With over 20 million users, how does Fan Deng Reading achieve exponential growth?

Overview of Fan Deng Reading : A company with over 20 million users, over 1 billion in revenue, and a valuation of over 5 billion.

The knowledge payment industry experienced three years of rapid development from 2016 to 2018. From the data of the two leading brands in the knowledge payment industry, Get and Himalaya, we can see that the entire knowledge payment industry has entered a clear growth bottleneck period in the second half of 2018. However, recent data from Fan Deng Reading, another leading brand in the knowledge payment field, shows that Fan Deng Reading is still growing at an astonishing rate.

At 0:55 on July 14, 2019, Fan Deng Reading App officially announced that the total number of users exceeded 20 million. At the same time, the number of new registrations is currently growing by nearly 50,000 per day. In addition, we learned that Fan Deng Reading’s annual revenue this year has exceeded 1 billion, and the latest company valuation is nearly 5 billion.

What is even more shocking is that Fan Deng Reading also has more fans in the short video field than many other high-traffic stars. According to statistics, Fan Deng Reading’s matrix account on Douyin has a total of 60 million fans, which can be regarded as the number one Internet celebrity brand in the field of knowledge payment.

Regarding the growth bottleneck period faced by the knowledge payment industry, Sun Wentao, director of the brand public relations department of Fan Deng Reading, said in a recent interview: "It is a natural thing for Fan Deng Reading users to exceed 20 million. This scale is not a bottleneck, but it must be the beginning." At the same time, according to Sun Wentao's prediction, Fan Deng Reading is expected to exceed 30 million users by the end of this year.

Fan Deng himself once mentioned at the New List Conference that "the growth of Fan Deng's reading is a standard exponential growth curve." In this article, the "Growth Flying Elephant" team will analyze in detail how Fan Deng's reading built its own exponential growth curve.

1. Good product: product is 1, marketing is 0, product is the starting point of everything

The core product of Fan Deng Reading is: Fan Deng himself reads 50 books every year, 1 book per week, and 1 hour per book. Fan Deng breaks down the essence of the book and records it into audio, which is sold through the Fan Deng Reading APP. This product has several major features:

1. The marginal cost is basically 0. The production cost of selling the recorded audio to 10 people or 100,000 people is basically the same.
2. There is enough profit margin . Generally speaking, the core products of Fan Deng Reading only have production cost and marketing cost. Knowledge-based paid products do not have complex supply chain links such as logistics and inventory. The delivery of this product is not restricted by time, space and people. The core cost of content production is labor cost (Fan Deng himself and his team). Because there is enough profit margin, Fan Deng Reading products themselves can have enough marketing cost to act as distribution agents and online value-driven fission growth strategies.
3. High frequency : Fan Deng Reading emphasizes the formation of reading habits among users, and through sign-in and value guidance, it has become a product with high frequency interaction with users;
4. The audience is wide . It can be said that everyone now has the need to read. Even if they don’t read, they still have the “anxiety” of reading. One feature that distinguishes Fan Deng Reading from other knowledge-based paid products is that Fan Deng Reading also fully takes care of users in the “downstream market”.
5. Social attributes : Fan Deng Reading is a content product. On the one hand, after each section of Fan Deng's content has captured the user's cognition, it can easily guide the user to share. At the same time, users of paid knowledge content themselves have a very strong desire to share, turning this sharing behavior into their own social currency.

According to Growth Flying Elephant’s growth theory, as long as a product meets four conditions at the same time (A. large profit margin, B. high frequency of product use, C. wide audience, and D. the product preferably has social attributes itself), it can use the distribution agency model to achieve growth.

Fan Deng’s reading products fully meet the above four conditions. Therefore, the core model of Fan Deng’s reading product marketing is to maximize the agency distribution model.

2. Accurate positioning: Targeting the lower-tier markets, different from Get and Chaos University

Since Get started the trend of paid knowledge in 2016, it can be said that Fan Deng Reading is a dark horse in the field of paid knowledge. Unlike Get and Chaos University, which target the elite groups in first- and second-tier cities, Fan Deng has taken into account the "downstream market" user groups from the very beginning of product content design.

Although many "elites" are very disdainful, they think that the content of Fan Deng Reading Club does not have the practical knowledge of the business leaders in "Chaos University" or the various celebrity columns in the "Get" column, and it seems relatively low-end in the field of knowledge payment.

