"The Boiling New Decade, No Anxiety for Fast-Moving Consumer Goods | Interviews with Jiang Nanchun, Lin Muqin, and Song Xiangqian
Date: 2022-08-06Views:
Along with the disappearance of demographic and traffic dividends, there has been a turning point in China's total retail sales of consumer goods, with the continuous rise in production and supply capacity. China has entered an era of stock competition. Against this backdrop, the uncertainties in the market have been exacerbated in 2022 due to factors such as the repeated outbreaks of the pandemic and a lack of confidence in international environmental changes. At the same time, we have witnessed the continuous rise of new brands in the Chinese consumer goods market in recent years, and dominant players have made a strong comeback through repositioning. Why do some companies break through and achieve growth against the tide? Do they actually have certain deterministic paths?
Guests in Dialogue —
Jiang Nanchun: Chairman of Focus Media
Lin Muqin: Chairman of Dongpeng Beverage Group
Song Xiangqian: Chairman of Harvest Capital
The following is a live transcript:
1、How should consumer companies respond to changes on the supply and demand sides?
Jiang Nanchun: Mr. Song, you have been deeply involved in China's consumer investment field for a long time. Given the current challenges and changes such as the fluctuating pandemic situation, slowing growth, and the era of stock competition, how do you think Chinese consumer goods companies should respond?
Song Xiangqian: Harvest Capital has been investing in Chinese consumer goods for 16 years, and we do have our perspectives on the current market environment for Chinese consumer goods. Especially considering the impacts of shocks to the supply side, shrinking demand, and weakening expectations, the consumer goods industry in China is indeed undergoing significant changes. I would like to start by analyzing it from both the supply and demand sides.
From the supply side perspective:
Firstly, as the market economy has developed to a certain extent, particularly after China's 40 years of reform and opening up, and especially since joining the WTO in 2001, almost all manufacturing industries in China, including the consumer goods and fast-moving consumer goods (FMCG) industry, face a situation of oversupply as resource allocation becomes more efficient in a market-driven economy.
Secondly, in terms of production factors, the allocation of our production factors, such as land, labor, capital, technology, and institutional environment, has been gradually moving towards market-oriented reforms over the past 40 years of reform and opening up in China. This marketization of production factors will increasingly impact the cost elements on the production side, driving up Producer Price Index (PPI), posing significant pressure on the supply cost for businesses.
Thirdly, on the supply side, there are also long-term structural slow variables to consider, such as demographic changes. With the results of the seventh national population census, it has been observed that China's population peaked at 1.41178 billion in 2022. Considering the decline in new births from 27 million when I was born in the 1970s to 10 million in 2021, the additional population is decreasing. This will lead to structural and long-term changes in labor supply, population structure, and effective demand for consumer groups, which brands and stakeholders today may not fully recognize the profound impact of.
On the demand side:
Firstly, creating effective demand becomes crucial. Managing and creating effective demand require a thoughtful approach to effectiveness. What defines effectiveness? In my personal understanding, it involves improving the income levels of middle and low-income groups, creating purchasing power. In the transition from a production-oriented nation to a consumer-oriented one, stabilizing and increasing the per capita income level is essential for achieving effective demand. This will maintain demand to drive supply, absorb capacity, and ensure a smooth flow of people and goods.
Secondly, understanding the changes in the consumer market is vital. Over my 16 years in consumer investment, deeply immersed in the study of consumer economics, I've noticed a strange phenomenon: profound changes have occurred in China's consumer market, but many brands, markets, and new entrants are unaware of it. In the past, it was the era of manufacturers, with traditional manufacturing brands like Wahaha representing the production-oriented model. Brands built channels, established deep distribution networks, and pushed products to consumers in a vertical and horizontal process. This was a fundamental characteristic of the scarcity economy era.
Today, we are in an era where supply exceeds demand, and there has been a power shift between manufacturers and consumers, with consumer sovereignty rising. Due to changes in the internet and infrastructure, our efficiency has increased. However, due to a decreasing population and slow improvement in per capita income levels, there is a risk of sliding into an era of low desires. Many brands have not observed the changes in consumer structure, consumer groups, consumer behavior, and consumer psychology.
Thirdly, understanding the opportunities and challenges brought about by infrastructure transformation is crucial. DongPeng Beverage has become a company with a market value of hundreds of billions not just because it sells products and has good growth but because it is the first traditional Chinese FMCG company to complete digital transformation, innovating by driving the distribution system through sales. Mechanisms such as electronic payment systems, cold chain logistics, supply chain reform, social e-commerce, and mobile internet provide us with numerous opportunities, tools, weapons, and the ability to better connect with consumers. Understanding and applying these trends deeply will give a company a market advantage. This presents both opportunities and challenges, and DongPeng Beverage is an innovator in this regard.
