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Consumer goods are actually difficult to build barriers in technology, scale effects, etc., and in the end, organizational capability becomes the deepest moat. An insider from a well-known brand revealed to the self-media "New Waner" that Lamian Shuo had repeatedly visited to seek acquisition, with an offer less than 10% of its peak valuation. Despite the 90% discount, the insider still said, "There is a risk of cash flow disruption, and we are not very interested at the moment." This news is somewhat surprising. Before this, Lamian Shuo was a popular brand in the new consumer field. Founded in 2016, it sold 15 million in 2017, exceeded 80 million in 2018, reached 250 million in 2019, and soared to 900 million in 2020. Of course, the above data does not come from audited financial reports, and its authenticity is questionable. For example, in April 2022, Li Chengdong, founder of Dolphin Society, stated on Zhihu that Lamian Shuo's GMV in 2021 reached 1 billion, a slight decrease compared to 2020. If calculated on a consistent basis, 2021 should be 100 million more than 2020. The difference between sales and GMV here is confusing. But importantly, Li Chengdong mentioned a key piece of information: Lamian Shuo's profit increased significantly despite a decline in GMV. From this perspective, the company should have made money in 2021. Then, the insider's claim of "risk of cash flow disruption" seems somewhat contradictory. The truth about Lamian Shuo is complicated. For a consumer or bystander, its survival or death doesn't matter much. In this article, Lamian Shuo serves as a "lead-in" to discuss the long-term development of new consumer brands. 1 Behind the rise of new consumer brands, there are three forces. First, the new generation of young people; second, capital in 2019 with lots of money but few good projects; third, new traffic dividends from social media like Douyin and Xiaohongshu. With traffic and capital dividends, new consumer brands aspire to run a growth chain: financing—advertising—short-term explosion—user repurchase—decreasing marginal costs under scale effects—profits covering costs—positive cash flow self-circulation—breaking free from capital dependence. This growth chain is a social movement supported by capital. Before this, it had been tried and tested in creating traffic stars. Wu Xiaobo mentioned in "Raise Your Hand if You Know Lu Han": The past star-making path basically followed the trilogy of "performance products—mass media attention—topic marketing." But "Lu Han and others" greatly shortened the fermentation process. They first gathered precise fans on social media, with channels like Tieba, QQ groups, WeChat Moments, Weibo celebrity rankings, etc. After forming a considerable fan base, they then detonated in mass media. There's no choice; other fields have already run out the model. If you don't do it, other brands will, and involution ensues. But in this process, the operational rhythm of new consumer brands is too focused on sales data. Make a cost-effective product with low price multiplier, find a few Xiaohongshu KOLs to post beauty photos with long legs, and then have Li Jiaqi shout OMG in the live stream, and sales are made. This is the three-board axe of new consumer volume. A completely new brand can become the category leader by playing this way. Then, the brand department takes this "category leader" data to advertise. On elevator billboards contracted by Xinchao Media and Focus Media, strings of data have asterisks. Following the guide to see the explanation, their so-called category leader is only on a single platform like Tmall, for a certain period like July-August, and under other specific conditions. The more asterisks in the ad, the more it shows their lack of confidence. Seizing the category leader has become the threshold for new consumer brands. If you don't do this, the capital side probably won't agree. They are the ones who actually gave you money. Be obedient, and maybe the next round will give more. Being obedient doesn't just mean following the capital's ideas; it also requires actual data. I know a small snack brand. A few people's small company can ship over 100 million through offline channels, which is a good business. But he spends money on live streaming and hires external teams to do e-commerce, even though the ROI is pitifully poor. Why? Because he wants to grow bigger. To grow bigger, capital must enter. Capital looks at data, and offline shipping data is too rough and basically unqualified. What they like is GMV, repurchase rate, and category leader. There's no choice. The three-board axe of cost-effective products + Xiaohongshu + live streaming must still be used. If you want to go further, you have to cut yourself a few more times. Even if, like some cosmetics brands, 70% of the money from selling goods goes to KOLs, but if you can cut to IPO, it's beautiful. Of course, under this routine, the brands that can finally go ashore are few. By 2021, such opportunities became even slimmer. At the end of 2021, even a senior industry insider lamented: "In three years, 99% of new consumer brands will die, and half will die first next year." 2 Why is the turning point in 2021? Because traffic and capital dividends have long faded. First, the traffic dividend has disappeared. A large number of brands rushed into Xiaohongshu and Douyin. With the full assistance of capital, the former traffic depression has become crowded. Second, capital has returned to rationality. In this situation, the marginal cost of brand marketing revenue increases rapidly, the investment return cycle lengthens, and there is even no hope of return. However, at this time, many brands are still in the financing-advertising