However, it is undeniable that the real "elites" in this society are still a minority, and the anxiety of users in the "downstream market" about reading is even no less than that of the so-called "elites". At the same time, the user scale of the "downstream market" is thousands of times that of the "elite group".

The essence of a business is to solve problems for society. The bigger the social problem you want to solve, the greater the business opportunities therein.

3. Product production model: dependence on personal IP, ensuring profit margins, and ensuring scale.

Compared with platform-based knowledge-based paid products such as "Get" and "Chaos University", Fan Deng Reading has a big difference in the product production model.

Fan Deng's reading still insists on only promoting Fan Deng's IP (although many people believe that this is a potential risk for the company in the long run), while platforms such as "Get" and "Chaos University" almost unanimously follow the model of "the company builds the platform and each IP performs the show."

The biggest problems with the "Get" and "Chaos" models are the contradiction between the platform and personal IP, as well as high production costs and product standardization. But for Fan Deng, he does not have to face any of these three problems.

The celebrity column of Duode is very dependent on the celebrity effect. The market situation is generally that the celebrity lecturer and the platform share profits at a ratio of 5:5. An online audio course of Duode is priced at 199 yuan. Half of the profit is given to the lecturer, so Duode has less than 100 yuan left. This determines that although Duode is also a product with almost zero marginal cost, it is impossible for it to have the same profit margin for a single product as Fan Deng to carry out more intensive market promotion.

Chaos University completely relies on big-name lecturers. Compared with the low average order value of "Get", Chaos University has a higher price, basically above 1,000 yuan. After giving rebates to the big-name lecturers, although the gross profit is higher than the selling price of Fan Deng Reading (Fan Deng Reading membership card: 388 yuan/year), it seems that there is more profit space for marketing promotion. However, the high average order value greatly limits the difficulty of closing a deal and the breadth of the audience. Therefore, it is impossible for Chaos University to adopt the same agency distribution fission mechanism as Fan Deng Reading.

4. Online fission mechanism: the core solution is user retention and terminal user fission

The online fission of Fan Deng Reading is mainly achieved through the Fan Deng Reading APP. In the AARRR growth model, the core of Fan Deng Reading APP is to solve the two problems of "retention" and "fission", while the core of attracting new users and conversion of Fan Deng Reading is solved through the offline agency distribution mechanism.

The core of this section is to analyze its online strategy. The fission strategies used by Fan Deng Reading APP online are all concentrated on this page:

1. Check-in: The core solution is user retention and activity issues

The online check-in rules of Fan Deng Reading APP have gone through two versions of iterations. The first version is very simple: VIP users get 5 points for each check-in, and non-VIP users get 1 point for each check-in.

Recently, the sign-in points rule has been upgraded and changed to cumulative sign-in points (detailed rules are as follows). In order to increase users' loss aversion, the count will start from 1 as long as the sign-in is interrupted once. This set of rules is more complicated than the first version of the points rule, but it has greatly improved the daily activity of core users.

2. Sharing: Four major sharing mechanisms solve the problem of user fission

1. Invite registration : Each person you invite gets 3 days of VIP, and so on, no upper limit
2. Invite payment : Regardless of whether you are a VIP member or not, you can get 600 points by inviting friends to pay, and the invitee can also get 60 points as a reward. In the invitation payment stage, Fan Deng Reading adopts a "reciprocity" mechanism, which is not distribution in the eyes of users, and effectively avoids the user's disgust of "making money from friends" when inviting friends to pay.
3. Badge Show-off : Take advantage of users’ high desire to show off their high-energy behaviors (reading) to encourage them to share, and at the same time make sharing extremely simple and easy to operate, guiding users to invite friends by showing off their badges.

4. Gift card giving : Fan Deng Reading uses the "gift giving" scenario to give gift givers a new option, which is "giving knowledge". From the location of this function, it can be seen that this function plays an important role in the user fission link of Fan Deng Reading.

3. Points: Value creation, driving user behavior

Fan Deng’s reading points can only be obtained in three situations: signing in, inviting friends to pay, and sharing medals.

There are four main channels for consuming points: redeeming VIP time, redeeming e-commerce coupons, redeeming physical products from Fan Deng Reading, and participating in welfare lottery games. At the same time, if the points are not used up within the specified period, there is a reset mechanism.

Fan Deng Reading has valorized all online user behaviors through the design of points and points mall, thus ensuring the effectiveness of all retention and fission rules.