Furthermore, with multiple factors affecting market confidence and consumer enthusiasm being somewhat restrained due to preventive savings, we are still the largest consumer market with a population of 1.4 billion people. Being a country with a highly developed circle economy, with the same language, culture, and unified measurement standards, our supply chain needs to conduct in-depth research on consumer upgrading, sinking markets, and different levels of consumer purchasing power to provide different products. Personally, I believe that the companies capable of meeting the challenges of market changes and differentiations in the future can truly become kings in China.
I also want to ask Mr. Jiang. I personally think you are a super role model for hard work. You engage in extensive communication with numerous entrepreneurs from various industries every year. What are your thoughts on the current survival environment and brand communication environment in the consumer goods industry? What changes do you think have occurred?
The changes in the consumer goods survival environment.
Jiang Nanchun:Mr.Song is an economist with profound insights into the macroeconomy. Relatively speaking, I am more focused on the micro level. Although I was "frozen" in Shanghai during the second quarter, I had to conduct four to five video conferences every day. After the lockdown was lifted, I met many entrepreneurs, and the impression they gave me was that the pandemic was recurring in various places, logistics costs were sharply rising, employment situation was severe, consumer confidence was declining, and the willingness for entrepreneurial investment was plummeting. Many people asked me if this accumulation of negative factors would become a norm.
Regarding these pressures, I deeply understand three points that everyone has discussed:
First, due to the impact of the pandemic, foot traffic in offline channels has sharply declined. Second, this has led to a very tight cash flow for distributors and terminal stores, with rampant irregularities such as smuggling and chaotic pricing. General Lin, due to the digitized management of Dongpeng, has very effective overall control. However, the majority of companies do not have this, and everyone is in chaos. Price cutting is a very dangerous behavior for companies. Third, the traffic dividend for traditional e-commerce has disappeared. There is no growth space for traffic, and although interest-based e-commerce has substantial traffic, everyone reflects that they can't make money, and the return on investment is not feasible. It seems like places with traffic can't make money, other places' traffic doesn't increase, and offline is plummeting.
So, everyone repeatedly asks where the opportunities for channel growth are? You need to study both community group buying and explore whether there are new formats and channels that can help with growth. Many CEOs or Chief Growth Officers of entrepreneurs are discussing the question: Where is the direction of growth? Despite feeling diligent, having diligently studied so many new concepts, technologies, and algorithms, it seems that after learning, we are getting further away from profitability, and this is the anxiety for everyone.
Another insight I have is that under various pressures, everyone is starting to take distorted actions because they are all trying to put out fires, burning everywhere. Everyone becomes very busy, but the busy actions become distorted, and after being busy, there is even more anxiety. This is a reverse accumulation.
In a discussion I had with many entrepreneurs, I said that under the pandemic, everyone should peel away the surface and see what the essence of this challenge is. So why do excellent companies like Dongpeng thrive? Even in a pandemic, they perform exceptionally well. I think many times we should first ask ourselves: Has this crisis been magnified for me? Is my product in a crisis of homogenization? Is the crisis formed by my excessive reliance on traffic? The repeated fluctuations of the pandemic have just magnified the crises we originally had. Are we really lacking channels and traffic? If consumers really want to buy your product, can't they find it when they specify the purchase?
And what are we doing? We have made so many short videos, found countless selling points of interest, and done extremely well in short videos. Thousands of short videos, with a survival cycle of two hours, and even if done well, the survival cycle is only one day. After so much effort, what do you really want to tell consumers? The core selling point of "Tired and sleepy, drink Dongpeng special drink" is very clear. Instead, for products with many selling points, consumers are confused, not knowing who you are and what you want to say.
Under the pandemic, everyone is facing different challenges. I have conducted many interviews. Entrepreneurs in China today, like General Lin, a very determined entrepreneur, what is he determined about? My own feeling is that I don't think they are doing more than before; on the contrary, they are more focused. Focused on product innovation, focused on the improvement of internal digital efficiency, and focused on consumer mentality. I think these are three very important focuses for them.
Mr. Drucker said that a business actually only has two functions. The first is innovation, creating differentiated products and services. The second is becoming the preferred choice in the minds of customers through marketing. Everyone should focus on these core issues, which are the product innovation, the improvement of internal digital efficiency, and the external shaping of consumer mentality that we just mentioned. I think these are the core issues. Sometimes we are too diligent, doing too many things that do not have cumulative value.
