the 9% are sharing users. They may not participate in creating things, but if you make something delicious, they will share it on their Moments; if you produce good content, they will also share it. The 90% at the bottom of the pyramid are your true paying customers. They never participate, never get involved, and never share. They are aloof, but they keep buying. In this gradient, you'll find that the 90% are influenced by the 9%, and the 9% are influenced by the 1%. In the 1%-9%-90% model, you'll see it exists in multiple gradients. You first attract the top 1% of users, and they participate in your R&D. In fact, this group will spread to the 9%. The 1% group cannot directly talk to the 90% because the 90% simply don't understand what they are saying. But the 9% can understand a bit, or at least they respect these people. But the problem is that the 9% understand, and they will say the brand's design is very good. They will tell others in their own language, and when they pass it on to the 90%, it becomes "this thing is really good." What you need to do at the company level is to assign different tasks to the 1%, 9%, and 90% people, because their contributions to you are different. In the past, when you did traditional advertising, you definitely couldn't reach the 1% and 9% because they have strong cognitive abilities. Many times people talk about consumption upgrades and think that new consumers have strong cognitive abilities. I don't think that's the case. Only some of the 1% and 9% have strong cognitive abilities. The 90% still don't make purchasing decisions based on strong cognition. But even the 90% now hate being pushed. So whether it's big brands or startups, what they are doing is how to pull these people. From a brand perspective, you need to start designing. Previously, people didn't think about this from a Design Thinking perspective. How do you design the user experience suitable for the 1%? How do you design it for the 9%? Why do they share when they share? There are only two types of things people share on their Moments: first, showing superiority, whether intellectual or lifestyle superiority. Second, a strong sense of identity. For example, if I share something about Li Zongsheng, it's because I feel that Li Zongsheng and what he represents reflect my values and identity. In fact, these are the two main things. For the 9% sharers, you need to design for this. For the 90%, you need to design what factors influence their purchasing decisions. This information we actually gather from the 90%, 9%, and 1% people to find a common point. We can't just extract something only the 1% understand; we need to extract a common need that resonates with the 90%. But we will break down this common point, and the message conveyed to the 1%, 9%, and 90% will be relatively different. When the 9% share, they are actually outputting a value they strongly identify with. They will say, "I have watched this brand grow up." How to Build an Organizational Structure that Quickly Responds to Consumer Needs Your product needs to have strong transmissibility and quality, etc. At this point, the first question you need to ask yourself is: How do I meet user needs? User needs are constantly changing; how do I continuously meet them? To answer this question, you need to take a step back and think about how to build a flexible supply chain. It includes three links: First, there is a small group of consumers in the market, a niche group, with some new needs. Can you quickly collect these new needs?
Second, can you quickly convert these new needs into products?
Third, can you quickly and accurately push the new products that meet new needs to the users who have those needs? So this pull, conversion, and push is the so-called flexible supply chain. For a brand, you can create value for users through two things: products or content. When we talk about supply chain, it's not just about brand and products, but also brand and content. How to quickly pull and push is how to build a flexible supply chain. When you answer how to build a flexible supply chain, take a step back: how to build a user-driven organizational structure. Your organizational structure is the main support for your entire flexible supply chain. If you look carefully at the difference between Metersbonwe and ZARA in the past five years, the root lies in the organizational structure. Is your organizational structure driven from the top down, or from the bottom up by users? People talk about UGC and say that experts come from the people. From the perspective of content entrepreneurs, how to build a truly user-driven organizational structure that supports a very flexible supply chain, very fast pull, conversion, and push, so that you can meet user needs and create good products. This itself has strong marketing attributes. Then you can see that the biggest difficulty for FMCG companies is that they cannot achieve this because their data collection is very inefficient. Traditional companies rely on channels for 80% of their business, and their data is very imprecise. For FMCG, terminal data comes from Nielsen and channel data. Channel data is first delayed and second inaccurate. They cannot directly receive real-time user data like Xiaomi and Inke. Then the conversion cycle depends on whether you are a domestic or foreign company. For large MNCs, it's longer, generally 24 to 36 months. Domestic companies basically control it at around 12 months. This cycle is very, very slow. At LePurui, we hope to have an iteration cycle every 2 weeks. We want to optimize our products more quickly. Then in the final push step, you find that your business depends on channels. Because channels are a mass market thing, you cannot accurately push to a specific person. This may cause you to incur many additional costs in the push step. These are the three links. This is what we call a traditional product-driven company, that is, a traditional FMCG or B2C company. Its organizational structure is divided into three major modules: R&D is your product department, then you have marketing, and then sales. The general process is that the R&D department has an 18 to 36-month cycle to develop a new product. Then within marketing, there are further divisions: some are responsible for brand, some for promotion. In an FMCG company, these three departments are relatively very independent. Some are even directly managed by headquarters, and marketing and sales have different organizational structures in different