Reporter Xu Liqing reports from Beijing
When "budget-conscious" has become the key word in the consumer market, the low-price strategy seems to have become a "trump card". Price reduction, sinking, subsidy, and using price advantages to compete in the market have become common phenomena in the consumer industry.
Recently, Heytea, which used to be priced in the range of 20-30 yuan, launched a buy-one-get-one-free limited-time activity on the 12th anniversary, and some products only cost 4 yuan a cup after using coupons. Even though it's a limited-time offer, the strength of the discount is also attracting attention.
In fact, whether it is promotion, drainage or seizing the low-end market, the low-price strategy is one of the usual means of brands. For example, in the field of coffee, Luckin Coffee and Cudi Coffee rolled to 9.9 yuan and 8.8 yuan; Mixue Bingcheng is thriving in the low-end market; Discount retail is popular, etc.
In this regard, a number of industry experts told the "China Business Daily" reporter that the low-price strategy can attract a large number of price-sensitive consumers in the short term and help companies quickly occupy market share. However, it is worth noting that the current consumer group, especially the young consumer group, does not love low prices, but pursues high cost performance. Therefore, enterprises with different brand positioning should fully consider the brand positioning and the needs of target consumer groups when using low prices to attract traffic, and need to improve cost performance rather than simply falling into a "price war".
Low-price strategy into a "traffic password"
Heytea, which was previously one of the representatives of "high price and high quality" in the hearts of consumers, has also opened a low-price drainage strategy. Recently, Heytea launched a buy one get one free limited-time activity, the original price of 8 yuan "pure green tea Yanhou", only 4 yuan a cup after using the coupon. Although it is only a limited-time benefit, such a discount is ridiculed by netizens that the price after the discount is comparable to that of Michelle Bingcheng.
This is not the first time that Heytea has attracted attention due to its low price. At the beginning of 2022, the topic of "Hey Tea Farewell to 30 Yuan" appeared on the hot search. Since then, the prices of Nai Xue's tea and Lele tea have also been continuously reduced.
A number of industry experts have mentioned that in the context of the increasingly fierce competition in the new tea market, price reductions can lower the consumption threshold, attract potential consumers to try their products, and increase sales. Low-cost drainage can also help promote new products or promotions and increase brand exposure. In particular, the low price and Hey Tea can form a greater contrast, which will cause greater discussion. At the same time, it can also test the low-end market.
In the coffee industry, the low-price strategy is even more pronounced. After experiencing a large-scale expansion of the brand, affordable coffee such as 9.9 yuan and 7.9 yuan has become the main selling point of many brands. And the effect of the low-price strategy is also obvious. For example, it took only five and a half years for Luckin Coffee to open 10,000 stores.
The casual snack industry is blowing a wind of price reduction. At the end of 2023, Yang Yinfen, the new chairman and general manager of BESTORE, issued an open letter to all employees, stating that a new round of reform will be launched. The business side will implement the largest price reduction in 17 years, with an average price reduction of 22% and a maximum price reduction of 45% for 300 products. Subsequently, Zhang Liaoyuan, the founder of Three Squirrels, said that the company had implemented a "high-end cost-effective" strategy as early as a year ago.
According to many industry experts, consumers in the high-end market pay more attention to brand story, product quality, technology content and shopping experience, which also makes it difficult for brands to truly achieve high-end. However, low-cost drainage is a more direct and effective way.
It is very common to use some low-priced products to attract traffic and other products to increase profits. Yang Xiaokang, the founder of Migrant Worker Coffee, previously said in an interview with the media that cheapness is the biggest promotional selling point of his store. At the beginning, his store was mainly engaged in bakery products, and less than a month after opening, it ushered in a burst of orders with "4 yuan American", and when he opened his second store, he focused on the main coffee business, supplemented by roasting.
Zhuang Shuai, founder of Bailian Consulting, said that low-price drainage is a means of competition in the global industry, and Wal-Mart, Sam's, Costco, and ALDI all use low prices as the core means of competition. Low prices can bring economies of scale, increase market share and enhance the scale effects of the supply chain. Just like Mercedes-Benz cars also have low-cost models, so this is not unique to Chinese companies.
From a business point of view, Sun Wei, a strategic consultant at Tsinghua University, believes that low-price concessions for consumers can attract more consumers and repeat purchases, while also reducing marketing costs. For brands, it is a more important survival strategy to seize consumers and strive for transactions in the period of consumption contraction. If the performance of the enterprise does not grow, it will fall into the dilemma of wandering or even declining, which will trigger a chain crisis reaction. If you can't sell it, you will have problems with your cash flow.
Does the low-price strategy work for sure? Jiang Han, a senior researcher at Pangu Think Tank, believes that the effectiveness of the low-price strategy depends on a number of factors, such as the company's ability to control costs, market positioning, competitor strategies, and changes in consumer demand. If companies rely too much on low-price strategies and ignore product quality, service experience and brand image building, it will inevitably lead to consumer loss and market share decline.
"New low price"
"It's not 9.9 yuan free shipping that is called a low price." In the eyes of many industry experts, the mainstream demand is to buy good quality goods at more affordable prices. For example, Sam's 100 yuan durian cake, Uniqlo's 79 yuan short sleeve, etc., although there are lower-priced options, the above products are still popular because of their high cost performance.