Today, when traffic comes, we quickly go after the traffic dividend, and when social group buying starts, we quickly engage in social group buying. Today we study this algorithm, and tomorrow it's another one. You think that after studying a certain algorithm for a year, you understand it more and more, but the result is that the algorithm changes the next year. Are you tired? Can you keep up with the platform? In fact, it's just constantly playing games with the platform, algorithms, and the uncertain market. I think we should reduce some actions and focus on core issues. Do things that are certain, repeatable, and accumulative. Build a solid fortress and fight the dull battles.
What should we learn from General Lin of Dongpeng? Why is his return on investment and overall growth much better than many new consumer brands? I think we should learn three things:
First, learn the capability of the supply chain. If you can't master the supply chain, there is no economy of scale, and one-third of your profit is gone.
The second thing is to learn the capability of offline channels, the ability of deep distribution. This is actually a difficult thing. Many people think that online is faster, but online has unlimited mentality and unlimited shelves, where all brands are together. Offline has limited shelves, limited mentality, and when placed together for competition, only a few brands are involved, relatively less chaotic.
The third is to seize the mentality. "Tired and sleepy, you should drink Dongpeng special drink" is a conditioned reflex for consumers. After being tired and sleepy, they immediately think of it. Many marketing activities involve "goods finding people," precise distribution, while "people finding goods" is when you are tired and sleepy, Dongpeng special drink immediately comes to mind. This is what a brand is.
In 2022, indeed, we are facing the end of the demographic dividend, but I believe there is no need to worry because the dividend of human sentiment is unfolding. Although the traffic dividend has ended, the brand dividend is on the rise. The pandemic poses a significant challenge for many companies with weak brands and distribution networks, but for brands like Dongpeng, it is actually a great opportunity.
During economic downturns, consumers tend to spend their money more prudently on brands that offer greater certainty and stronger trust. So, during these times, General Lin and his team are stepping on the accelerator, creating a gap and seizing the opportunity to expand market share.
In summary, I believe that brands exhibit the largest Matthew effect in the business world. In the long run, after every crisis, brand concentration tends to gather around the leading brands. Compared to 2020, 2022 presents more economic challenges with rising raw material costs and declining consumer confidence. However, it's important to note that economic stimulus measures are continually increasing, infrastructure investment is expanding, real estate policies are easing, and the platform economy is expected to rebound. I believe that during these times, crises can be transformed into opportunities.
Even in the face of a harsh economic environment, strong brands do face challenges, but they have the courage to step on the accelerator. This is because many small and medium-sized companies exit the market during tough times, leading to a noticeable acceleration in competitive participation. At this point, leading brands leverage their strengths, and their relative market share only tends to expand. Crises and harsh economic conditions are precisely the times when the market is being cleansed, and strong brands seize the opportunity to charge ahead on the racetrack. Every crisis is a time when brand concentration increases. Therefore, I believe that strong brands need to seize opportunities to launch battles and capture larger market shares.
The success of large enterprises relies on what? It relies on the ambition and perseverance of entrepreneurs. A truly good brand is built by continuously doing things that bring long-term compound benefits to the brand. Companies that dare to make the right choices during crises are sure to become stronger and more powerful after the crisis.
Using Dongpeng as an example, let's examine the driving forces behind the brand.
songxiangqian:I also asked Mr. Lin a question: External environmental challenges are undoubtedly significant, but we have seen that Dongpeng Beverages has maintained outstanding performance in recent years, consistently outperforming the market and increasing market share. What are the driving forces behind this success?
Lin Muqin: As everyone knows, industry growth comes from two main sources: incremental markets and stock markets. The total size of the stock market cake is already substantial, and to sustain growth, one must engage in direct competition with competitors. Since its inception, Dongpeng has emphasized the importance of growth, making it the cornerstone of our corporate strategy. This growth philosophy has permeated the essence of our employees; we must grow. Our financial reports over the past few years reflect the implementation of this growth philosophy. This year, due to the Russo-Ukrainian War and the rise in raw material prices caused by the pandemic, the overall market growth rate has slowed down or even stagnated. Yet, even in such a challenging year as 2022, we are determined to continue growing.
I believe Dongpeng's growth mainly stems from four aspects: Product Power, Brand Power, Channel Power, and Cultural Power.