categories, meaning these two are not connected. But if you look at Xiaomi's case, it goes from R&D to product to technology to promotion in one line. LePurui's organizational structure is divided into these five parts. This is LePurui's organizational structure. In the next five to ten years, I can clearly see that changes in the organizational structure and operation methods of Chinese enterprises will bring about a new batch of food and consumer goods companies, which will be very different from previous brand companies like P&G, Nestlé, and Coca-Cola. These domestic companies can bring world-class quality products, like LePurui, making Chinese people proud. Generally, traditional FMCG companies have product, brand, and promotion departments, and also CRM, which is equivalent to sales. We are very similar to two types of companies: first, community companies like Douban; IDG people say we are essentially an online game company. I just want to acquire users at the lowest possible CAC (customer acquisition cost), and then maximize their LTV and ARPU (lifetime value). After pulling users in, you need to squeeze all their value and make them keep buying. Increase retention and repurchase rates, and have them buy various new products, monthly subscriptions, annual subscriptions, etc. This has nothing to do with the product. This is what we are constantly refining; it is the core operating system. Just like for Pepsi, R&D-marketing-sales is its core operating system, which has no direct relationship with the product itself. Whether I make soda today or potato chips tomorrow, it's all the same core operating system. So you need to think from three angles: product, content, and helping users connect. How do you have an underlying architecture that supports a good supply chain, supports your user needs, and then good products lead to good dissemination, rather than thinking from the top down. So you see that LePurui's so-called good cases are because we can respond quickly. How to Combine Consumer Operations to Create Products and Brands with a Sense of Participation The user-centric rapid iteration model has had a profound impact on organizational structure, so much so that I believe the next generation of consumer goods companies will change here. Traditional FMCG companies all have product, marketing, and sales departments. The product department develops the product and then throws it to the marketing department for advertising and the sales department for channel distribution, and basically doesn't care about it anymore. We are now trying to mix the three together, centering on the user, integrating product development into sales channels, and relying more on word-of-mouth for marketing. Why rely on word-of-mouth? Because times are changing. The power of word-of-mouth, realized through a thumb tap to forward, is more effective than any billboard or TV ad. I divide all brand consumers into a pyramid-shaped ladder. From top to bottom, the top 1% are content creators, the die-hard fans who support and pay for crowdfunding. The 9% are transmitters. They may not be very active, but they will participate in spreading. The remaining 90% will never participate, no matter how good the planning is. This model has never changed throughout history. In the last century, the 1% were the company itself, the 9% were the media. The company created content, the media was responsible for spreading, and the 90% started consuming. We want the 1% to participate in the creation of the entire content, including yogurt making and copywriting, and let them spread word-of-mouth for us, like ripples on water spreading layer by layer. This quality is far better than relying on traditional advertising, especially in China's dairy industry, which is riddled with word-of-mouth problems. Although Mengniu and Yili are rich and have advanced equipment, good supervision, government endorsement, and overwhelming advertising and channels, the trust lost in the minds of the middle class is hard to regain. In the early days, I would rather buy a generic New Zealand dairy product than drink Mengniu or Yili. You see, Angelababy's milk ad might not make you want to buy even after 50 views, but if your best friend recommends it, you'll definitely be tempted. That's the power of word-of-mouth. More and more food companies think we do good promotion, including Mengniu, Yili, and Modern Dairy, who have come to learn from us. But frankly, it's hard to change the minds of middle and senior managers in their 40s and above. It might take three to five years for them to understand what a user cloud is. Unless they overhaul their organizational structure and replace key people, we are playing two completely different games. And that is what I think is LePurui's competitiveness. I have another view: future food companies will start meeting user needs before product development even begins. For example, at the beginning of this year, we started our second product line, a snack that doesn't make you fat, including nuts and grains. We first published an article on our WeChat official account. After publishing, we found the response was particularly good, so we invited more people to join. We found that the readership was about three times the usual. We posted the same content on Zhihu, choosing a precise question: "What snacks are suitable for eating in the office?" When we posted it, it had about 5,000 followers. A month and a half later, we posted an answer that looked like an ad. Not only did it get the most likes on that question, but now it should be in the TOP 10 for likes across all topics on Zhihu. We put a QR code at the bottom of the answer: "If you want to join, let's make this together." This is equivalent to quickly collecting precise user needs, converting them into products, and giving them back. To date, over 12,000 people have signed up to develop this product, and we selected a group to participate in the R&D. This is an independent brand, and I dare say 90% of these people don't know what LePurui is. Video source: Xinbang Teacher Liu Chunxiong's Comment: The logic of this case is highly consistent with the demand chain proposed by Teacher Xiao Zhen. One highlight is product development, which uses the logic of the demand chain, reflecting user thinking; another highlight is social marketing, because product development aligns with the demand chain logic, making social dissemination relatively easier. Currently, successful social marketing basically follows this thinking.
