This article is based on the speech by Lou Jun, a director at IDG Capital, at the '2017 IDG VIEW' conference, as well as a roundtable discussion on new e-commerce. At this time in 2016, we said that 'new e-commerce' has three origins: 1. Mobile e-commerce under new models; 2. Consumption upgrading targeting the middle class and pseudo-middle class; 3. New lifestyles of the younger generation. These three categories have spawned many hot startups in the market, including sharing economy, content payment, and tea beverage brands. Consumption upgrading is also a hot concept, but we found that everyone's understanding of it is inconsistent. What exactly is consumption upgrading? Is buying more expensive and fashionable items consumption upgrading? Opportunities in the Increment of Service Consumption We believe that the fundamental of consumption upgrading is still improving the quality of life. When people's income increasingly meets material needs, how will the remaining income be spent? We compared household consumption in China, Japan, and the United States horizontally and found something interesting: From the chart, it can be seen that in China's average annual household consumption, more than 60% is physical goods consumption, and more than 30% is service consumption, including culture, entertainment, education, medical care, tourism, life services, and other services and experiences. In contrast, in the United States and Japan, this part of consumption accounts for more than 60%, while physical goods consumption is only about 30%, which is exactly the opposite of China. The meaning behind this phenomenon is that when a family gets closer to the middle-class level, they spend more money on experiences rather than increasing from buying 40 pieces of clothing a year to 80 pieces next year. What they want to improve is the quality of life. Therefore, we believe that the increment of service consumption is an important major direction. When doing consumption upgrading, more attention should be paid to household consumption; if the major direction is off, any entrepreneurship may become a small and beautiful thing. Four Key Links in Industrial Upgrading The second phenomenal word we have noticed is 'new retail'. In fact, new retail is very similar to the previous O2O, but the difference lies in the way of thinking between new retail and O2O. The value of O2O is that online subverts offline, and the internet subverts tradition, but from the results, most startups did not succeed in this process. The new term is called new retail, which more refers to the online-ization of offline, or the mobile internet-ization of offline. In essence, it is the mobile internet as infrastructure upgrading industries. In this sense, I think there are no traditional industries, only traditional thinking. The above chart summarizes the four key links in industrial upgrading:
The first step is attracting traffic, the second is retention, the third is monetization, and the fourth is dissemination. In the PC and APP era, the traffic attraction link had methods like buying keywords, SEO, or ranking manipulation; after WeChat rose, we saw that new traffic attraction methods focus more on content. Especially through WeChat official accounts, low-cost traffic attraction is possible, and at the same time, audience segmentation can be achieved (by using different content to group people, each group having different user profiles), so that matching corresponding products becomes more efficient, and conversion rates increase while customer acquisition costs are lower than before. Next, if channels and scenarios are extended to offline, scenarios can also play a good role in traffic attraction and audience segmentation. Combined with mobile internet thinking, new tactics and operating methods will emerge. The second link is retention. There is a misunderstanding here: how to improve retention? Is it by using tools or adding features to increase user stickiness? In fact, in our view, it is more content-oriented. For example, photo-sharing products. If the quality of photos is not good enough, you won't even look at them. So first, the quality of photos must be good; second, new photos must be updated quickly every day, so users may open the app every day to look. But if updates are slower, users may only open it once a week. What users want is not just this category; for new categories, it may be an e-commerce model with zero customer acquisition cost. The third link is monetization. Monetization can be considered later among these four steps; don't have unrealistic expectations that violate the rules of the game. IDG Capital founding partner Xiong Xiaoge once said, wool always comes from the sheep's back. The fourth step is a very big feature of the mobile internet. In the past, dissemination was considered to belong to the media field, but on the mobile internet, dissemination is becoming increasingly important for products. You will find that some content with a low tone has very strong dissemination power. Why? Because what spreads between people is more about pain points than highlights; the strongest dissemination power is the fear of losing, not the joy of owning. If the dissemination link is not done well, you can only continue to attract traffic, and when transaction costs become more and more expensive, the account won't balance. When a company reaches a certain size, it will become small and beautiful and can no longer grow. In this sense, dissemination is actually a link that should be paid more attention to on the mobile internet. Look at this chart again If we use scores to measure the four links, the first three are addition, and the last is multiplication. If a product's value has 3 points for traffic attraction, 2 points for retention, and 5 points for monetization, the product may add up to 10 points. Multiply by 6 points for dissemination, and the product gets 60 points. One more thing to pay special attention to: never think about how to disseminate after the product is done, but when designing the product, dissemination should be integrated into it. 2017 New E-commerce Investment Directions First, the shift from fashion goods to consumer goods, or the trend of 'consumption downgrading'. Some goods used to be fashion items, but today people treat them more as consumer goods. Flowers used to be gifts, non-essential, small and beautiful. But today many people order flowers for themselves. Users' mindset for consumer goods is different from that for fashion goods; they are more essential, and they value cost-effectiveness and quality more. So for companies that do flowers, the gameplay is also different. Second, when the improvement of spirit and thought increasingly becomes a rigid demand, there will be the rise of content payment, including audio, video, knowledge, and books, but the form has changed—for example, traditional books are read, but now someone reads them to you. Third, experience and service consumption may be the next incremental market. The comparison chart just now is just the tip of the iceberg. If we zoom in, we need to see what specific categories will occur in China. For example, rich people