The following is the speech delivered by Wang Sai, CEO market consultant, author of "Five Growth Lines", and partner of Kotler Consulting (KMG), at the "FMCG2019·China FMCG Conference" hosted by New Distribution. The content has been organized and published for readers.
Today's forum session is on "Upgrading Marketing Theory", and my topic is "Five Growth Lines", which is also the title of my book that has been very popular and influential in the industry this year. It is a methodology I use to help companies design market-oriented strategies. Current strategies are often too macro and self-serving, while marketing is too micro; the integration of the two into a "market growth strategy" is what CEOs need, and this is also the reason for the rise of CGOs.
Let's look at these two paintings. Both are by the same artist, the great painter and pioneer of Cubism, Picasso. The left is a portrait he painted at age 19, and the right is his work at age 90. It's still the same portrait, but the structure is completely different. Marketing and strategy are the same.
When it comes to marketing, the biggest problem now is that the word "marketing" has become corrupted in language and doesn't reach the CEO level. But marketing is indeed the company's biggest growth driver. If all organizational processes and strategic changes are not paid for by the market, they can almost be judged as "bad strategy." So I and a group of industry friends are not satisfied with the Chinese translation of "marketing." Its English is Marketing, which is Market+ing, meaning market management, growth variable management, and strategy collection. It is not the belittled and misunderstood "marketing" as it is now. We hope the industry and academia will re-examine the Chinese translation of Marketing.
I propose using the "Five Growth Lines" to reconstruct the posture of enterprise growth models. I call these five lines: Retreat Line, Growth Baseline, Growth Line, Explosion Line, and Skyline.
The first line is called the "Retreat Line", which is the contraction line, referring to how a business can retreat with value; the second line is called the "Growth Baseline", which is the foundation of business growth, protecting the life and death of the company's core business; the third line is called the "Growth Line", which is the sum of all business growth points that can be found from existing resources and capabilities; the fourth line is called the "Explosion Line", which is the path to exponential explosive growth; the last line is called the "Skyline", which refers to where the ceiling of enterprise growth is, and around these five lines, we redesign the marketing system.
First Line of the "Five Growth Lines": Retreat Line
The first line of the "Five Growth Lines" is called the "Retreat Line." In China, few people mention the concept of "retreat," as if running a business must last 101 years and achieve lasting success. This is wrong. Swiss military theorist Fimini said, "A good retreat should be as appreciated as a great victory." The structure of a company's business should be optimized.
We look at a company's business from two indicators: turnover rate and profit margin. One vertical and one horizontal, thus forming four types of businesses: high turnover and high profit can be called "white powder" business, meaning very high profit and fast sales. High profit and low turnover is called "atomic bomb" business, meaning it rarely sells, but when it does, the profit margin is extremely high. High turnover and low profit is called "cola" business, like each can of cola earns a few cents, but turnover is extremely high and sells very fast. Low profit and low turnover is called "suicide" business. Once you draw this matrix, you'll find that different businesses can be classified into different quadrants, then find growth drivers, and many businesses can be optimized in this combination and restructured.
Second Line of the "Five Growth Lines": Growth Baseline
The second line of the "Five Growth Lines" I call the "Growth Baseline," which can also be said to be the lifeline of the company or business development. This line has an extremely important role: it protects the company's life and death and provides basic nutrients for the company to expand in other directions.
Let's look at what a company with a growth baseline looks like. Amazon has become one of the highest market cap companies in the world, but recently announced its defeat in China's e-commerce battlefield (we'll analyze the reasons later). This is the result; we should pay more attention to the reasons in its market structure, and one of them is the construction of Amazon's growth baseline—the design of the Prime membership mechanism.
Amazon uses Prime to identify super users, forming a strong base and profit pool. Prime members are highly loyal customers, and Amazon provides them with various value-added benefits. In 2018, Amazon's Prime members in the US reached 100 million, meaning 3 out of 10 Americans purchased Prime services, with each Prime member paying $99 per year. What is Amazon's growth baseline? These 100 million "locked-in" customers with high-frequency transactions and the $9.9 billion in Prime membership fees are Amazon's growth baseline! From actual effects, data shows that Amazon Prime users spend an average of $1,300 per year, while non-Prime members spend $700, a difference of $600, meaning the membership system helped Amazon gain nearly $60 billion in revenue.
