How does NetEase Yanxuan create popular products and what is the logic?

The full text will cover some of Yanxuan’s models and methodologies in the past two years. Through the content of this article, we can understand the logic and product strategy behind Yanxuan, as well as the promotion and operation ideas. I believe it will also be of great inspiration to students who are not in the e-commerce industry, because any product has certain commonalities.

Part 1: Creating Hot Products

Planning, production, and promotion are the entire process of carefully selecting and creating any hit product.

1. Planning period: 5 dimensions of a hit product

Yanxuan has many popular products, such as: snow boots, caterpillar shoes, enamel pots, and towels.

The planning of these hot products needs to start from at least five dimensions:

• The first dimension is market potential;
• The second dimension is user needs;
• The third dimension is popular trends;
• The fourth dimension is price advantage;
• The fifth dimension is quality.

(1) Market potential: market stock or potential growth

The most basic point for becoming a hit product is that the product must have a very large market stock or potential for growth. Only then will Yanxuan begin to measure the product from other dimensions.

For example: the overall sales of the aromatherapy market for the whole year is only 800 million, so Yanxuan regards it as a secondary category for development; while lazy electrical appliances such as dishwashers and mops have an annual growth rate of about 300% and 260%, so Yanxuan actively developed such lazy electrical appliances and achieved very good results after they were launched.

(2) User needs: exploring commonalities and individual characteristics

After determining the market potential of a product, you need to start analyzing users’ specific needs for the product and look for points that can be materialized. There are many differences in user needs, so while seeking common ground while reserving differences, we need to find some commonalities and individual characteristics of users.

Taking home furnishing products as an example, users may be most concerned about appearance and quality, but if we dig deeper into users' needs, we will find that many users have requirements for the quality of sleep. Then we can explore the functional points in home furnishing products that can promote deep sleep, so as to make the products more concrete.

(3) Trends: market hot spots and fashion trends

There are two popular trends:

• The first point is to package existing products in combination with some of the current hot trends, because fashion trends are always a cycle, so they may be currently popular. There are also some products in the carefully selected product library, so we can package some hot products in combination with popular trends;
• In addition, the team will actively pay attention to many big-name shows, and through the buyers' precise analysis and accurate vision of the big-name shows, they will select popular items that are suitable for the Chinese market and for Yanxuan users, and carry out research and development one year in advance.

(4) Price advantage: price difference with similar products

The pricing system in many industries is relatively opaque, and with the endorsement of big brands , their bargaining power is often 8 to 10 times that of the goods. However, the gross profit margin of Yanxuan is often only 25~30%, so price advantage is also an important criterion for measuring hot products.

(5) Quality: Higher than user expectations

Quality is the brand image that Yanxuan has always adhered to. Yanxuan hopes that all its products, especially popular ones, can exceed users' expectations. Therefore, from raw materials to factory management, and then to the final packaging inspection and quarantine, there are relevant strict controls. We hope to bring a sense of surprise to users. We also hope that this sense of surprise will allow users to spread word of mouth, thereby promoting the creation of popular products.

2. Production period: product pricing and supplier management

The production period of goods is mainly for product management and supplier management. Among them, commodity management can be divided into procurement management and pricing.

(1) Product management: procurement management

① Procurement plan

Currently, Yanxuan has more than 14,000 SKUs, of which best-selling items account for one-third. This shows the importance of procurement management. The core of procurement management is procurement plan, which is divided into three dimensions.

Dimension 1: Sales expectations take into account the life cycle segmentation dimension.

Starting from the product life cycle segmentation dimension, considering the entire product sales cycle, the segmentation dimension here is mainly divided according to the product's own attributes. Generally, Yanxuan divides its products into four-season styles, designer styles and seasonal styles.

1. The four-season models are sold all year round, and are generally stocked for 365 days a year. These 365 days are then divided into four dimensions, which means replenishment once a quarter. This is a very optimized solution for both the factory's production capacity and the continuity of orders.
2. Designer styles, that is, personalized fashion styles, are mainly used to attract the attention of new and young users. Generally, they are sold for only about 30 to 45 days, so orders will be placed for the entire life cycle. Generally, orders will be placed for 30 to 45 days, considering that there will be an explosive increase in the first 15 days and a decrease in the next 20 days. Therefore, the increase plus the decrease serves as the overall stocking plan for personalized trendy items.
3. Finally, there are seasonal models, which are generally available for sale for 3 to 4 months. For the first month, we will optimistically estimate a data based on past experience, multiplying the increment by 1.2 times. For the second month, we believe that it will fall into a reduction period. For the third month, we will basically estimate the volume at 1/3 to 1/2 of the first month. In the fourth month, we will basically cooperate with operational activities and sell out all the inventory directly.

