Why Is High Performance Price Ratio A Nightmare For New Brands?

In 2019, the new wave of consumption was washed up. The high cost performance has become the "King's way" of the new consumer industry. Many new brands are thrilled.

But this year's double 11 electricity supplier data show that the sales volume of each category is almost Top10 traditional brand. The new brand of individual breakout is yet to be observed.

The so-called high cost performance and de branding seem beautiful, but at least so far, they have not shown the expected results.

It is still questionable whether the high performance price ratio is the new brand's "kingly way".

But it can be concluded that most new brands will die in the dream of high cost performance.

1, "low quality" or "high quality - low price".

A high value price brand is usually based on a premise that consumers are willing to spend less money on better products.

But this assumption can only represent the results of consumers' expectations, but can not reflect the process of consumer decision making.

The decision-making process of high performance price ratio can be divided into two situations: selecting quality at low price (low quality), and selecting low quality (high quality low price) in quality.

Recall using Taobao, Jingdong and other shopping APP experience, sometimes you will first sort according to low prices and then choose products, that is, choose quality at low prices; sometimes you will set the quality standard first and then compare the price, that is to choose a low price in quality.

In these two different logic decisions, you can choose "cost-effective" products, but the price and quality of the two are usually not in a single grade.

In other words, "low quality" and "high quality low price" represent two different consumption needs, or even two types of consumer groups.

Costco is a vivid case.

In the early days, a large number of merchants sold tail cargo and cleaned up inventory. In the low price, "pick up the leak" (Hua Xiaoqian bought the goods) became the first impression of users.

Later, social cracking became a new engine of growth.

Penguin Zhi cool "Multi User Research Report" shows that a large number of users have 58.8% from three or four cities and below.

Choosing quality at low price is the main consumer demand for many users.

Unlike Costco, which is famous for its "membership warehouse reserves", it relies on a small number of selected SKU to compensate for the low profit margin by collecting membership fees.

Costco users are mostly middle-class families. The premise of choosing low prices is to protect quality and save energy. Therefore, choosing low price in quality is the decision logic of Costco users.

The consumption logic behind the high performance price ratio is completely different, so users' purchasing power, consumption preference, business mode and communication focus of enterprises will be different.

2, high performance price ratio and "cheap goods" are only separated by a wall.

Consumers prefer high cost performance products, not because products are cheap, but rather "cheap".

Consumers feel that they earn 4000 yuan to buy iPhone 11, while buying a high cost performance Shanzhai thousand machine will lose.

Consumers like to "take advantage" because they are scarce enough.

If there are high cost performance products everywhere, consumers will lose the contrast of other brands and enjoy the pleasure of "cheap".

At this point, your brand's high cost performance will lose its foothold and become a pure "cheap goods".

To build a cost-effective brand, you have to build competitive barriers that support high cost performance.

Generally speaking, high performance price ratio can be realized in three ways:

We must strictly control the operating costs, lower the prices of raw materials, and cut down management expenditure.

Using scale effect, mass production and low marginal cost;

Master the technical advantages, increase production efficiency, and raise daily output from 10 thousand to 20 thousand.

The competition barriers of the three increase one by one, and the difficulty of implementation gradually increases.

But even if you build up a competitive barrier, the high cost performance still has inherent disadvantages.

(1) it is difficult to raise costs by raising prices.

High cost performance depends on cost control. Once the upstream supply chain costs rise, the original relative low price will be challenged until the cost breaks through the profit margins and profits turn into losses.

If the brand wants to increase its price, it will break the consumer's expectation of the brand and lose its brand credit.

On the contrary, those with more profit margins will not be affected.

The 2019 annual report of China's fast moving consumer goods industry points out that due to the increase of packaging materials, logistics costs, environmental costs and labor costs, fast selling enterprises are generally facing the pressure of rising costs.

In January 2019, traditional brands such as Moutai, Wuliangye and Heng Shun went up in price. How should the vast majority of new brands that lack premium come through the difficulties?

(2) Limited profit margins result in lack of flexibility in sales promotion.

Discount promotion, as a communication signal, can not only improve sales volume in a short time, clean up inventory, quickly seize the market, but also can drain the marketing activities.

However, the low profit margins of cost-effective brands will result in limited discount space, thereby affecting the attractiveness of promotional activities.

Tmall and Jingdong once issued a discount requirement for compulsory merchants to "break the base price".

Li Jiaqi live in the same brand because of services, but less than Vic a 5 yuan coupons, called fans all return bad comment.

Whether the 618, double 11 Shopping Festival, or live goods, discount has become a "compulsory course" for sale and sales.