More importantly, on this foundation, Amazon can experiment with various expansion methods, with successes and failures, but it doesn't matter. As long as the baseline exists, Amazon's future is not a concern. In other words, even if Amazon's various growth tests fail, it won't be severely damaged (this is the fundamental difference between effective business expansion and diversification). Bezos once mentioned that Amazon has three core pillars: Amazon Marketplace, Amazon Web Services (AWS), and Amazon Prime.
From the demand side, Prime members are the "pillar" of the first two pillars. Without a super member pool, no matter how much traffic, the traffic pool is at best a leaking pool. In 2018, Amazon's stock price rose 30% cumulatively; the S&P 500 index fell 6.7% during the same period. Another even more alarming figure: Amazon's US Prime member renewal rate is as high as 90%.
See clearly, this is Amazon's most important growth baseline globally! Many people have talked about the reasons for Amazon's e-commerce exit from China, but only by focusing on the design of the "growth baseline" can we see Amazon's real dilemma.
In the Chinese market, Prime members were introduced in 2016, but the battle was vastly different from the US market. I traced all information and didn't see Amazon China disclose the number of Prime members. It's likely that the number is so small they're embarrassed to mention it.
Thus, Amazon China, without a "growth baseline," lacking a large Prime member base and a barrier to prevent user platform switching, is bound to fall into a prolonged war with JD.com and Tmall, with no possibility of long-term profitability. In an endless war, Amazon China's e-commerce business became a resource black hole.
In the entire chess game, there is no breakthrough point for growth. This is fatal for an extremely rational company. This is the essence of Amazon's e-commerce exit from China, because in terms of growth structure, the most important chess piece has already been lost!
Amazon is not the only one using this growth baseline approach. In 2015 alone, Starbucks sold $5 billion in gift cards, accounting for nearly 25% of Starbucks' annual sales. In other words, this business can underpin one-quarter of Starbucks' annual sales.
In January 2017, Starbucks announced that the cash stored in its gift cards and mobile app had exceeded $1.2 billion. This retained cash exceeds that of most banks and is one-ninth of PayPal's retained cash in the US.
This prepaid business, on one hand, establishes customer switching costs; on the other hand, the large cash flow helps the company build a healthy and stable business foundation, and these accumulated funds can be used for expansion in other dimensions. These two strategic designs are the baseline Starbucks built.
Third Line of the "Five Growth Lines": Growth Line
The third line of the "Five Growth Lines" is called the "Growth Line." If the core of the growth baseline is "defense," then the key to the growth line is how to "attack." The combination of the two is the "art of attack and defense."
The design of the growth line has only one goal: to help the company find growth points for the future. One of the core agendas of all company senior meetings is to find "growth points," but they may not form a "growth map," which is the most fatal flaw in designing growth paths.
What is a "growth map"? I define it as "the sum of all business growth points that can be found from the company's existing resources and capabilities, exhausting all growth possibilities, and designing the logical relationships between these paths."
When senior management decomposes implementation plans according to the growth map, they can clearly know where to invest. When the growth effect on one path shows diminishing returns, or when competitors begin to imitate, the company can freely choose and switch to another path.
Let's look at how hot companies use it. Last year, Uber's CEO Dara said that Uber became the world's largest food delivery company in 2018. Why? Because Uber's ride-hailing business hasn't been going well in recent years, but Uber launched Uber Eats, where you can order food and Uber delivers it very quickly.
So it has surpassed the original business interface. But if you were Uber's CEO today, is this the only path? No. Coincidentally, last year a phenomenal O2O company in China said, "Mr. Wang, can we cooperate? We also want to find growth paths for the company, exactly the same problem Uber faces today."
I told them that if you want to grow, think about what dimensions there are. Some said positioning, to cut a bloody path through positioning for growth. Many said we need to do channels, continuously distribute products, and issue cards at terminals like Ctrip to awaken consumers.
After the entire executive meeting, I said one thing: these are just fragmented thinking; you haven't formed a growth map. If your core is to increase GMV, there are many strategies from a market strategy perspective. So we drew this map together.
On the left is structured growth, and on the right is strategic growth. What does structured growth mean? It means that by breaking down many indicators, you can infer that this approach can bring growth. Strategic growth is like taking a chemical change, using new weapons to drive growth.