**Product Power:** Products are fundamentally crucial. Dongpeng is fortunate to have entered the energy beverage sector, which I consider a favorable track. This track has its advantages—it can satisfy the part of consumers that remains unsatisfied or in need. When people are exerting effort, even in the process of running a business or working, they need products like Dongpeng Special Drink, which provide a clear sensory experience and become effective within half an hour. After returning from a journey in the Gobi Desert, I drank two large bottles of Dongpeng Special Drink that day. All our friends in the expedition had a bottle of water on the left and a bottle of Dongpeng Special Drink on the right. Because it has a clear effect, this is a good product.
**High-frequency consumption:** After consuming it today, you will need it tomorrow and the day after. Therefore, we believe this is a good track. In addition, our mainstream product, the 500ml large gold bottle, has entered a good mainstream price range—5 yuan. This type of large packaging product exhibits strong vitality and market power in the market competition. It has the potential to become a billion-dollar flagship product.
**Continuous product improvement:** We believe that building a product is like raising a child—it requires daily contemplation and must be refined to perfection. Quality is fundamental, and it should gradually improve. A small bottle of beverage is easy to produce, but making it better requires time and accumulation. We continuously improve the content, transform and upgrade raw materials, and enhance the entire production process to make the product better. Simultaneously, we think about how to control costs, giving the product cost competitiveness within the beverage industry. We aim to make the product the industry leader, making it impossible for competitors to surpass you. That is the essence of product power development.
Many internet-famous products, developed and then outsourced for production, often exhibit severe homogenization. Products that everyone can produce are not good products. To take a product to the extreme, making it unsurpassable by competitors, is the fundamental development of product power.
**Brand Power:** As Dongpeng developed, we also emphasized investment in advertising. The recent cultural confidence and the rise of national brands in China have also provided substantial support for Dongpeng.
**Channel Power:** This is reflected in two aspects: expanding more and more outlets and increasing sales per individual store. With our company's development, we have gained momentum in sales.
**Cultural Power:** Dongpeng is a company with decades of accumulated culture, especially in the core team, which is stable, focused, dedicated, and has a spirit of hard work. Since the beginning of the 2020 pandemic, we have been thinking about how to resume work and production faster than our competitors, and how to penetrate the market more quickly. This year, under strict pandemic control, we consider how to deliver products to retail terminals promptly, how to open up more closed channels, and how to find growth points in our region. All of these are achieved through incremental efforts.
Dongpeng possesses these four capabilities, and, as I will discuss later, some innovative digital applications. Fortunately, this year we can still achieve growth.
Investors' Perspectives on the Traits of Exceptional Founders
Song Xiangqian: I indeed have some say in Mr. Lin and Dongpeng since I have known Lao Lin for nearly 10 years, and I am also the second shareholder of Dongpeng. I think using numbers can better represent the company's growth capability and market positioning. In the past 5 years, Dongpeng's compound annual revenue growth has been 20%. The compound annual net profit growth over the past 5 years has been 50%, making it a leader in the Chinese food and beverage industry.
I am familiar with Lao Lin and Dongpeng, and I would like to share some of my thoughts.
Firstly, I think Dongpeng and Lao Lin exhibit a particularly prominent characteristic of the Chinese nation – practicality. The functional beverage category, originally invented by the Xushubiao family in Thailand, was first established as a national brand in this category in China by Lin Muqin, with Dongpeng Special Drink.
I think Lao Lin understands that the competition between strong brands for the championship and runner-up is a close combat, with each side closely engaging, learning from each other, and mutually improving. Lin, with a champion's heart, believes that in life, one must have dreams, work together to create, pursue, and fulfill dreams. However, in this process, we must stay grounded. So, when tired or exhausted, drink Red Bull, or in this case, when fatigued, drink Dongpeng Special Drink. Even the classic melody of the 1998 French World Cup promotional song "Cup of Life" is vividly used by Dongpeng.
When Dongpeng Beverage went public, two significant things were done. First, paying tribute to our competitors, it pioneered the Chinese functional beverage market. Thanks to our opponents, it's you who made me so strong; those who couldn't defeat me made me even stronger. The second thing is the strategic cooperation reached with the Han Hong Foundation for a four-year period, totaling a donation of 20 million RMB. Dongpeng is a very pragmatic company, and every move it makes is highly valuable.
Lin Dong is a person with a far-sighted strategic vision, understanding the importance of strategic positioning, not just in terms of product or brand positioning. He positioned Dongpeng as the first brand in functional beverages, becoming the pride of national brands. Supporting Chinese consumption, helping national brands, entering the human world, and empowering people's lives are the wishes of Harvest Capital and the pride of Lin and his generation of Chinese national brand entrepreneurs. In the first quarter of 2022, Dongpeng's sales market share has surpassed Red Bull, effectively becoming the overall champion in the Chinese functional beverage market.