can't find a good nanny, a good confinement nanny, a good housekeeper, or good decoration workers, etc. In these categories, investment opportunities may arise. Regarding new retail, Lou Jun, director at IDG Capital; Han Wei, founder and CEO of Leke Fitness; and Ding Yuting, director at China Renaissance Capital, had a heated discussion. Ding Yuting, director at China Renaissance Capital: I also look at consumption. I have seen some online projects including O2O before, but I always felt something was missing. For example, companies often say they want to serve a specific group of people, but if you think carefully, they still separate online and offline. The segmented groups served online, whether they are beautiful, rich women or mothers, their other consumption and needs that occur offline are still isolated. Users must find a new brand or platform to meet their needs. So now that we have finally reached this point, I am quite excited. Whether online or offline, in the past, e-commerce wanted to seize offline share, but now integration has begun. Another keyword for new retail or new integration is 'new'. First, there are new consumer groups. Taking clothing as an example, the consumption upgrading group is more daring to show themselves, and brands that everyone wears are less popular with them. This poses new challenges to brands: setting styles a year in advance becomes unrealistic, and it is increasingly difficult for a brand to cover the needs of multiple groups. This is the change in the consumer side. Second, China is not a country lacking supply; it is a manufacturing powerhouse. Chinese manufacturing is everywhere in the world, but there is still a lack of stratification in brands. For example, one reason for the rise of internet celebrities, I think, is that users lack brands they can follow. Now users expect brands that can guarantee stable quality. China is not short of goods, but there is still a lot of room for brand growth, which brings new opportunities for integration. Third, the experience of people and teams is more integrated; they have experience in both online and offline. This is my own feeling about new retail. Old Han, why do you say Leke is a sharing economy? Han Wei, founder and CEO of Leke: Actually, Alibaba's summary of new retail is very accurate. Today, when we look at the models that new retail can develop in the future, there may be three types: one is Amazon, one is Hema Fresh, and the other is Leke's model. Hema Fresh sells 1,500 square meters of goods in a 2,000-square-meter space, essentially by connecting online and offline at the bottom layer. Leke, on the other hand, changes the cost structure and deconstructs scenarios through the sharing economy. In fact, what we want to solve is to make exercise more enjoyable and fun in the new consumption process, to create stickiness among more users in fitness venues, and to enable interaction between coaches and members, thereby stimulating everyone's interest in fitness. What exactly is Leke doing? We can't explain it very clearly, but we can talk about what Leke has done. Leke took 20 months to become the number one offline fitness chain in China, reducing the price of gym memberships from thousands of yuan to 99 yuan per month while still being profitable. Before this, almost no chain gym in China was profitable. Leke also achieved cross-regional development, increasing the fitness population by 300% wherever it went, and increasing the frequency efficiency by more than 4 times. This makes Chinese gyms comparable to those in Japan and Hong Kong, and Hangzhou can reach the level of moderately developed countries in the world. If you are familiar with the fitness industry, this is a very shocking number. At the same time, Leke also allows personal trainers to earn more money on the platform, reducing the industry's commission from 75% to 25%. In summary, we are doing scenario operations based on data, and building new consumption relationships, new credit relationships, and new efficiency relationships based on new experiences. Ding Yuting: Recently, a friend specifically mentioned Leke to me. He said that this kind of thing was originally a heavy decision. For example, signing up for a foreign language class requires making a phone call and paying a lot of money. The same goes for gyms; you only go to the gym after being greatly stimulated, breaking up, or being unable to get married. But Leke is actually very internet-based, greatly lowering the threshold for user decisions. As long as users are willing, they can go to the gym anytime, anywhere to meet their needs. Including the recently popular mini KTV, which is similar. In the past, people thought that singing K required inviting many people and setting aside a whole block of time. But mini KTV meets the need to sing anytime, anywhere. In a sense, it is a process of consumption downgrading. What do you think? Han Wei: This is similar to the internet's 'dimensionality reduction attack' that everyone likes to talk about. Still taking Leke as an example, the average cost of a gym session in China is 300 to 500 yuan. Leke reduces the cost to below 12.5 yuan. Originally, personal training sold for 300 to 500 yuan and the gym still lost money. Now it sells for 180 yuan, giving coaches 140 yuan. For consumers, the price is halved. So attacking from a high dimension to a low dimension is relatively easy. In Lou Jun's PPT just now, you can see that the average annual household consumption in China is $3,362. According to international practice, the initial fitness cost is about 80 yuan. With China's consumption power and income, it is impossible to support such high consumption. The consumption amount for gyms in China even exceeds that of the United States, which is absolutely abnormal. In other words, what Leke is doing is just bringing it back to the normal average line. Many people question how we can make money at 99 yuan per month, but in fact, Leke is already profitable. Lou Jun: Consumption downgrading is actually the trend of 'fashion goods becoming consumer goods' that I mentioned earlier. Fitness used to be more like fashion or trend for users because it was expensive, but Leke turned it into a consumer good, making it more daily, with reasonable prices and higher cost-effectiveness. Now the brand concentration of the entire fashion goods industry is getting lower and lower, but in the consumer goods field, we find that brand concentration is higher. For example, in sports categories, Nike and adidas still occupy a certain market share. Uniqlo, Zara, and H&M are also three typical consumer goods channel brands. So the mainstream is consumer goods, not fashion goods. In this trend, user mindset has shifted, and categories are also changing. When categories that used to belong to fashion goods gradually become consumer goods categories, I think it may be an investment opportunity. In addition, we also see a 'sinking phenomenon': in some first- and second-tier cities, goods have gradually changed from fashion goods to consumer goods, but in third- and fourth-tier cities, they are still fashion goods, and there is a sinking process. Source: IDG Capital -END-