I told them that if you expand this formula, it's very simple. First, how do you get more users? So from your backend data system, see which areas are covered. Are all first-tier cities in China covered? In first-tier cities, what's the gap between you and your competitors? How much market share do they have, and how much do you have? How can you fight this war to expand the landscape?
What about second-tier markets? Third-tier markets? Are there blank spots? Which blank spots are also targeted by competitors? Competitors are also competing with you, and the deployment methods are completely different. This can be decided entirely through data.
Second, don't you want more customers? Is it possible to find new customer groups? In O2O business, you can divide by age group, by scenario. The populations are completely different, and ordering methods are completely different. Some are group purchases, some are individual purchases.
Also, to achieve customer growth, can your promotion methods be different? There's a method called growth hacking, but I must say that growth hacking is just one weapon in the CGO's arsenal. There are many other dimensions. For example, can you create new promotion methods to accurately reach your target customers? What is your customer profile? All these can help acquire more customers.
Many internet companies have very rough user profiles, far from meeting the needs for growth planning. Also, you can not only develop more customers but also deeply lock in customers and increase switching costs.
You can also dig deeper into the value of existing customers. If they used to spend 20 yuan a day, you can think about how to increase it to 30 yuan, penetrating their wallet share. This is structured growth. Each path can be broken down into many steps.
What is strategic growth? I was the same as my competitors, but I change the cognitive landscape, through positioning and brand building to differentiate. Positioning is just one way to grow. For example, positioning is definitely not the core for B2B companies; the core for B2B companies is to establish a competitive foundation for continuous transactions with customers, which is completely different.
Also, do value, do value chain integration, integrate upstream and downstream, all can complete a growth model, all pointing to GMV and overall sales increase. Each step can also be broken down. You can see deep development of regions, with new and old regions, and among new customers, you can further segment and re-cluster customers.
So there are many growth elements in each. In recent years, I've helped many traditional companies and innovative enterprises use this growth map.
What's the benefit of doing this? Not all paths will be used by the CEO, but your overall battle map will be very complete. Today's world has entered a highly uncertain and interactive world, meaning when you play a card, your competitor plays a card, and customers vote based on the outcome of your two cards. So you need a panoramic and interactive set of cards. This is the biggest difference between a growth map and strategic planning. A growth map centered on market strategy emphasizes having an overall battle map, competitive interaction, and customer value growth!
Of course, after you complete your growth map, you don't necessarily use all paths. You may lock in some paths over several cycles. So I discuss with many entrepreneurs every month: where have you reached? What's next? How do competitors respond, and how do you counter?
Everyone knows Luckin Coffee recently went public, losing 4 million yuan per day, so it faces the challenge of designing its growth line and achieving profitability.
For example, we see Luckin, beyond coffee, has laid out light meals and recently launched BOSS lunch. Luckin continuously launches growth options to give the business growth imagination. But the question is, if subsidies are removed, are these category expansions effective? Only a growth line based on a baseline is effective.
Fourth Line of the "Five Growth Lines": Explosion Line
The fourth line of the "Five Growth Lines" is the "Explosion Line." The necessary gene for the explosion line is digitalization. If a company hasn't pressed its digital button, it's impossible to imagine it can explode today.
I once had my assistant list companies founded in the past century with market caps over $100 billion. Surprisingly, companies founded after 1987, without digitalization as a gene, have completely become insulated from $100 billion market caps. For example, Amazon founded in 1995, Google in 1998, Alibaba in 1999, Facebook in 2004. These companies with $100 billion market caps all have digital genes without exception.
But digital genes are only a sufficient condition for designing the "explosion line." Whether the "explosion line" can effectively run out depends more on mastering the ability to design business explosion lines. I express the logic of explosion line design as "windfall + innovation + speed + social contagion."
Take Xiaohongshu (RED) as an example. Its rise first caught the windfall of "new middle class," who began to pursue overseas travel and quality foreign goods, but lack of information caused many difficulties when shopping abroad.
Xiaohongshu was founded in 2013, starting from this problem, creating an "overseas shopping consultant" image, entering the market through "algorithm + social" innovation, providing users with overseas shopping guides, solving the pain points of "where to buy and what's worth buying," bringing convenience to users. Pinduoduo's windfall momentum lies in integrating "social" with "e-commerce."
From the competitiveness of Alibaba and Tencent, two internet super giants, one occupies "e-commerce," the other dominates "social." Pinduoduo found a model that integrates these two elements.