The third point I want to highlight is Lin's understanding and insight. Lin's market insight is excellent. Only by establishing a perfect product insight based on the deepest understanding of human nature can a business model full of humanistic care and values be created. Let me share a little story. When Lin and I were discussing the possibility of reducing product prices, he ultimately decided not to lower the prices but to increase the quantity. This move, introducing a 500ml larger-size product, was based on a thorough understanding of the market. On the surface, it seems like an innovation in product categories, but behind it is a deep respect and understanding of the market and consumers.
During the nationwide logistics disruption caused by the pandemic this year, truck drivers were severely affected. Lin made these drivers feel the care and condolences from Dongpeng, a national brand, during their darkest hours. We donated a total of 300,000 cases of beverages, not only showing care and support for this special group of people but also representing Dongpeng's assumption of its social responsibility and mission.
Lin has many innovative ideas and methods, seemingly from market insights, product innovation, channel strategies, and brand innovations. But more importantly, it comes from capturing the hearts of consumers. The ceiling of a brand is the hearts of the people. While the demographic dividend may be waning, the dividend of consumer sentiment has just begun. The dividend of traffic may be decreasing, but the dividend of the brand is just starting. Dongpeng truly creates value for consumers. Its digitalization is the first among Chinese consumer goods companies to break through the barriers between business and consumer ends, going deep into the consumer end, establishing data assets, and reverse empowering the business end and flowing back to the consumer end, creating a C2M business model.
Most Chinese consumer goods companies mostly follow a model of selling goods, and very few truly cultivate the lifelong value of consumers. Dongpeng digitally covers all value points related to production, operation, marketing, brand, channel, and sales in its entire supply chain. Its system, accessible through mobile phones, knows all the data of the day regarding inventory, sales, unboxing, and uncorking. What does this keen insight represent? This kind of innovation and iteration is not just the application of tools; more importantly, it reflects a deep understanding of the enterprise's value chain and industrial internet, as well as the ultimate pursuit of efficiency in business operations.
The Austrian School economist Joseph Schumpeter proposed the innovation theory, stating that social progress mainly comes from the innovation of entrepreneurs. Entrepreneurs, because of innovation, deserve their social value and status. If it is merely relying on management, it is just exploiting workers' wages.
Finally, I think the founder's learning ability is crucial. Lao Lin is currently pursuing a Ph.D. at Tsinghua University and maintains an attitude of lifelong learning. He is serious and has a strong ability to learn. I think this ability is a crucial driving force that propels a brand forward, allows a company to upgrade and iterate, and promotes an organization to gain institutional dividends.
Dongpeng is indeed a powerful national leading innovative consumer goods company, and that concludes my summary. Lin, I would also like to ask you about the fast-moving consumer goods industry. In terms of products, brands, channels, and digitalization, which form the business development triangle, what experiences do you have to share regarding the construction and development of the relationship among these three elements?
Product, brand, and channel, brand iron triangle management experience.
The 5 Major New Trends in Brand Communication
Jiang Nanchun: Just now, Mr. Lin talked about how, in different eras, he applied various media to promote his brand, incorporating numerous innovations. In different times, the use of traditional media like CCTV, the advent of long video ads, and the interaction at touchpoints, such as encountering an advertisement for Dongpeng when using a navigation app like Amap while driving, all contribute to effective brand communication. These scenarios are well-conceived. In office buildings, when feeling tired, reminders to drink Dongpeng Special Drink appear; returning home in the elevator, Dongpeng Special Drink is visible again; even while binge-watching, Dongpeng is consistently present, and so on. From my perspective, touchpoint marketing is a return to the human perspective, rather than focusing solely on the types of media.
I believe there are five significant trends in communication.
The first trend is centralization versus fragmentation. According to a survey conducted by the world's largest research institution, KANTAR, in China, the highest reach is currently achieved by internet advertising, followed by elevator advertising, and then television advertising. These three media are considered the three major media channels in China. While internet advertising has the highest reach, can fragmented internet effectively ignite brand awareness? Personally, I don't think so, because the vast amount of information on the internet can easily overshadow any efforts, no matter how significant the investment. In the past, some major fast-moving consumer goods (FMCG) brands might dominate the screen with a 10-billion annual advertising budget during the TV era, which felt like a golden age. However, with today's tens of billions of advertisements on the internet, it seems less impactful, lacking the dominance seen in the past. The internet, with its vast space, resembles the universe – no matter how many speakers you bring, your voice may get lost.