Zhuang Shuai told reporters that high cost performance is the competitive advantage. Whether it is a low customer unit price (such as 9.9 yuan for coffee) or a high customer unit price (such as 50 yuan for a cup of coffee), it needs to be cost-effective, and if it loses cost performance, 9.9 yuan will not be recognized and accepted. At the same time, the 9.9 yuan Luckin can exist, and the 59 yuan Starbucks is also in the market, which is called demand diversification.
As mentioned above, high cost performance is the "nirvana". The most typical is that in the case of bottlenecks in the growth of hypermarkets, membership-based supermarkets have become one of the hottest transformation directions. This trend can also be seen from the actions of retailers in recent years, with Sam's, Costco, Sun Art Retail, Carrefour and others continuing to increase their membership stores.
However, compared to ordinary retail malls, the unit value of membership stores is not low. Previously, Hema revealed to reporters that the monthly purchase frequency of X members is 2.5 times that of non-members, and the unit price of customers is 2.8 times that of non-members.
Zhan Junhao, founder of Fujian Great Aim Brand Positioning Consulting, said that the consumption outlook of consumers has changed, especially among young people. They pay more attention to high cost performance, that is, the pursuit of value for money, rather than simply pursuing low prices or big brands. They are more willing to pay for products that align with their values and lifestyle, rather than blindly following trends or pursuing luxury. At the same time, it also pursues consumer experience, emotional value, personalization, diversification and customized services.
For example, previously, a group of college students who claimed to "rectify the down jacket market" formed a group to wear military coats and cotton jackets, which became popular all over the Internet. Their slogan is: "It's not that down jackets can't afford to buy, but military coats are more cost-effective." ”
Obviously, with the rise of the younger generation of consumer groups, the era of rational consumption is coming. According to the "2023 618 New Consumption Trend Insight Report", nearly six adults believe that their consumption is more rational, and more than sixty percent of respondents value cost performance more than they have transitioned from the previous fixed channel consumption to the current shopping around.
"With the popularity of social media and the rapid dissemination of information, young people are more susceptible to the influence of their peers and online opinion leaders, forming a more rational, diverse and inclusive consumption concept. In addition, they focus on issues such as environmental protection, sustainability and social responsibility, and see consumption as a way to express their values and social responsibility. Jiang Han said.
Behind the low price
Whether it is in the new tea industry, the coffee industry, the e-commerce platform or the retail industry, the use of price reduction, subsidies, and sinking to compete may lead to a price war in the long run.
The most typical is that Hema used durian mille-feuille cake to start a price war against Sam's, causing the two sides to continue to reduce prices, and Sam's durian mille-feuille cake, which was once priced at 128 yuan, once dropped to more than 80 yuan. In the field of coffee, the affordable coffee war of 9.9 yuan and 8.8 yuan is constantly stretching the front.
Sun Wei mentioned that no industry can avoid price wars. There are two reasons for the price war: one is that it is not competitive, and the product has no explosion point, so it is forced to reduce prices to attract consumers. The other is that in order to occupy more markets, the leader or the second brand squeezes out the rival market through price wars because of the cost of ownership, gains market share, and forms a certain competitive monopoly.
However, once caught in a price war, its disadvantages are also revealed. Wang Peng, an associate researcher at the Beijing Academy of Social Sciences, said that in the long run, the low-price strategy may trigger a price war, reduce the overall profit margin of the industry, and may also damage the brand image. There will always be a demand for low prices, but in the long run, the effectiveness of the low price strategy depends on how the company balances the relationship between price, quality and brand.
The reporter noticed that at the beginning of May, "Luckin 9.9 yuan activity shrank again" rushed to the hot search, causing concern. When the reporter opened its mini program to place an order, it was found that at present, there are a total of 5 products in the weekly 9.9 yuan area of the Luckin mini program.
At the end of April, Luckin announced its financial results for the first quarter of 2024. According to the report, Luckin achieved revenue of 6.2781 billion yuan, a year-on-year increase of 41.5%. Under US accounting standards (GAAP), Luckin suffered a profit loss of 65.1 million yuan in the same period. The report explained that the main reasons for the decrease in profit were the decrease in the average selling price of the company's products, the continued volatility of market dynamics and competition, and the negative impact of seasonal factors.
Guo Jinyi, chairman and CEO of Luckin Coffee, said on the earnings call that objectively, the cold wave and temperature fluctuations in the first quarter affected consumption and travel. Subjectively, the company takes market share as the main strategic goal of development and adjusts the pace of store opening.
Jiang Han told reporters that the price war will reduce the profit margins of enterprises, and at the same time intensify the involution of the market, resulting in enterprises easy to ignore long-term investment in product research and development, quality improvement, brand building, etc., and gradually lose retail advantages, falling into a vicious circle of "price reduction - profit compression - R & D investment reduction - competitiveness decline". This will not only affect the survival and development of enterprises, but also may pose a threat to the healthy development of the entire industry.
"The basis of the price war is the value war and the quality war." Zhuang Shuai believes that history has proven many times that the price war that is not based on the value war and the quality war will eventually fail miserably.
A number of industry experts also mentioned that some brands that were originally high-end or well-known should do some low-price drainage, which can make consumers have a cost-effective perception. For example, Heytea's brand image and products in the industry have a certain competitiveness, and it is easier to attract users with some affordable prices on the premise of ensuring quality.
However, it is also necessary to grasp the balance when draining traffic at a low price. Zhuang Shuai said that for some high-end brands, if all or more than half of them are low-cost products, it will damage the previous brand positioning, and then lose the brand mentality and consumer group accumulated before. Therefore, do not rely too much on low prices, but improve the cost performance on the premise of ensuring product quality and service experience.