Click to read the original article for details 0****1 The increase in national income over the past two years is evident to all. China's per capita GDP reached $12,556.3 in 2021, ranking 75th among over 200 countries and regions globally, placing it in the upper-middle range and above the global average. China's middle class has reached 109 million, the largest in the world. With rising national income, people's aspiration for a better life is an inevitable trend. In industry terms, this aspiration is called consumption upgrade. What is the potential for consumption upgrade with a population of 1.4 billion? Imagine, in any country or region globally, such a scale of consumption upgrade is unimaginable. However, while there is enormous consumer demand, we also see that China's consumer goods industry faces massive overcapacity. Countless business owners are troubled daily by their products not selling. Is it that these companies cannot produce better products? I think not. If you visit food contract manufacturers in Henan, Shandong, Guangdong, Fujian, and Sichuan, they use the world's best equipment, have clean factories, strict management, and first-class manufacturing processes. Yet these companies, capable of providing the highest-quality products to global consumers, are troubled by products that cannot break into the market, forcing them to produce large quantities of low-quality, low-price, even counterfeit products. In the past, we often attributed this problem to China's backward marketing and weak marketing concepts among business owners, who are eager for quick success and short-term gains. But is that really the case? Don't they want to produce delicious, healthy, and attractive products? When I describe these two phenomena, do you notice a problem? On one hand, China's economic development has created the world's largest middle class, with enormous consumption potential and demand for upgrades. On the other hand, we see that enterprises have very strong R&D and production capabilities, but overcapacity is severe, forcing them to produce low-quality, low-price products to survive. What causes this mismatch between supply and demand? 02 Many foreigners today marvel at China's advanced e-commerce: JD.com, Tmall, Pinduoduo, Taobao, Douyin E-commerce, Kuaishou E-commerce... Consumers with money can stay at home, pick up their phones, and purchase products from any country or region globally. Millions of merchants and hundreds of millions of consumers complete countless transactions on these platforms daily, matching supply and demand through a single platform. It's very convenient for the public. Brand owners can transact directly with consumers without intermediaries. We can't help but marvel at China's e-commerce infrastructure and online retail development. Wait, do you feel something is off? Since the Chinese market has the world's largest middle-class consumption upgrade demand, the world's largest production supply capacity, and developed e-commerce with trillions of yuan in GMV annually, why hasn't a new consumer brand successfully emerged? Where is the problem? Is it that big brands suppress small brands? Or do consumers prefer big brands? Are Chinese entrepreneurs bad at marketing? Or is it that none of the tens of thousands of new consumer entrepreneurs can compete? Or is it that our proud market environment simply leaves no room for new consumer brands to survive? 03 This puzzled me for a long time until I saw Professor Liu Xiangdong from Renmin University's explanation, which enlightened me: The retail industry has two companies that represent all retail models: one is Walmart's purchase-sale model, and the other is Carrefour's consignment model. Walmart's purchase-sale model is simple: I purchase goods from you, and you don't need to worry about where they are sold. The brand owner bears no risk of loss or unsold inventory. But Carrefour is different; in Carrefour's model, the producer bears the risk, while Carrefour does not. To enter Carrefour, you must first pay a "slotting fee." The channel belongs to the channel operator, so of course you have to pay a toll. The problem is that the channel operator only provides the opportunity to sell, not the responsibility to sell for you. Selling is your own business. If products don't sell, the channel can demand returns. If sales are low, the channel will ask you to pay a minimum guarantee fee. What troubles brand owners even more is that Carrefour will try every means to extend payment terms, delaying payment for two to three months is normal. During these two to three months, your funds are occupied, allowing them to open more stores and expand channels. The more channels they have, the more dependent you become on them. Almost all major retail KA in China do not follow Walmart's good example but adopt the Carrefour model, rapidly expanding through slotting fees, forming traffic monopolies, and then earning slotting fees. Later, online e-commerce emerged. Unfortunately, online e-commerce largely replicated the Carrefour model. For example, JD.com does not open stores but uses warehouse distribution to deliver to homes on the same day or the next day at very fast speeds. JD.com can achieve this mainly because urbanization has made demand denser. In the "free shipping zones" of Jiangsu and Zhejiang, supply and demand are dense, quickly achieving economies of scale. However, JD.com differs from Walmart in that it does not pay producers upfront; JD.com also occupies your payment period. Now look at Tmall. Tmall doesn't need to display rows of shelves like a supermarket, but placing products in the most prominent positions on Tmall's webpage, just like on supermarket shelves, costs money. During shopping seasons like National Day, Chinese New Year, or the e-commerce-created "Double 11 Shopping Festival," e-commerce platforms require sellers to lower prices significantly. In this model, large factories find it hard to survive, while small factories fall into a trap of vicious competition. Originally, business competition had many dimensions, including price, quality, taste, and experience. But under e-commerce's influence, competition has been reduced to a single dimension: price. Based on Professor Liu Xiangdong's description, I have extended and distilled the reasons why new consumer brands cannot build brands on platforms: E-commerce platforms make transactions between strangers possible. The logic of trust lies not in the brand itself but in the platform. Consumers don't need to remember the brand. This makes it difficult for companies to build product premiums through branding. Platform e-commerce offers infinite supply, and a large number of homogeneous products inevitably fall into vicious low-price competition. Consumers cannot see, touch, or taste products as they would in physical stores. In such an ecosystem, bad money drives out good. Even if companies are willing to produce high-quality goods, the price is set, and they cannot sell. Platform profitability relies on advertising, but with limited display windows and infinite merchant competition, the platform's bidding model inevitably strips away the brand's last bit of profit, making it impossible for companies to complete industrial upgrades. Consequently, many people think they can quickly reach consumers through platforms, complete the primitive accumulation of brand and capital, and then move offline. But they find that the online platform's bidding model cannot form brand awareness, let alone profitability. So even with the huge consumption upgrade potential and overcapacity opportunities, it is the platforms that harvest, not the entrepreneurs. 