Returning to the ground, whether it's in Shanghai or Shenzhen, there are only a few thousand office buildings, tens of thousands of residential communities, and a few hundred large shopping centers. Limited space is easier to ignite, while infinite space is not. The internet should be approached using its own methods, focusing on precise traffic distribution, connecting goods with people. I believe it's not about goods finding people; it's about people finding goods, which is the essence of building a brand. When tired, people should think of drinking Dongpeng special drinks. When young people develop a reflex to this idea, it becomes a case of people finding goods. While one-on-one distribution may seem precise, for building a brand, I think it needs to be on a large scale, not just known by one person but by everyone – "When tired, drink Dongpeng special drinks." A brand becomes a social consensus, tapping into the psychology of following the majority, where most people's behavior is guided by the consensus of the entire society. Transactions focus on one-on-one efficiency, but a brand addresses not only buyers but also decision-makers, influencers, communicators, and experiencers – all of these groups create a chain reaction, which, according to Drucker, is the ignition of a brand.
I believe social seeding is crucial, but planting seeds on the internet, like a grassland, might leave you struggling to find your own grass after the seeding boom ends. Now is the time to plant trees, exposing the brand like a familiar and towering tree. Inject the core values into the consumer's mind, creating a reflex – that, I believe, is the true essence of a brand. Like Dongpeng, which is a towering tree, only then will people pay attention to what they say, hence the term centralization versus fragmentation.
A decade ago, we witnessed the success of television. Seven or eight years ago, we saw the success of entertainment variety shows in Hunan and Zhejiang provinces. In recent years, Focus Media reaches 410 million people every day. I believe that to truly impact a brand, there must be a centralized media. Brands that have succeeded in different eras were all ignited by centralized media. Fragmented internet is a form of traffic distribution and not a process of brand building. We can understand it as more often being a channel, precisely distributing content on the channel to improve efficiency.
The second trend is repetition against forgetfulness. Professor Daniel Kahneman's book "Thinking, Fast and Slow" discusses the irrationality of human decision-making. Since only 20% of a person's daily energy is used by the brain, relying on rational thinking all the time is impractical and exhausting. The brain has a self-protective mechanism, using intuition for 95% of the time and rational thinking for only 5%. So, how does "intuitive response" in the consumer's mind process information about the world? The information that is heard frequently and is easily recalled is often considered the truth. When we develop reflexes like "drink Wanglaoji when feeling heaty" or "drink Dongpeng special drinks when tired," consumers can quickly recall these truths. Advertising aims to establish these reflexes. The ultimate goal is to simplify consumer decisions. Consumers don't have the energy for extensive analysis; they make choices based on reflexes created by brands.
Professor Kahneman also stated that the best way to make people believe in a concept or thing is through continuous repetition. Humans often struggle to differentiate between familiarity and truth. What is a true brand? It becomes a standard, common knowledge, and a choice made without hesitation. After reading this book, I understood that Focus Media's function is to repeatedly convey messages to customers as they pass through places like apartments, office buildings, shopping malls, and theaters. Gradually, familiarity is built, establishing trust and a sense of security. As mentioned by Mr. Lin earlier, building a brand is a long-term process that requires perseverance, ultimately becoming the subconscious choice of consumers.
The third trend is certainty against uncertainty. Advertising is similar to investment; it should involve certain, repetitive, and accumulative activities to enjoy the compounding effects of time, avoiding reliance on luck. Therefore, Mr. Song's investments have been successful because he pursues a high level of certainty.
There are three methods for triggering brand ignition in communication. The first is event marketing, such as "Chinese Li Ning" at New York Fashion Week or Hongxing Erke donating 50 million to the flood in Zhengzhou. The second is betting on popular variety shows, like Jiaduobao's "The Voice of China," Yili's "Where Are We Going, Dad?," Amway's "Run, Brothers," and Mengniu's "Super Girl," choosing the most popular variety shows of the season. The third is a centralized approach, integrating into the most common daily life spaces and scenarios through Focus Media.
While the first two methods have good returns, their certainty is not high. There are only two or three truly popular events or variety shows each year, making them rare and unpredictable. In 2019, 2020, and 2021, according to Ipsos' tracking surveys, 80% of the most memorable advertising slogans in China came from Focus Media, 50% from the internet, and 40% from television – the three major media channels. Elevators, being a single-channel medium, provide a high level of certainty since going home or to work is a very predictable activity for hundreds of millions of people. I believe using a logical approach with certain media is effective in winning in an uncertain communication environment.
The fourth trend, which I strongly agree with Mr. Lin's statement, is that advertising to enhance a brand ultimately needs to be combined with sales, achieving brand and effectiveness synergy. After running brand advertisements, how can results be quickly generated?