Through the online fission rules of Fan Deng Reading APP, we can see that the product design of Fan Deng Reading APP is in full compliance with the "behavioral design principle" of "Growth Flying Elephant": all people's choices can be designed, as long as our behavioral design formula is adopted (B=M*A*T)

5. Powerful offline agency system: Deeply cultivating the sinking market

If we were to say what the biggest difference between Fan Deng Reading and other paid knowledge products in terms of marketing is, it must be its offline distribution agency system.

Fan Deng himself expressed a point of view at a sharing meeting:

He learned that in the Chinese market, as long as your products can be sold to every county in China, your sales will be at least over 1 billion. For example, Procter & Gamble, Gree, etc., all sell their products to the entire Chinese sinking market through the traditional agency system.

1. Profit distribution rules

The core of the distribution agency marketing model is the "profit distribution rules". Fan Deng Reading fully replicates the agents' gameplay in traditional industries.

Fan Deng Reading's latest agency franchise policy:

This set of profit distribution rules ensures that every level of participation can earn "attractive" profits. China's economy is currently in a downturn, and it is difficult for traditional commodity agents or opening restaurants and clothing stores to make profits. However, as an agent for Fan Deng Reading, the investment cost is low, and at the same time, the profit trend for the lowest-level terminal agents is sufficient. This set of rules ensures the feasibility of large-scale recruitment of Fan Deng Reading agents.

2. Provide agents with strategies for selling products

Designing the agency rules is only the first step. The most important link for the multi-level agency model to finally work is that the terminal agents can easily sell the products.

Fan Deng Reading has found the ultimate way to sell its products - holding offline book clubs. Currently, offline book clubs are Fan Deng Reading’s smallest but most frequently held activities. There are nearly 80,000 book clubs like this every year, all organized and promoted by Fan Deng Reading’s authorized points at all levels.

Offline reading clubs assist terminal agents in completing several functions:

1. Brand landing
2. Direct sales conversion
3. User Services

In order to make offline book clubs more in-depth, Fan Deng also worked with various agents to open 400 bookstores across the country as official locations for offline book clubs.

The key strategy that Fan Deng uses to help an agent close a deal is to teach them to organize "offline book clubs." On the one hand, book clubs are a form of organization that exists among the people and can easily gather popularity. Once a book club is organized, it becomes very easy to close a deal offline at 388 yuan per person.

3. Massive recruitment of agents

After the profit distribution rules and the method for agents to make money are determined, the next step is to recruit agents on a large scale.

At present, Fan Deng Reading has a provincial authorization point in all provinces across the country, municipal authorization points in 90% of the prefecture-level cities across the country, and county-level authorization points in about 75% of the county towns across the country.

As of January 9, 2019, there are 293 prefecture-level cities in mainland China. According to the data provided by Fan Deng Reading, they have set up authorized points in more than 260 prefecture-level cities across the country. Fan Deng Reading currently has more than 7,000 authorized points, which are its agents.

4. How to achieve compliance

Since Fan Deng's readings are sold as virtual products, it is very easy for them to get out of control during the dissemination process and exceed the three-level distribution stipulated by the state, and eventually be misunderstood as a "pyramid scheme". Therefore, Fan Deng has done a lot of evasive things in the management of the agency system.

Although Fan Deng's authorized points are divided into three levels: province, city and county, in the distribution business, each authorized point is an independent legal entity and an industrial and commercial registration agency. They cooperate directly with Fan Deng's headquarters and there is no hierarchical distinction. Strictly speaking, each level of agent signs a contract directly with the company, so it is only counted as first-level distribution.

The agency system of Fan Deng Reading fully complies with the four principles of the distribution agency marketing model defined by "Growth Flying Elephant": All products marketed through the distribution agency model must satisfy the participating agents' needs of "making money easily, making a lot of money, making money quickly, and making money for a long time"

In summary, Fan Deng Reading has been able to grow against the trend and maintain a year-on-year growth rate of more than 1000% because it has done two things right in terms of strategy:

1. Choose a good product: Good marketing serves good products. Good marketing is the loudspeaker of good products, and of course, it is also the amplifier of bad products.
2. Chose a good marketing model: successfully turned consumers into their own sellers, and turned the organized into organizers, ultimately bringing about an exponential growth curve.

Author: Yang Shiqi

Source: Growth Flying Elephant