Dimension 2: The replenishment plan is improved from "one size fits all categories" to segmented categories.

Yanxuan’s replenishment plan needs to be considered from the specific sales dimension of the entire product, and is also divided into three situations. The first type is the volume-generating model; the second is the new model ; and the third is the model that stimulates consumption.

1. For high-volume models, an order is basically placed once a month, so Yanxuan also settles payments with suppliers on a monthly basis to ensure that there is no large inventory and that the goods are available online in real time.
2. We will plan for new models three months in advance and place orders every three months. Users have a trial period for all new products. If its life cycle shows a downward trend after three months, the new product will be classified as a Class C or Class B product, and the user will consider reducing the order quantity or not placing an order at all.
3. Stimulating consumption items are basically for 15 to 45 days, which is determined according to the overall hot spot. When the hot spot decreases, such products will also be reduced. In order to ensure the safety cycle of the entire inventory, 30 days of sales are generally ordered. During these 30 days, the online exposure including traffic is also relatively high, so these 30 days will also be regarded as incremental data and a relatively large order will be placed.

Latitude three: Make special stock preparations during special periods such as big sales and store anniversaries.

When encountering special periods such as big sales or store anniversaries, Yanxuan’s purchasing plan will be adjusted accordingly. The styles mentioned above, from all-season styles, personalized fashion styles and seasonal styles, will be multiplied by the expected coefficient during the promotion period. This coefficient will vary for different activities. All in all, Yanxuan will control the overall inventory turnover cycle to around 65 days.

②Purchase execution

For a large portion of Yanxuan's products, it only takes one month from ordering to warehousing to online launch. Yanxuan's rapid ordering and ultra-fast supply chain management are related to its procurement execution.

1. Starting from the supplier procurement stage, Yanxuan will move the entire procurement interaction process online, making it open and transparent while also improving traceability and efficiency.
2. Suppliers can also log in to the system's backend to view real-time sales status and rotation cycles, helping them decide whether to stock up on materials, when to stock up on materials, and whether to purchase from second-tier and third-tier suppliers, in order to provide a faster and more efficient rate of new product introductions.
3. The supplier system can query the progress of purchase orders and payments in real time, which is also very important for suppliers because capital recovery is a very important step in the supply chain. Yanxuan has always promised to pay suppliers within seven days or seven days of arrival. If some links are delayed due to invoices or other reasons, suppliers can also check the system at any time and find the corresponding colleagues. Yanxuan will cooperate with suppliers in real time to make quick payments based on the situation they encounter.

In view of the procurement execution of the above three points, Yanxuan has also reduced the previous production cycle from 3 to 6 months to 20 to 40 days. At the same time, the execution days of the procurement plan have also begun to shrink. Such efficient operation allows Yanxuan to achieve the optimal inventory turnover rate of 65 days.

(2) Product management: pricing model

Yanxuan has many products that are of the same quality, produced on the same production line, and meet the same quality inspection standards as big brands. Why are Yanxuan’s prices so cost-effective for consumers?

You can understand the four factors regarding the pricing of strictly selected products, including product positioning, market conditions, user psychology and product cost.

① Product positioning and gross profit margin

Different product positioning and its gross profit are also different. For example, Yanxuan defines food as a category that attracts traffic and has a high repurchase rate. It does not want to add any gross profit margin to this type of product. It allows users to taste more delicacies from all over the world directly, and increases the repurchase rate of Yanxuan as a whole through such high repurchase rate products.

For products like clothing, shoes, hats, and bags, the products themselves have relatively high requirements for quality and warehousing and logistics, and have a certain return rate and breakage rate. For such products, Yanxuan will consider their gross profit margins.

② Market environment and competitive product analysis

Some big brands with very high market recognition have always emphasized high quality, high safety and high appearance, and the corresponding price is high. For such products, Yanxuan tries to eliminate the brand premium as much as possible, but in order to avoid vicious competition in the market, it will also refer to their prices and give a price that suits the user's psychology.

③User psychology and product pricing

In fact, this consideration also involves user psychology. For example: This year Yanxuan launched a product. The price of major European brands ranges from 300 to 700 yuan, while Yanxuan’s price is less than 100 yuan. Although the cost of this product is only a few dozen yuan, the gross profit margin is already higher than Yanxuan’s quality standards.

But many users also asked: If it’s so cheap, will the quality be very poor? Will I be allergic?

Just imagine, if the price of this product is really very, very low, will it necessarily not increase consumer acceptance?