I believe there are three important points. First, brand advertising should be integrated with scenarios, as sales happen where there are scenarios.
For example, in an office building, you might see people working late and drinking Dongpeng special drinks. When you go home to an apartment, you might watch late-night sports, follow dramas, or engage in esports while drinking Dongpeng special drinks. Triggering specific needs in specific scenarios, such as Flower Kiss in a time scenario on February 14th, saying "Sending flowers is not as good as sending Flower Kiss." On May 20th, creating a locked lipstick, saying "A lifetime of love, forever united." If you didn't give your girlfriend a locked lipstick, it indicates that you don't want to commit to her. Another example is a Lux advertisement, where consumers, after pressing the elevator button, turn around to see two enlarged buttons on the elevator poster, both with fingerprints, reminding everyone to use Lux to wash their hands when they get home. Pantene's advertisement features a mirror – before going to work, you're a goddess, and after work, you're just an ordinary person, because you didn't use Pantene and didn't maintain fabulous hair all day. Four years ago, during the World Cup, Vatti, through Focus Media, invested two or three million, creating a sensation with the slogan "If the French team wins, Vatti refunds the full amount." It later generated billions in sales. This is leveraging media for scene triggers, combining event marketing with the time, place, and characters involved, creating new demands, stimulating potential needs, and generating business growth.
The second point of brand and sales synergy is digitization. Can the data from online advertising be fed back into Tmall's data bank? Focus Media is possibly the first and may still be the only one in China capable of integrating offline and online data. You can observe changes in conversion rates between people who have seen Focus Media advertisements and those who haven't. For the targeted potential customers who have seen Focus Media ads, there is usually an increase of around 50% in online conversion rates. Active searches may increase by 30-40%, and after the second follow-up, the conversion rate becomes even higher, forming an effective closed loop.
The third point is offline traffic flow, directing advertisements to offline terminals. For example, if I'm near Carrefour, I direct the ad towards Carrefour; if it's Walmart, I direct it towards Walmart. After directing towards the terminal, exchange volume with the terminal. By advertising and guiding traffic to the terminal, the terminal will provide more opportunities, not only influencing consumer awareness but also triggering joint flow with business terminals (b-end), creating more sales opportunities and forming a better synergy between brand and effectiveness. The principle hasn't changed, but there's a lot of room for enhancement at the technological level.
In recent years, Dongpeng Beverage's regional expansion has been remarkable, not only bringing substantial growth to the company itself but also setting a benchmark for industry development. What new plans does Dongpeng have for the future?
Dongpeng's Belief
Advice for Entrepreneurs
Firstly, this is an era where good people make good entrepreneurs. Only individuals with character can do proper category planning, choose quality, implement good quality control, and have the taste to create a good brand. Behind a product is the entrepreneur's character. What kind of product you create is a vote from the people, either by hand or by foot, representing a score for your character.
Secondly, you must understand the long-term value of the enterprise.
Thirdly, you need to respect the value of people. Nowadays, consumer goods companies operate in the relationship between people, goods, and the market. They manage goods and the market, playing with the relationship between goods and people. But in the future, it will undoubtedly be a revolution where people seek goods. You must have a brand, and it must have good quality. You must genuinely focus on the consumer and manage the lifelong value of the consumer. Only forming a product sales model will make us increasingly distant from the Chinese people. With a population of 1.4 billion, we can completely have our Nestlé, our Red Bull, our Coca-Cola, our KFC, and our Starbucks.
The world of business itself is a relationship of attracting new customers, retaining them, converting them, and making them repurchase. Long-term operation is essentially based on relationships with people. This is an era of consumer rights reversal. The more you respect consumers, the more consumers love your brand. Consumers use the hard-earned money to purchase your products and services. You must live up to this trust. Essentially, it is the establishment of a high-dimensional trust relationship. Once established, it is not easy to break, and once broken, it is challenging to regain. China needs the establishment of such a business culture, a culture of trust relationships.
Another essential point is, what is the long-term value of our enterprise, and how can we ensure the foundation remains evergreen? We need to shift from limited physical space and limited physical competition in the relationship between people and goods to the cultivation of an infinite spiritual track. In the next 20 to 30 years, the competition in China's consumer goods will undoubtedly be the competition of brands.
The most valuable thing for Dongpeng is the brand. The threshold for entering the consumer goods industry seems low, but the competition barriers are particularly high. From supply chain knowledge, product knowledge, channel knowledge, brand knowledge to consumer behavior and consumer psychology research, to digital communication matrices, digital management, operation of the supply chain, and so on, it is an industry with an exceptionally long industrial chain.