stage. Their "growth comes entirely from crazy advertising, and cash flow basically comes entirely from financing." And "once financing problems occur, advertising loses momentum, and company growth stalls." Lamian Shuo, including Perfect Diary, are all this principle. From this perspective, the key factor supporting the continued operation of new consumer brands is only the population. Brands return to rationality and think about the essence of business: how to create real value for this group of people has become the key to breaking through for new consumer brands. Around the population, brands urgently need to rethink several issues: First, reposition. A large part of brands on the market were not brand logic at the beginning, but traffic logic. So their positioning is mostly aimed at traffic. For example, regardless of whether the ceiling is high or not, first seize a new category, so that you can obtain category traffic at low cost on traffic platforms. Quickly create a category leader, gain mind share, and then consider long-term brand growth and expand the category quadrant. For example, regardless of user consumption scenarios, first create a product that fits the target group's social currency, then flood with planting notes to cultivate a user lifestyle. Although everyone knows this play is uneconomical, when you have money, it can indeed burn out one or two brands on a platform. But when you stop advertising, you find that sales don't go up and repurchase is almost nonexistent. At this time, we need to reposition, with enough precision. Position a sufficiently precise group, such as young women aged 25; position a sufficiently precise price gap, such as unit price 20-30 yuan; position a sufficiently precise consumption scenario, such as single and staying at home... Don't worry about being too precise; there is a term called brand spillover. After you form a brand effect in a certain group, the people around them will also learn about your brand. Wei Zhe of Jiayu Fund once said: Win the gold medal for products for 25-year-old women, thoroughly penetrate 25-year-old women, and your brand will naturally spill over to other groups. Specifically, 17-18-year-old girls will look up to how older sisters consume, hoping to be more mature; 30-40-year-old women hope to stay young forever and will look down on 25-year-old women; 25-year-old women have left university for 3-4 years, have their own income, start dating, have children. This group will not only spill over to the opposite sex, but also to their children, and influence the previous generation. Second, re-examine the value chain. Only when we position precisely enough can we have a target for future product development, channel construction, and marketing activities. 1 Aim at this target for product development. Many new consumer brands believe that China has the world's most mature supply chain system, so we don't need to build our own supply chain. This has become an excuse for many brands to emphasize marketing over manufacturing, all adopting the light model of OEM processing. Theoretically, this is fine. The real industrial age must have full social division of labor. Companies using the money for factories for quality control might be more effective. However, so far we cannot solve two problems.

  1. OEM model causes market homogenization competition.
  2. OEM model easily leads to product quality issues. So, I have always advocated that brands slow down and build their own supply chains. The last person to say China's infrastructure is complete was Pinduoduo's Huang Zheng. He said domestic logistics is already mature, and we can cooperate and divide labor rather than build our own. But soon, Pinduoduo accelerated the emergence of a dark horse in express delivery, J&T Express. I have mentioned the importance of building your own supply chain more than once. In today's new retail development, the voice of channels may become stronger in the future, and brands will likely age. Moreover, the essence of brand business is just collecting brand tax from users, just a matter of how much. But in the future, the scarce asset in the entire consumer goods field will be high-quality upstream supply chains. No matter how e-commerce platforms, community e-commerce, content e-commerce, etc. develop, high-quality supply chains will always be one of the underlying core competitiveness. This is what brands need to do. 2 Aim at this target for channel construction. Positioning the younger generation and only doing online is actually very weak. Consumer goods ultimately are retail business. At least so far, retail business is still in the era of channel dominance. Going offline is necessary. When Zhang Liaoyuan of Three Squirrels planned to open 1,000 stores in 2020, he explained the logic of going offline: First, although online virtual shelves can display enough products, users don't browse deeply. They generally only precisely choose the more popular products, i.e., bestsellers. But generally, bestsellers have lower profits and are not easy to make money. As SKUs continue to grow, even if online virtual shelves can hold them, users may not finish viewing them. Second, despite creating extreme cost-effectiveness, the online environment breeds serious price comparison psychology. In this online environment, other low-priced products also affect user decisions, even if the price difference is only 0.01 yuan. Third, the delivery cost of online consumption cannot be covered. High cost-effectiveness triggers user consumption, but low unit price will inevitably increase the proportion of logistics costs. Fourth, consumption experience is hard to guarantee. For example, in the beauty industry, the most common consumption scenario is trying makeup in-store. After all, users can more directly contact all SKU products offline, the effect of low-margin bestsellers is diluted; experience improves, consumption conversion will rise; price comparison atmosphere is diluted, and users don't have to bear logistics costs... This is the general logic for all online consumer brands to go offline. 