Whoever pleases users better will have a greater chance of oversupply.
Therefore, Teacher Li Feng of Fengrui Capital told us that any type of commodity, from short supply, to balance supply and demand, and then to oversupply, is likely to appear another new "short supply", which is called consumption upgrade.
In most cases, you have to distinguish where the supply and demand relationship in your field is located.
"Translating" technological innovation into user-perceived product force innovation can better amplify the brand. Excellent product strength + traffic media + supply chain is the formula for continuously obtaining category dividends and creating a brand of staying power.
This is the second half of Li Feng's lecture on the new consumer industry, the first part is "Fengrui Capital Li Feng: Only China in the world has saved these three circles, which will be the best 20 years of consumer goods entrepreneurship!" Click on the link to review it now.
The instructor | Li Feng, founding partner of Fengrui Capital
Edit | Chaos University Business Research Team
support for | Chaos University Frontier Course
This article is the original article of the Business Research Team of Chaos University
This chart can be placed in any field of consumption to abstractly summarize the process of change in the relationship between supply and demand.
In one field, the last wave of popular products has passed the popularization stage, and even to the stage of oversupply and overcapacity, there will be an upgrade, that is, the next time the supply exceeds demand.
The relationship between supply and demand is often in a dynamic, or there is more supply, or more demand. For everyone, in most cases you have to distinguish which direction and position the supply and demand relationship is in this field.
This balance is rarely at just the right level, always a little to the left or a little to the right.
When innovation occurs the most, there is usually a serious shortage of supply or oversupply, and there are often innovative business models at this time.
"Stock" innovation
Innovate with "incremental"
If you are in an industry, whether it is large or small, the compound annual growth rate is less than the compound annual growth rate of GDP, which means that your category may be a partial stock category.
Conversely, what is an incremental category? For example, in 2019, China's compound annual growth rate was 6%, but the area of personal and family health care consumption expenditure achieved high growth, reaching 12% to 15%. In the five years from 2017 to 2022, its compound annual growth rate will remain at 17% to 22%. This is a very typical incremental category, with year-on-year growth much faster than GDP.
Let me give you two more examples:
Before 2016, instant noodles basically grew negatively year-on-year, which is obviously a stock category. However, surprisingly, starting in 2017, it started to grow positively again, albeit at a low rate.
Why is there this change?
From 2003 to 2008, mobile phones were growing rapidly; then in 2009 and 2010, Nokia and Motorola were already low-growth and a stock category. However, since 2010, the smartphones in mobile phones have become high growth again.
Although the mobile phone category is already a stock category, in this category, smart phones have completed the rapid growth process from 0 to 100, so there has been a new increment in the stock, and the second growth in the cycle has emerged.
But when does this incremental process stop? About 2016, China's smartphone shipment growth rate slowed down year-on-year, and it entered the stock market again.
So, how do they nest and transform into each other?
In fact, almost all industries in China have gone through these two innovation processes, and business models can also be matched.
Next, I'm going to take a little bit of time and use my phone as an example to explain how the change happened.
Incremental dividend: "Who is faster and who is bigger"
China introduced various international mobile phone brands in the 1990s, hoping to introduce technology through joint ventures, but in fact did not solve the technical problems well. So in 1999, the Ministry of Industry and Information Technology issued a policy to open up licenses for the production of mobile phones. Thus, there was the explosion effect of the first wave of Chinese manufacturing.
A wave of local brands began to use China's manufacturing capabilities to integrate what they bought into mobile phones.
But most of these brands can not be seen today, because after this wave of increments has passed, everyone has bought their third and fourth mobile phones, know what is a good mobile phone, and have begun to turn to imported brands such as Nokia and Motorola, which are no longer so expensive.
At this time, these integrated brands have done an international output, starting from around 2006, China has produced the world's cottage machine, we put the cheapest or largest manufacturing capacity, exported to the world, is still cheap.
At this time, mobile phones have undergone a second innovation, entering the stock, and the supply is oversupplied.
At this time, the demand for the middle and high-end or mid-end began to be imported by Apple for the first time, and this upgrade is the incremental opportunity in the stock - smart phones. This is followed by the upgrading of China's supply chain. There are a number of enterprises that have changed from manufacturing to precision manufacturing, including Luxshare Precision, Goertek, Sunny Optics, OFILM and so on.
In 2012, China became the single largest market for mobile phones in the world, which lasted until 2016, and China had a huge incremental category dividend in these four years. This time produced a company that is very famous today, Xiaomi.
When we first switched from Nokia to a smartphone, why did we switch phones? The vast majority of people are using those apps, those software, on top of it. And the Xiaomi software is doing well, so when everyone changes their mobile phones, Xiaomi enters this category.