In explosive growth, capital support is particularly important, as seen in the battle between Didi and Kuaidi, and Didi's explosive rise. The so-called explosion means force should not be evenly distributed; concentrate strikes on key points in a short cycle, burn to boiling point at once. In military terms, this is "win in one battle."
The battle between Didi and Kuaidi was a "Run Lola Run" process, where both sides used capital to quickly boil the emerging market. The subsidy war cost both sides over 2 billion yuan. In contrast, another strong player at the time, Yongche, hesitated in the subsidy war, causing it to be eliminated from the first tier. Later, Yongche founder Zhou Hang repeatedly reflected on the key reasons for this defeat in private.
Behind the design of all companies' explosion lines, there is a shadow: "social contagion," that is, how to spread your product or information like a virus. Whether it's Didi, Xiaohongshu, Douyin, Pinduoduo, or Luckin, behind them are product and information contagion and fission techniques. Although not all companies have the foundation to design an explosion line, absorbing some weapons from the explosion line is enough to accelerate your business growth!
Fifth Line of the "Five Growth Lines": Skyline
The fifth line of the "Five Growth Lines" is the "Skyline." The so-called skyline refers to where the ceiling and extreme of enterprise growth are. An enterprise that can continuously break through its own and industry's skyline can also continuously break through the gravity of enterprise value. The skyline determines where the ceiling of enterprise value is, and in fact determines how far the enterprise can run.
How should the skyline be designed? First, learn to "reimagine."
The so-called "reimagine" means first being able to break through the company's ceiling cognitively. Last month, Uber went public with a valuation of $100 billion, exceeding the highest market caps of the three traditional car companies.
In Uber's early financing, the initial valuation was only $5.9 billion, based on the global enterprise service market. But venture capitalist Bill Curley gave a price of $25 billion, based on the "sharing economy" concept, defining Uber as a mobility service provider that can continuously extend and derive. With this expectation, the entire market size would be $45 million to $1.3 trillion. The proposal of the "sharing economy" was a "cognitive revolution" for measuring Uber's valuation.
Different definitions of the company's business essence result in different company values. A good growth logic that outlines business definitions can break through the skyline of enterprise value. Just as Meituan attacks in all directions and sees no boundaries, Wang Xing redefined Meituan's new business essence: Meituan's future is Amazon for service. Wang Xing anchored Meituan's growth to Amazon and Taobao, saying, "Amazon and Taobao are e-commerce platforms for physical goods, while Meituan's future is an e-commerce platform for services."
Unlike the design of the baseline, growth line, and explosion line, companies and entrepreneurs who want to cross the skyline must have feelings and dreams. If strategy is "doing the right things," management is "doing things right," then entrepreneurship is "doing impossible things." To cross the skyline, one must return to entrepreneurship and dare to do "impossible things." This is the correct posture behind crossing the skyline.
When I help many companies with growth deduction, I first talk about these five lines. The first line, the retreat line, studies whether to retreat under strategic posture and how to retreat; the second line is the growth baseline, which businesses can establish continuous transaction foundations with customers, with "growth cornerstone," continuously bringing business sources; the third line, the growth line, is how the enterprise should lay out the full picture of growth; the fourth is the explosion line, how the business can explode rapidly; the fifth line is called the skyline. These five lines, I define as the "Five Growth Lines." From these five lines, we can see the growth genes of the enterprise. After clear design, we can see the threshold of the enterprise's growth range.
Professor Nambu Ken of Hitotsubashi University's International Corporate Strategy Research Institute has a classic strategy book called "Strategy is Storytelling." In the book, Nambu says that "story" is not an "action table," not a "rule," not a "best practice," not a "simulation," and not a "game."
The logic from the enterprise baseline to the skyline and the design of growth paths can allow entrepreneurs to turn their vision into a growth story, and it can also be a dynamic "movie script" pointing to ultimate value pursuit!
Between classic competitive strategy discourse and traditional marketing systems, I integrate them and propose the "Five Growth Lines." It is not so much a tool for executives to think about problems, but rather a mindset for decomposing growth into implementation.
This is the mission and ambition of a consultant. I want to do my best to answer "what is true growth" and "what is good growth," so that before you make a move in the growth battle, you can lay out a systematic, dynamic, and visual "big chess game"! Those who don't plan for the whole are not enough to plan for a single domain, and this is the dilemma marketing faces today. I share this with you. Thank you!