④ Commodity cost is the main pricing logic

Yanxuan will only add a 25-30% gross profit margin to the cost premium of all its products to ensure the best value for money and the best service. Therefore, 4/5 of Yanxuan’s products will be priced based on the entire product cost.

(3) Supplier management

Yanxuan has 14,000 SKUs. How do these suppliers work with Yanxuan to adapt to changes in the entire industry and changes in user demand?

Yanxuan mainly did five things:

1) Management of the generation process

• The first is the sharing of raw material stocking plans. The carefully selected merchandise department will make plans for the entire year, and the top suppliers will purchase high-quality raw materials for the year from their second- and third-tier suppliers. This creates a stable state.
• Then comes the sharing of production progress. If there is a big promotion and the supplier's production capacity cannot keep up, Yanxuan will adopt a warehousing plan such as 3000, 5000, and 5000, and at the same time launch a pre-sale plan online to ensure that there is a continuous supply. Suppliers also supply Yanxuan in stages. Whether from the production capacity end to the marketing end, we ensure the best experience for users and suppliers.
• The last is the sharing of strictly selected inventory data. Suppliers can see the sales status of their SKUs on Yanxuan. If the SKU has passed its golden life cycle and the inventory turnover cycle has increased, it means that its sales in the front-end category are not as popular as before. At this time, the supplier can reduce the quantity or stop production of the production line to ensure that the supplier does not have to hold inventory.

2) Quotation management

• First of all, Yanxuan has a very complete supplier quotation management system. Three or more suppliers will quote for the same product, and Yanxuan will select the supplier with the best cost-effectiveness to be included in Yanxuan.
• Then Yanxuan’s quotation is a refined quotation system. These refined quotation systems come from the cost of products, the cost of raw materials, enterprise management costs, and fulfillment costs. Various costs build a framework for the entire refined quotation.
• The last step is to optimize suppliers. Since there are so many Yanxuan SKUs, how can we cooperate with high-quality suppliers in the industry? Not only the supplier's production capacity should be considered, but also the supplier's management, supplier's efficiency, and supplier's planning capabilities.

3) Quality improvement management

The platform will attract some high-quality users and excellent suppliers through traffic, and then the platform will also form a very high-quality product, thus forming a competitive barrier for the platform.

What are Yanxuan’s competitive barriers?

It is a high-quality product with a very cost-effective pricing strategy and service.

Yanxuan also attaches great importance to the entire quality management. Yanxuan has a regular on-site quality inspection, manages a product before, during and after production, and also makes some improvement requests to suppliers. Take maternal and infant products as an example: We know that maternal and infant products must not contain fluorescent agents, but in fact, most fluorescent agents are not artificially added, but come from the air.

Many people don’t know that there are a lot of fluorescent agents in the air we come into contact with on a daily basis. If these fluorescent agents fall on clothes, the products will fail to pass the strict testing standards. Therefore, under the requirements of strict selection, the supplier converted its workshop into a fully dust-free operation workshop to manage from the source.

4) Supplier Assessment

As mentioned earlier, suppliers will not only be evaluated from the perspective of their production capacity, quality, etc., but also their management and overall planning coordination, and some inferior suppliers will be eliminated. These inferior suppliers may be due to industry factors, for example, some agricultural products may be mixed with some foreign matter due to industry constraints.

However, current industrial equipment is unable to detect this, and there is no way to avoid such risks, so Yanxuan would rather not purchase such products.

There are some long-tail products that have always been online. There are not many sales, and the quality and reputation are average. Some suppliers may be eliminated, and the suppliers left at the end are Yanxuan’s high-quality suppliers. At the same time, these high-quality suppliers will also accompany Yanxuan to make the next round of planning and some blueprints for the future.

On the other hand, internal work efficiency can be improved by optimizing processes, such as online process sharing and data sharing as mentioned earlier.

5) Business and procurement work indicators

The business department selects high-quality suppliers by strictly controlling costs and product quality, increasing the proportion of high-quality suppliers and thus improving the entire inventory turnover cycle. There is also a purchasing department responsible for planning, which is mainly responsible for inventory backlog rate, out-of-stock rate and on-time delivery rate. These departments maintain close contact with suppliers through real-time data to achieve the smooth operation of the entire commodity.

Therefore, carefully selected products are an ecological chain project, especially popular products. No matter which link has problems, it will lead to high inventory or out of stock in the later stage.

To sum up, the core of Yanxuan lies in the planning of products and the refinement of operations.

3. Promotion period: event planning and operation

Hot-selling products rely on factors such as buyers' analysis of the market, supply chain management, quality inspection cooperation, etc. Next, let’s talk about the promotion and market operations of hot products after going online.

