Author: Li Yunlong, Zeng Nan
Publisher: CITIC Publishing House
Publication date: March 2022
In this day and age, growth remains an eternal topic for businesses. However, when it comes to growth, many people will inevitably fall into the chase of traffic ends such as pulling new, fission, and private domain operations. But be vigilant is that sustained growth is not a trick on the traffic side, but the ability to create corporate value.
Value creation is to think about where the utility of the buyer comes from. Labor or capital does not naturally create value, and we consider it valuable only if the result of labor and capital creation achieves the utility of the buyer.
In the structure of "value creation + value transmission", we firmly believe that value creation is 1, value transmission is the next 0, the more sufficient the value creation, the easier the value transmission, and the flow is a part of the value transmission.
The first thing to think about when doing growth is what unique value you create, not how to find some cheap traffic. Value creation is difficult and correct, it is the underlying logic of long-term sustained growth. Flow capacity is important, but traffic can only play a greater role if it is created in value.
"Traffic" is addictive, and enterprises need to quit
Talking about domestic enterprises that rely on traffic fire, Perfect Diary naturally cannot avoid this topic. The star cosmetics company, known as the "light of domestic products", has a revenue of 5.23 billion yuan in 2020, an increase of 72.6% over the previous year.
In the growth circle, Perfect Diary is also the focus of discussion, people are learning its private domain traffic operation methods, celebrating the light of domestic goods Perfect Diary defeated the old foreign companies "L'Oréal", and domestic brands have since stood up. But unexpectedly, just one year later, Perfect Diary hit the ceiling of traffic.
According to the company's financial report, although sales in 2020 were 5.23 billion yuan, the net loss for the whole year exceeded 50% of revenue, reaching 2.69 billion yuan. Its expenses for marketing and sales reached 3.41 billion yuan, accounting for more than 65% of the total revenue, and there is still an upward trend.
The predecessor of the same track, L'Oréal, has never let the marketing expenses account for more than 15% in the past 5 years. In the prospectus, the resources of kols (key opinion leaders) with which we work together are seen as the core competencies of Perfect Diary.
The core capabilities of the enterprise should meet the 5 characteristics: can not be stolen, can not be bought, can not be opened, can not be taken away, can not slip away. Obviously, KOL resources are not part of the core competency, and they can be removed at any time.
Traffic is important to businesses, but "traffic thinking" is like drugs. As soon as you use it, you get pleasure, and it will make people gradually difficult to extricate themselves. Companies buy traffic, immediately get feedback, and think that this is the way to operate, but they don't know that they have fallen deeper and deeper, and they don't have the time and energy to build the core barriers that are really important.
In 2019, L'Oréal's R&D expenses reached 914 million euros, while during the same period, Yixian E-commerce (the parent company of Perfect Diary) invested a total of 23.179 million yuan in R&D expenses of Multiple brands such as Perfect Diary, Little Odin, and Completed Son's Heart Selection. They are not an order of magnitude at all. What a company thinks is important, don't look at what it says, look at where it spends its money.
If you analyze it carefully, you will find that companies that regard traffic as a core competitiveness are becoming more and more like empty shells. R&D has no advantage, marketing relies on cooperation with rising prices of external KOLs, and it seems that only users accumulating in the private domain community and brands and empty shells are left.
The company does not have the opportunity to operate users in depth, and can only simply reach and send coupons, not because it does not want to operate in depth, but because the cost structure is not supported.
The rise of the perfect diary brand, playing is a cost-effective strategy - big name flat replacement, cheap is the biggest reason for users to choose it, the company can only make very little money from each user, naturally does not support deep operation of users, resulting in more and more serious user loss, a negative growth flywheel formed.
With the development of digital technology, the ability of enterprises to reach users, that is, "traffic ability" has been greatly improved, which is a good thing, and companies that catch early dividends can often achieve rapid growth at low cost.
But the world can not only look at the present, as long as you look backwards, it is not difficult to identify the risk: others will keep up, competition will intensify, traffic prices will rise. At this time, if you can only swing the traffic stick, the easiest to hurt can only be yourself.