The Xiaomi model created a very important innovation, which was to take advantage of one of the biggest dividends at that time, the traffic dividend and the media dividend. The media dividend belongs to the attention dividend, and the traffic dividend belongs to the crowd reach efficiency dividend. The result is that it greatly improves the efficiency of interaction and reach, as well as the efficiency of media communication.
Category dividends
Software cut-in
The power of the internet
Put these three things together, we can sum up, called "who is faster and who is bigger".
Why is there an increment? Having an increment usually means that consumers are not familiar enough with the choices that products and categories can make, so whoever touches them first at this time will enjoy this huge dividend first, called the incremental dividend.
In the original era without the Internet, everyone was more willing to invest in slow stock innovation. Because at that time, it was difficult to do big incremental innovation, and when the incremental category of smart phones was still relatively small, there were fewer people who could accept it, and you had to go everywhere to find these people.
The Internet has played a huge role, and you can find out the 1% and 2% of all the netizens at once. Offline, this thing is much harder.
Stock innovation: "Who is better and who is bigger"
But why did Huawei rise up later?
No matter how big an incremental category is, and no matter how fast it is at the beginning of development, it will soon enter the balance of supply and demand or oversupply, that is, enter the stock.
The biggest change in the stock market is that supply has kept up and consumers have matured. After 2015, many people have changed two or three smartphones, and they have begun to know what mobile phones are good, why they are good, what they are suitable for, what they like, which features and brands they are willing to spend money on.
The stock stage is called "who is better and who is bigger". Because the user has matured, the supply has become mature, and the relationship between supply and demand has become balanced. At this time, users begin to have enough choices, and they are picky enough, and they know how to be picky.
Huawei has been making mobile phones since the beginning of 2000, and the accumulation time is long enough that these accumulated technologies have played a role. Today we all know that the camera of Huawei mobile phones is doing very well, which is not simply putting 5 cameras in it. Because the size and integration of mobile phones are too high, larger computing units and related algorithms are needed, which functions and which places are vacated in mobile phones, and the software and hardware of these technologies are put into it, which requires the vertical technology integration ability of the industrial chain very strongly.
Today, if you still want to please users, you need to be really good, this good concept is to do a good job from the top to the end, and these good are ultimately reflected in the mature users can perceive and say why it is good, this thing is called stock innovation.
Therefore, innovation at the stock stage is relatively difficult.
Under different supply and demand relationships
Pricing strategy
Let's also talk about pricing.
If your category is incremental, it is in the stage of growth dividends, you have to choose to be a brand, there are several situations:
First, use a low-quality, low-priced supply chain to quickly win the market, and if your market is particularly well done, the reach efficiency will be done well.
Second, with a medium supply chain to do cost-effectiveness, you will become a category killer and quickly gain market share. However, the next step will be faced with users entering the mature stage, from the balance of supply and demand to the oversupply, the biggest challenge is how to upgrade.
Third, when the supply is in short supply, use the strongest supply chain to pull up their own prices, such as Apple, the disadvantage is expensive.
In other words, if you go in at the beginning of a category, not to do the cost performance of the category killer, but to do high prices, if it happens that at this time, your standards are also high, and your supply chain level is also high, then the category dividend time you have will be very long.
Moreover, if you occupy the high-end market first, you still have the opportunity to expand into the sinking market. For example, apple in the first half of 2020, mobile phone sales have hardly declined too much, the main contributor is Apple's cheap version of the mobile phone SE.
We can make a simple analogy, based on the same logic, when will Tesla be Model 3 or Model X will reduce prices? (Chaos Jun's note: In the past six months, Tesla has successively lowered its price)
This probably means that you are faced with a choice, if you happen to do incremental categories, even if you are an increment in the stock, the pricing model you face is one of the following:
If you do low price and low quality, it will get up very quickly, but the disadvantage is that the holding time is very short;
If you are a category killer, relatively cost-effective and medium supply chain, you will eat into this incremental stage, but there will be challenges in the stock stage. You need to complete a full chain of technology upgrades and integration from the top to the bottom to get a new pricing space;
If you start with the best supply chain, pull up the product pricing at the beginning of the increment, make a relatively high price, and hold on, then your dividend will last a long time. And, there's a space for you to take another half-step down.
New consumer brands in China
Innovative "formula"
All the things mentioned above, I summarize it as this picture.
In the figure, the first line above is the Category of China, which has brought about changes due to different consumption stages. Now, for the most part, first- and third-tier cities are in the last place: in a mature category, whether it is a necessity or an optional product, it has passed the stage of ownership and needs to be upgraded further.
The second line below is the problem and situation we are facing:
China has a supply chain level and consumer market that has never been seen in other countries in the world;
In terms of product strength and product design at the product end, you also feel that Huawei's camera technology is very good, which is the embodiment of the high degree of integration of software and hardware;
Today, both the media and the traffic side in China are becoming too fast. For example, the rise of short videos in recent years has brought about another change. The medium changes consumer perception of the product and brand, and the traffic changes the efficiency with which it reaches the user. Every time there is such a big change, it means that you will have another dividend, which is especially special in China.