04 Both supply and demand in the Chinese market are at a terrifying scale, but the channel seems to have been misdirected by e-commerce over the past decade. As He Fan put it: China's vast economic hinterland has thus been divided into two parallel universes. Huge production capacity and huge consumption potential pass by each other, one going left, the other right, longing for each other all day but never meeting. For a company to build a brand, it requires a long cycle. From entering a local market, going through the budding and growth stages, to reaching maturity, becoming a national brand may take decades. Although China's e-commerce has quickly brought benefits to the people, in a sense, it has also forced countless enterprises to compete on the same platform. This competition is extremely cruel and brutal. Competitors have different abilities, resources, and endowments, but they must compete under the same rules, and the winner takes all. Looking at the results of this wave of consumption upgrade, there is no doubt that new consumer brands have almost all been wiped out. Trade protection is not without reason. No country's industrial sector can withstand the market dumping of mature, low-priced products from developed countries. You might say, Zhao Bo, you're wrong. Look at our domestic automobile industry, including some local brands. Didn't they survive in an environment competing with international first-tier brands? What I want to say is that they survived because there was depth and buffer. If the high-end market doesn't work, I'll go for the low-end market. If the national market doesn't work, I'll go for a local market. But today, e-commerce has flattened and smoothed the Chinese market, leaving no depth. It's a vast plain with no obstacles. All competition has become a contest of strength. In a contest of strength, where is the possibility for small players to survive? So we see that new consumer brands born on online platforms not only fail offline but also have little chance of survival online. This is a very cruel but unavoidable reality! 05 We cannot complain; the market doesn't believe in tears. The train of history never stops for your hesitation. The only thing we can do is see reality clearly, accept it, and think about how to find opportunities for survival, development, and growth in such a complex market environment. "New Distribution" has been studying channels for years. In the process, we found that although offline is inefficient and costly, its disadvantages are, in a sense, barriers. Whoever can survive in such an environment may, at some point in the future, move into a larger market space. Writing this reminds me of 2014 when I was at Taishan Beer and interviewed Jiang Xiaobai's founder, Tao Shiquan. He once said a very classic line: "You all race cars on the highway, so I'll ride a motorcycle on mountain trails." In other words, you take your broad road, and I'll take my single-plank bridge. Although Jiang Xiaobai is not large in scale and has been criticized by countless peers for being unconventional, no one can deny that Jiang Xiaobai is a real, solid brand. So only by finding the "Jinggangshan" that truly suits your survival and development can you truly practice and explore the possibility of future success. In other words, find your ecological niche in the market, survive first, and then there is the possibility of development and growth. 06 A recent article in "Dedao Headlines" raised a question: How to grow new brands from old categories? It proposed three viewpoints: 1. New demands emerge in old categories; 2. New technologies solve old pain points; 3. New experiences are created in old categories. Undeniably, this insight is quite accurate, but we must discern: Is this a business opportunity or a brand opportunity? In fact, business opportunities and brand possibilities are two different things. Demand can create a business, but it doesn't necessarily create a brand. A brand is a collective value perception that a company creates for a generation of people through narrative about a product. Although it starts with demand, it must ultimately end with some kind of value. Over the past 40 years in China, brands were built in a market environment based on Maslow's basic needs. Galbraith mentioned in "The Affluent Society" that "in a poor society, production is to meet people's needs, so most products are necessities. After World War II, America entered an unprecedented affluent society. In an affluent society, production is to satisfy people's vanity, so most products are luxuries. People buy products not because they truly need them, but because advertisers seduce them." Political scientists Inglehart and Welzel conducted extensive cross-national surveys and found that during a country's transition period, there is a "generational shift." At low-income stages, people are more receptive to materialist values. That is, that generation experienced material scarcity in childhood, so they believe more in material wealth: bigger houses, more appliances, better cars. Reflected in social attitudes, that generation emphasizes economic growth, price stability, social order, and strong national defense—all content that meets people's most basic living needs. So this generation of consumer brands pays special attention to the product itself. These entrepreneurs focus more on product quality, stability, supply chain, and supply. We can call the brands built by this generation of entrepreneurs materialist value brands. But today, the main consumers have entered the post-95 and post-00 generation. Young people are born into comfortable lives and no longer feel survival pressure. They crave spiritual satisfaction: self-realization, self-expression, civil rights, ecological environment, etc. Inglehart and others specifically pointed out that value formation is related to childhood experiences and is hard to change in adulthood. Behind the economic structural transformation is the rise of the younger generation, an irreversible generational revolution. I think this is the opportunity for new consumer brands to find consumption trends in such slow variables and, based on scenarios, rebuild a true spiritual value brand. This is where the opportunity to build a brand lies. -END-