3 Aim at this target for brand marketing. Marketing must aim at the target. I once communicated with a milk tea brand that, to cater to the general public such as students, white-collar workers, and the elderly, conducted marketing with different positions in multiple scenarios, ultimately resulting in inconsistent brand attitude communication. But overall, this is actually greedy for more and faster, dispersing company resources, just low-level inefficient copy-paste. Finding the smallest cut, saturation attack, and achieving single-point breakthrough is the solution. As Ren Zhengfei of Huawei said, any enterprise has limited resources. If the core and main strategic direction is determined, then all elite soldiers and resources should be deployed, saturation attack, focus on one point, and achieve a breakthrough at that point. 3 In the reconstruction of various value chains, we should establish a most essential cognition: the purpose of an enterprise is to attract and retain users. If it cannot attract a certain number of users with purchasing power, the enterprise cannot survive. From this, business operation is actually operating user value and achieving user satisfaction. In "Marketing" edited by Professor Zhou Jianbo, there is a quote: "The degree of customer satisfaction is the most important guarantee of the company's future profit highland." In fact, for a long time, brands in various domestic industries have not achieved sufficient user satisfaction. At most, they provide free services to make the entire consumption process seem like a good experience. But in fact, user satisfaction is broader and deeper than user service. It includes many factors, such as the type of service provided, product quality, price achievability, etc. How to do it? First, user lifecycle management is inevitable. Whether it's Douyin's O-5A model or Tmall's AIPL model, they all focus on the relationship between users and brands. How to make users see you, be interested in you, actively search for you, buy you, and even repurchase and recommend you? This tests the brand's capability structure. This capability structure may seem unimportant in the startup period. But after 3 years, 5 years, or even 10 or 20 years, you can see its accumulated momentum. Second, product lifecycle management. Users always have many choices to solve their problems. What they buy is not actually products or services, but solutions to problems. So the foundation of user lifecycle management is your solution lifecycle management. Focusing on new consumer brands, it's more about products: through product polishing and demand insight, on the one hand, extend the product lifecycle as much as possible; on the other hand, continuously explore the second growth curve, achieve one new product explosion after another, and cross the non-continuity of brand growth. The biggest test behind this is supply chain construction. The construction of upstream supply chains has two ways: either cooperate with mature upstream industry chains, or extend upstream yourself. How to determine whether a company should build a full industry chain itself? When the industry chain is immature, i.e., when the interfaces between various chain links are unclear, it is efficient for one company to integrate these chains. When the industry is mature, enterprises should only focus on the core and outsource supporting parts with small profits. Such division of labor and cooperation can achieve efficiency. How to build a suitable supply chain for yourself is what new consumer brands should focus on in the second half. Finally, the status of organizational capability in the consumer industry has been increasing in recent years. Lu Xiuqiong, global expert partner at Bain & Company and former CMO of Coca-Cola, even proposed that the boundaries of the consumer goods industry business were previously determined by supply chain and channels, but in the future may be determined by technical and organizational capabilities. She once said in a Chaos course that in today's new organizations, flexible small teams that make quick decisions are valued. For example, Genki Forest and KKV have both established standardized digital systems, consumer-oriented, socially listening to consumer feedback weekly. Among them, KKV has established a standardized product selection system. New products account for more than one-third of sales in a year. From the ten major product selection standardization systems starting with buyer initial selection, to three screenings and meetings, then to internal evaluation, to formal new product launch, a complete digital system. In addition, it uses a large middle platform (global supply chain selection, retail science review) and a small front desk (store managers responsible for their store's P&L) to form a model combining strategic high-level decision-making and tactical frontline decision-making. Xiao Masong previously proposed a viewpoint that even if Coca-Cola's business were handed over to other domestic companies, they couldn't take it. They have the brand and formula, but Coca-Cola's organizational connection and management from brand to over 9 million terminal outlets is an ability other companies cannot possess. Consumer goods are actually difficult to build barriers in technology, scale effects, etc., and in the end, organizational capability becomes the deepest moat. Source: Shenke New Consumption (ID: xinshangye2016) Author: Hong Zhixi