Since 2019, brands such as Huaxizi have begun to exert efforts in KOLs, directly pushing up traffic prices. Perfect Diary can no longer make fast money, it needs to learn to make slow money, and change from "traffic thinking" to "value creation thinking" as soon as possible.
It's good that brands can face consumers directly, but they can't think of consumers as traffic, but as living people. In this sense, continuing to expand marketing cannot bring the perfect diary out of the quagmire, and betting on product development may be OK.
Value curve to help break the value game
The value curve is widely used in books such as Blue Ocean Strategy, which can visually present the value proposition offered by a product. The horizontal axis exhausts as much of the user's possible value proposition as possible, and the vertical axis is the degree to which such value proposition is satisfied.
Taking the express delivery industry as an example, the value curve can be presented in the following way. The value proposition of the express delivery industry is nothing more than price, delivery speed, corresponding speed, safety, brand, service and other factors.
Value Curve of Express Delivery Industry Image Source: Growth Strategy
In order to highlight the difference, when drawing the value curve, several "competitors" can be drawn together. Competitors are not exactly "competitors that meet similar needs in a similar way" in the usual sense, but are often "substitutes that meet similar needs in different ways", or even "other products that meet the different needs of users but complete the same to-do tasks of users".
For example, in the field of aviation, we usually think that Air China is a direct competitor with China Eastern Airlines and China Southern Airlines, and although high-speed rail and aircraft are implemented in different ways, the needs satisfied are the same: to bring passengers from one city to another.
In this sense, high-speed rail is an alternative to airplanes. Further back, some people travel across the city out of business travel needs, they have to meet with customers, and now DingTalk, Feishu and Tencent meetings are getting better and better, can smoothly achieve cross-city online meetings, the effect is not too much discount. This part of the user thus reduces the demand for flight, then DingTalk, Feishu and Tencent Conference are the airline's choices.
There's a word in the Internet called "cross-border strikes" that used to be very hot: when companies stare at the direct competitors in their vision, substitutes and other selections may have killed you and your competitors.
Unity and Master Kong have been competing in the field of instant noodles for many years, regarding each other as the biggest competitors, and the rise of takeaway has made the volume of the instant noodle market decline as a whole, and Meituan is the competitor they ignore but are really important.
Presenting the value curve is only the first step, and here are a few more questions:
First, are the listed value propositions complete?
Second, are these value propositions really of concern to users?
Third, how to adjust the value curve to highlight the differentiation and achieve value breaking?
Taking the super orangutan gym as an example, when the entire fitness industry has shown that "we need users", there is a company that does not have a salesperson, and the coach does not sell, but it has achieved rapid growth, the number of stores exceeds 100 and is still expanding rapidly, the number of paid users exceeds one million, and the annual consumption amount exceeds 500 million yuan, which is the super orangutan.
When it comes to the gym, we should have a sense of picture in our minds: treadmills, swimming pools, coaches who swim back and forth, strong men in the power zone and girls bouncing around in the gym, and perhaps "Swim fitness to understand" and "Brother, I will arrange an experience class for you, when to come", and "This is a place where you can take a bath".
The business model of this industry is also very routine: renting space, decoration, credit equipment, selling annual passes, and selling more annual passes under the condition that fixed costs are basically unchanged, the more the better. As for whether users will come or not, this is something to consider when renewing the subscription next year.
The average number of times Chinese gym users go to work out during the annual pass period is single digits. The social ratings of the entire industry are low. An industry has fallen to this point, and there must be opportunities for innovation, and the super orangutan team has taken a fancy to this point.
What is the value proposition of a user with fitness needs for a gym? Maybe it's the following: whether the price is reasonable, whether the transportation is convenient, how about the coach, whether there is an effect, etc.
If all the value points of a new enterprise are the same as those of the existing gym, then it is just another repetition of the original vicious circle, and if the new enterprise wants to achieve value breaking, it must realize a completely different value proposition.
How does a super orangutan do it? After choosing a gym, users immediately have to face the annual card, but they will worry that they will go less and lose money. Super Orangutan said, it's okay, we pay once, come and pay once. "So, is each lesson expensive?" Other gyms ask the trainers to pay 300 to 400 yuan per class.