The internet now has three values for marketing: first, e-commerce as a platform has channel value (of course, also dissemination value); second, the internet as a dissemination tool has dissemination value (marketing value); third, the internet as a means to connect with users, providing an entry point for R&D, such as geeks participating in R&D.
The article mentions that LePurui has a completely different organizational structure with five parts: 1. Product operations, which handle new product iteration and development; 2. Content operations, corresponding to the brand department; 3. User growth department, specifically for promotion; 4. User operations department; 5. User experience department. Chatting with @Jiang Xiaobai Lao Tao, for me, internet dissemination is a difficult problem, but President Tao thinks it's not difficult. The difficult ones can't do it; those who can do it find it easy. Teacher Ding Ding's Comment: LePurui has been in Beijing for several years and can be called a model of going from niche to mainstream. Now it's also available at 7-Eleven. LePurui's development has two stages: the first stage is the niche stage, taking user participation to the extreme, including user participation in packaging design (similar to COFCO cashew nuts) and taste testing... The second stage is entering more channel terminals to reach the mainstream. Unlike traditional thinking, there is investment thinking in building the brand, and many companies are doing FMCG in the way of mobile phone promotion, but LePurui has persisted to the end. **Summary: In this era, why can products like LePurui be born?
With no background or capital, relying solely on marketing and product refinement, they have gained a large number of loyal fans.
The maturity of the entrepreneurial investment environment, the richness of various marketing and payment platform tools, consumers' higher and more personalized upgrade needs for existing products, and users' need for participation and self-identity are all among the many factors that have created the "LePuruis."
The future is no longer the world of giants and big companies. Small and beautiful independent brands can win a competitive advantage in the market through differentiation in product and positioning. New Food Era · New Distribution —— 2016 China "FMCG + Internet" Summit Forum —— This is a grand event focused on how the FMCG industry channels will transform under the trend of internet+ transformation Conference Agenda 08:00-09:00 Registration 09:00-09:05 Host opening 09:05-09:35 2016 China FMCG Industry Trend Analysis Report - Zhao Bo 09:35-10:05 FMCG Enterprise Transformation Strategy and Path - Liu Chunxiong 10:05-10:35 Opportunities and Challenges Brought by FMCG Channel Reform - Liu Zhao, CEO of Waiqin365 10:35-11:05 Reconstructing Distribution Channel System, Promoting Urban Retail Upgrade - Tian Yuan, General Manager of Alibaba Retail Link Backend 11:05-11:25 Channel Efficiency in the Internet Era - Fu Xiaoyun, Vice President of Benlai Holding 11:25-12:00 Roundtable Forum - Brand Transformation: Improvement vs. Reconstruction? Guests: Liu Zhao, Liu Chunxiong, Fang Gang, Chen Feng, Shi Zhengchuan, Deng Xia 12:00-13:30 Lunch 13:30-13:50 Distributor Transformation: Urban Distribution Trends - Wang Qi, CEO of Weijie City Distribution 13:50-14:20 Roundtable Forum - Why Distributors Should Do Logistics in Transformation Guests: Zhao Bo, Wang Qi, Liu Zhongmin, Tang Guangliang, Wang Cheng, Sheng Yan 14:20-14:40 How FMCG Enterprises Can Leverage the Internet to Take Off - Wang Hui, E-commerce Operations Director of Xijiu 14:40-15:00 Detailed Explanation of Zhongshang Huimin's "One Machine, Two Wings" Strategy - Su Xiaoxin, Vice President of Zhongshang Huimin 15:00-15:20 Category Value and B2B E-commerce Development Strategy - Wang Chaocheng, CEO of Yijiupi 15:20-15:40 Supply Chain Finance as a Lubricant for B2B Driving Traditional Business - Chen Xian, CEO of 51 Order 15:40-16:00 Zhanghe Cloud Factory Helps Upgrade FMCG Supply Chain - Yang Lixiang, CEO of Zhanghe Tianxia 16:00-16:30 Integrating Small and Micro Retail, Reconstructing Business Ecosystem - Miao Dong, Vice President of Quanshi 16:30-16:50 B2B Investment Principles and Thinking - Zhao Mingwei, Vice President of Junlian Capital 17:00-17:30 Roundtable Forum - Who is the King of FMCG B2B Models? Guests: Fu Xiaoyun, Zhuang Jianzhong, Jiang Tao, Zeng Weiqin 17:30-19:30 Dinner For manufacturers and distributors who want to transform, this grand event is not to be missed. Interested friends can long press the QR code below or click "Read Original" to register. Registration: Long press the QR code below or click "Read Original" ↓↓↓ Click "Read Original" [Register]