I think Japan has many hidden champions because they respect the market, respect consumers, and provide perfect products with a craftsman spirit, striving for excellence. In China, due to the massive market, advanced infrastructure, and powerful flow empowerment, it has created many illusions in the market. People think that making one or two hundred million is already a business, but I joke that in China, a company with a level of 500 million is considered just getting started. When business starts to become a career, only then can you truly understand the market, understand the brand, understand quality, and conduct business ethically.
The future success of China's consumer goods, truly able to hedge against economic downturns, will undoubtedly be based on two things: technological empowerment and brand empowerment. Without these two crucial elements, the dust of the times falls on everyone, forming a mountain. However, companies with technological empowerment and brand connotations, genuinely altruistic enterprises, will be high-dimensional and evergreen in future business competition. Breaking through the underlying growth logic of long-term value, such companies are genuinely valuable. Everyone should remain full of positive energy, advance together with China's hardworking individuals, never lie down, and choose to strive forward.
In the future, there will be two major changes in building a brand.
Song Xiangqian: Teacher Jiang, I have another question for you. After years of strategic brand positioning for enterprises, what changes do you foresee in the process of establishing consumer brands in China in the future?
Jiang Nanchun: It faces two challenges. First, there has been a significant change in the consumption preferences of different demographics. Some products lead consumption upgrades, while others aim to penetrate lower-tier markets by offering better value for money to change the market. In my opinion, brands play a crucial role in upper-tier cities, whereas channels have a greater impact than brands in lower-tier cities.
The second aspect is that many companies focus on ROI (Return on Investment) every time. Many say that anything with an uncalculable ROI should not be invested, but I believe that even if you can calculate the ROI, it's challenging to invest. I actually think that you should focus on areas where ROI cannot be calculated but hold tremendous potential returns. ROI gives a false sense of calculability; in reality, you are being fully understood by the platform, and you won't get better returns.
I believe that a brand is the essence of business growth, not relying on traffic. The real algorithm is the algorithm of people's hearts, and a brand is a continuous source of free traffic. Public domain traffic is expensive, and private domain traffic requires a lot of effort, but more importantly, there is heart domain traffic.
Channels are important, but today, channels are abundant, and nobody can't find you. The core issue is whether they love you; otherwise, you fall into a syndrome of seeking traffic thirstily. If one live streaming platform isn't working, another rises. An entrepreneur's attention should not be focused here. If you concentrate on too specific effects or immediately visible promotions and traffic, you will become busier but less certain. Lin's confidence comes from what? It comes from a correct choice he made many years ago. He will continue to advance as the strong become stronger. I always believe that management is not about managing results but managing critical cause-and-effect relationships. If you get the causes right, the results will generally be right.
Song Xiangqian: Let me ask Mr. Lin. How do you see the future of third- and fourth-tier cities or the coffee track now?
Lin Muqin: I think there will still be a certain incremental market in the coffee track in the future. In the future beverage market, I am optimistic about both the coffee track and our Chinese tea beverage track.
For two reasons, in terms of product characteristics, the coffee track, currently, from the brewed coffee consumed by Chinese people to the coffee purchased in coffee shops, to our future pre-packaged coffee, still has relatively low sales in China. I believe there is potential in this area as cultural development and popularization progress. Regarding tea consumption, I have always believed in the existence of long-term benefits. Pursuing an ecological and simple ingredient list is the trend in China. We hope more fast-moving consumer goods companies can launch products with their own characteristics.
I think the future in China is the era of development for our national enterprises. Two reasons, first, with the increase in confidence in our national identity among the younger generation and their love for Chinese products, including the pursuit of quality and brand by Chinese entrepreneurs and companies, there will be a process of the rise of national brands in the future. We also believe that the Chinese people are a hardworking and learning nation, good at learning and creating. Twenty to thirty years ago, our fast-moving consumer goods basically had no place in China, including many daily chemical products and beverages. But now, we can proudly compete with some multinational companies. This itself is a manifestation of progress for our companies and for China. So, I also believe it will get better and better.
In this process of improvement, we will continue to create more categories. I have always believed that the product is the key. Products need to truly meet consumer needs. We emphasize to our team not to play with virtual things but to play with real things. We don't pursue momentary victories; we want to pursue long-term benefits. We also believe that future Chinese companies can come together and do better.
Song Xiangqian: Charlie Munger once said, "Macro, we indeed must accept, but microscopically, we must actively do something. Pessimists are correct, optimists move forward, and only wise individuals who maintain a lifelong learning attitude will win in the future."
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