Super orangutans are tens of yuan per class, up to more than one hundred yuan, which is one of the prices of other gyms, and they are also led by star coaches. "Then will it keep calling me and asking me to take classes at a high price?" No, the company does not have sales staff, will not bring any disturbance to users.
The question is, how does it get so good and cheap? Because super orangutans have strengthened some value propositions while weakening others, and have differentiated themselves from other gyms. For example, can you understand that a gym can't take a shower? Super orangutans can't take a shower, so you can change your clothes after you've worked out.
For example, can you imagine a gym without treadmills? The super orangutan does not have it, its site is very small, usually one or two venues, a gymnastics classroom, a cycling classroom. It also has no extra people to provide services, except for the instructors who take classes on a per-session basis, each store has only one or two people responsible for check-in and cleaning, and there is a vending machine that wants to buy water for you to come by yourself. Everything is to reduce costs, which can achieve low prices on the user side.
How businesses realize the value curve
It's not hard to draw a value curve for your company, the real difficulty is to adjust the value curve and form a differentiation. Before adjusting, you need to evaluate each value point, which can be evaluated from the following five perspectives.
First, no. This is the first thing to do after drawing the value curve. With so many value points, which ones can be unwanted? Over-delivery of a product to the user is the biggest problem. In the case of the super orangutan, "bathing" was verified by them as "no and not" for the target user. Even the value point of "low price" is not what all users need. For example, if you draw a value curve for a business school, the weight of "high-quality connections" must be more important to their users than "low price."
Second, the bottom line demand. A certain value point is something that the business model must adhere to and cannot be destroyed, and it is often a certain commitment of the enterprise to the user. For example, schools that promise to hire native English-speaking teachers can't hire Ukrainian teachers to teach, even though many users can't tell the difference in appearance between blonde teachers.
Third, just enough. Assuming that a certain value point is indeed needed by the user, but continuous work on this value point cannot continuously increase the user's utility, then such value points can be basically enough. The pursuit of product extremes is what many companies claim, even if it does not consider the need for communication, the real pursuit of product extremes, we should also distinguish in which points there is a need for extremes.
For example, there are restaurants that promise users 10 minutes to serve food, which is already affordable for users, after all, it is not to eat fast food, and users have to chat after sitting down. If you continue to work on this value point, shorten the serving time to 5 minutes, on the one hand, the value of the user is not much improved, on the other hand, the restaurant has to bear a high cost, so this is not a good choice.
Fourth, the more the merrier. Before the threshold is reached, the utility of the user increases as a certain value point increases. For example, taxi software, after the user sends out a taxi request, is hoping to respond as soon as possible, the optimization of this scenario is continuously necessary, such value points often have a high learning cost, that is, the first mover has a longer advantage cycle. For example, in the field of lithography machines, the accuracy has developed from 100 nanometers to 5 nanometers, and the more precise the better.
Fifth, bring surprises. It turns out that the user did not expect a certain value, but the product may suddenly bring surprises. Users went to dinner and did not expect the restaurant to provide a mobile phone bag to pack the mobile phone to prevent splashing oil, but the waiter of Haidilao did it, bringing a surprise.
This value point is best not to add too much additional cost, and it is not cost-effective to rely on high costs to support surprises. For example, the delivery man delivered the takeaway to help take the garbage away, the user felt very surprised, and the company did not pay extra costs.
Li Shanyou, the founder of Chaos Academy, said when talking about enterprise growth: Cognition is the cause, innovation is the effect, and growth is reality. No matter what kind of enterprise, no matter what stage of development the enterprise is in, in fact, it is impossible to avoid the eternal goal of providing value to users. When enterprises get rid of the growth drugs that float on the traffic side such as "pulling new, fission, and private domain operation", they will find that the real high-quality growth must rely on the high value brought by the enterprise to the user.
[The above content is compiled from CITIC Publishing's new book "Growth Strategy" in March 2022, written by Li Yunlong, founder of the Growth Learning Society, leader of Chaos Academy, and Zeng Nan, partner of the Growth Learning Society. 】