If your brand does not have enough premium to support discount sales, it is easy to sacrifice blood in the battle of price fixing.

(3) weakening the brand effect by cost performance ratio

High cost performance will guide users' decisions to focus on basic price and functional utility, thus ignoring other brand values.

Consumers only want to "take advantage". Once the competitive brand offers cheaper products, these users will lose. And the brand itself is hard to drive consumers to buy.

As a functional value consideration, price performance ratio is more likely to become a direct target of competition brand than emotional and spiritual value.

Once the brand credit of high performance price goes bankrupt, the brand effect will collapse.

Millet mobile phone is known for its high performance price ratio. But in the past two years, as the nuts, 360, Meizu, even HUAWEI, glory and OV continue to deepen their cost performance, the price advantage of Xiaomi mobile phone is getting weaker and weaker.

According to the latest quarterly report on mobile phone sales released by International Data Corporation (IDC), domestic shipments of millet mobile phones in the third quarter of 2019 decreased by 30.5% compared with the same period last year. This downward trend actually appeared very early.

Besides, the high performance price ratio is the production of conscience in some users' eyes, and in other users' eyes is the pronoun of low.

So HUAWEI mobile will directly enter the high-end market, against the inherent disadvantage of millet high cost performance advantage - feeling low.

Therefore, the four major brands of millet carry out strategic reorganization, trying to change this brand image and competition pattern. Millet is pushing the middle and high end, red rice is pushing the low end, the black shark pushes the game, and the US is pushing the women.

Peter Till's "from 0 to 1" mentioned that enterprise competition must pursue monopoly and avoid competition, so as to concentrate on greater innovation.

If a brand wanders at a low price and lacks a higher dimensional brand value, it will lose its pricing power and fall into the low-level competition of price war.

The other side of pursuing high performance price ratio may be lack of innovation.

3, four types of business driven by high cost performance ratio.

Generally speaking, high cost performance is more suitable for these four businesses: retailers, channel dominant brands, marginal businesses and drainage business.

(1) retailers

Cost performance is a very important competitive standard in the retail industry, which is very different from the consumer goods industry.

One of the reasons why brands can generate premium is that mature brands provide a tool value that can be quickly identified by consumers and accumulate credit in the minds of consumers, saving time and energy in selecting goods.

For example, if you go to the supermarket to buy cosmetics, you may pick up L'OREAL directly, but if you encounter unfamiliar and unidentified brands, you will take the packaging and pick up words, and compete along the shelves for fear of being pits.

Retailers usually do not have their own products, but are responsible for selecting brand goods.

To a certain extent, the value of the tool that is originally chosen by the brand to choose and accumulate credit is replaced by the retailer. The premium of the corresponding part of the brand is transferred to the retailer.

The same quality and lower price gradually become the embodiment of retailer's existence value and competitive advantage.

Li Jiaqi can sell branded goods to a much lower price, because Li Jiaqi has replaced this part of the brand by means of active screening and even personal credit endorsement.

(2) channel dominant brand

Consumer brands adopt cost-effective strategies, usually considering small profits but quick turnover. Having a sound distribution channel is a competitive barrier to support this strategy.

Channel advantages are reflected in the wide distribution of channel networks and the high efficiency of product turnover. This is consistent with the compound interest effect.

Wahaha created a huge and stable channel network through joint sales, which can be used for large-scale and dense distribution, increasing the response speed of goods distribution, and using high cost performance as a sales support point, leveraging the leverage of "small profits but quick turnover" to digest these products in the short term.

(3) marginal business

When brand core business establishes brand effect, profits from peripheral products can be harvested through brand extension.

These marginal businesses usually lack differentiation, but they can make full use of brand value and traffic through cost-effective mode.

Most typical, based on its own user and brand traffic, Xiaomi has introduced peripheral electronic products and socks, towels, toothbrushes and other consumables.

(4) drainage business

The product mix of popular business explosion, drainage and profit. Among them, drain money is a high cost performance model, sometimes a slight loss, but can promote drainage for other products.

Summary of this issue

When you want to build a cost-effective brand, you need to be clear about your target consumers, whether you choose quality at low prices or low quality.

And then achieve high cost performance through these three ways:

We must strictly control the operating costs, lower the prices of raw materials, and cut down management expenditure.

Using scale effect, mass production and low marginal cost;

Master the technical advantages, increase production efficiency, and raise daily output from 10 thousand to 20 thousand.

Of course, if you are a retailer or channel dominant brand, high performance price ratio is the key to brand marketing design and industrial chain integration.

But if you are not, you might as well return to value marketing and gain greater potential from brand equity.

The dream of high cost performance is good, but it is normal for the commodity market to "divide the money one by one".