But it should be noted that most of the current innovations are changing too quickly, so the continuous stage of the traffic dividend is becoming shorter and shorter.
But this short-term and violent traffic dividend is an amplifier, if the product power is improved, and it happens to superimpose the changes in traffic and media form, it will produce a relatively durable brand.
I'll give you an example of Dyson, a hair dryer considered by many to be charged an IQ tax. Is it worth 3,000 bucks? Everyone's opinions vary.
Dyson is a very typical stock innovation. Stock innovation is difficult to do, and it must have the ability to innovate in every chain in order to achieve it. So what did Dyson do?
It has invested a lot of money in research and development since 20 years ago, and the investment may be hundreds of millions of pounds to do digital high-speed inverter motors, which are hair dryer motors.
Before the hair dryer we used, if you want to be powerful, you have to be big, because you have to wrap the coil on it, etc., you can only rely on the motor to make it bigger and bigger. After iteration, Dyson made the world's smallest high-speed inverter digital motor, not only small, but also several times stronger than ordinary motors.
Not only that, in order to make the hair dryer smaller, Dyson moved the motor from the headpiece to the handle, so that the hair dryer can be made short and good-looking, not only avoiding the problem that the traditional hair dryer is easy to wrap around the long hair, but also giving the new design a great sense of beauty.
Moreover, Dyson also optimized the design of the air outlet with aerodynamic principles, which can be used to roll up the surrounding air with a high-speed jet, increasing the energy by about 10 to 15 times.
We asked the girls, why do you think dyson hair dryers work well? Got the following answer:
First, it looks really good because the entire motor and fluid mechanics have been redesigned.
Second, it does not curl hair, because the high-speed motor is not behind the hair dryer, and long hair is not easy to be wrapped around.
Third, it blows with great force and dries quickly because of the aerodynamic design.
This explains why Dyson is worth money.
Is this easy to copy? Hard. In addition to Dyson has many patents and spends so much money on motors, it also realizes the integration of software and hardware.
One of the soft powers it fires up is to translate all technological innovations into user-perceived product force innovation, and these products and product force innovations are further amplified to users through the current media and traffic.
There is also an important thing that is the most difficult to copy, usually the motor speed will be very noisy after a large speed, and when you use Dyson, you can't hear a lot of noise, and you can even listen to music while blowing. The principle is that it adjusts the loud frequency band to the ultrasonic band through high speed and aerodynamics, and people can't hear it.
Anyway, which connects several things, turns it into a premium brand, and it's a typical stock innovation. This category is not a new category, nor is it a new category in the stock, it just happens to be a brand that uses all the capabilities in the stock very well and performs well, so it also does very well in the stock.
In the same way, we can answer the question of instant noodles. When the instant noodles you eat sell for more than 10 yuan, there are many seasoning packs made of new freeze-dried technologies and so on, which are even more delicious.
This is another case – the key to three and a half meals of coffee. It utilized lyophilization, which was originally a technology for handling other items such as pharmaceuticals before being transferred to the food processing industry.
After making coffee in this way, it is extremely easy to dissolve, and it can be brewed without the need for a stir stick, or it can be brewed with hot water and cold water ice water. At the same time, the freeze-drying technology has sealed a large number of volatile molecules that stimulate the sense of taste and smell, and for people who are very good at drinking coffee, it smells and tastes very flavorful.
This thing is called the product power improvement of the user experience side. Because there is no stir stick and no need for hot water, I can use a lot of things to mix coffee. Coupled with the design of the outer packaging is very good-looking, you can further through short videos and pictures, zoomed into the user can show things.
This is a typical brand that integrates excellent product power + traffic + supply chain.
What kind of people
Can you do a good job of branding?
To summarize what has been said today.
China is in the best era of consumer innovation, but it is also the era of the fiercest competition for consumer innovation. The same is true for our investments. Because there are so many new things, you have to carefully distinguish how long these new things can last, how much capacity they have, which space is priced reasonably, and how much room for growth in this category will be.
And, because there are so many elements in China, you can do it, and it's likely that others will soon be able to do it. How to make what I can do have a longer dividend and space, I need to really gather more elements in the industrial chain, integrate advantages, and let the user experience and recognize.
Finally, it is the experience we often communicate with people who do brands: to be a brand, in business, is essentially to put your values on a thing and product, through your products, so that your users perceive. All the premiums paid by your user in the process of perception, except for industrial costs, are paid to the part that he perceives you to pass.
In such a process of passing on the premium, the brand has to be big, and ultimately depends on whether the part of the emotional premium or values you inject is correct.