First, let's talk about the marketing strategy. Marketing strategy is a very broad topic. Here are two points: the first is to grasp user needs, and the other is to seize the opportunity.

• Seizing the opportunity is actually about chasing hot spots, which is very easy to understand, but I still want to emphasize that no matter what brand, the three views of chasing hot spots must be correct.
• Another point is to grasp the word "user demand". Many planners know this, but in fact most planners are thinking about creating demand because we have an intuition that we want to change other people's inherent ideas and think we have this ability, but in fact, changing people's inherent ideas is basically difficult to achieve.

Part 2 Category Expansion

How to derive a hot-selling product into a full category also includes three parts, including the four dimensions of category expansion, product planning and layout, and standardized product management.

1. Four dimensions of category expansion

Let me first talk to you about the dimensions of expanding these categories, including user analysis, market analysis, proprietary advantages and user feedback.

(1) User analysis: user data & user differences

① Find growth points from user data

Yanxuan’s user analysis is actually the user analysis of email. Based on such user analysis, Yanxuan expands the specific direction of primary and secondary categories. Yanxuan mainly looks at several aspects of user indicators: first, the user’s age, second, education level, third, income, and fourth, their brand and habitual preferences.

Yanxuan is a product of NetEase Mail. In other words, the first wave of users of Yanxuan are mainly email users. Email users are mainly male, so among Yanxuan’s first batch of seed users , males accounted for 65% and females accounted for only 35%. Therefore, many categories at that time were developed for male users. Especially for men around 35 years old, who are highly educated and high-income business men.

In the past year, Yanxuan has sent emails to wave after wave of users. When Yanxuan's traffic and categories entered a period of stagnation, Yanxuan began to reflect on how to continue to expand the existing and incremental user base after the bonus of email.

Judging from Yanxuan’s user data, the proportion of female users of Yanxuan was relatively low a year ago. At the same time, women are the main force of e-commerce consumption and play a dominant role in consumption decisions in the family. The repurchase rate of female users is relatively high.

Where exactly are the new growth points? How to ignite women’s growth points through some high-quality products?

Looking at the problem from the user's perspective, because women are relatively loyal to brands, they are more likely to choose familiar brands when choosing products. From various data, we know that some accessories categories such as shoes, hats, bags, socks, etc. occupy a very high proportion of the entire market. At the same time, such categories do not have such high requirements for brands, and women's awareness of brands is not that high.

In response to such market conditions, Yanxuan mainly targets some major European brands. First of all, in terms of materials, we imported some cashmere from Europe, and in terms of design, we also signed contracts with a group of European designers at that time.

Therefore, through the combination of an excellent supply chain and ultimate design, when the product reaches the user, the user is filled with a sense of surprise beyond his or her expectations.

At this time, Yanxuan began to enter the high-profit product market, but users had a certain cognitive threshold for the entire brand, so Yanxuan entered the cosmetics industry at this time. So when we entered the cosmetics industry, we didn’t immediately start making skin care products. Instead, we chose to make some basic, entry-level cosmetics like makeup remover, makeup remover oil, and makeup brushes.

Such products have relatively high gross profit margins, high repurchase rates, and are hard currency. After the product is launched, through refined operations, exposure to traffic positions and some market promotion games , it quickly reaches users. These users become a carefully selected group of highly loyal seed users.

Through the strict selection of merchandise team's transformation of the overall merchandise structure, a large number of women's products were added, and a lot of feminine traffic was also introduced into the market. When this part of the traffic is taken over by products, it can be found that Yanxuan’s traffic has been changing, from the previous male-to-female ratio of 7:3 to a male-to-female ratio of 6:4.

② Find common needs among differentiated users

In fact, even different users may have the same needs. We need to find some of the similarities to trigger a larger market.

Take Yanxuan’s first category - home furnishings - for example. When we considered entering this category, we believed that the gender, regional and seasonal attributes of this category were not too strong, and we were not afraid of high inventory.

On the other hand, home furnishing products are targeted at home consumption, so external identification is not that strong and brand sense is not that important. Therefore, users do not have such strong requirements for the brand, but they pay great attention to its comfort.

Therefore, Yanxuan chose this category as the entry point for Yanxuan to enter the market.

Looking at the region, 61% of Yanxuan's users come from first-tier cities or quasi-first-tier cities. From the perspective of supply and demand, the supply and demand relationship between first-tier cities and second- and third-tier cities is not very equal. Big cities have promotions and discounts from big brands, but third- and fourth-tier cities may not even have exclusive stores for these brands.

Although there are some differences, whether in big cities or small towns, the preferences of female users will be influenced by fashion trends. They will like luxury styles and have certain requirements for quality.

For example, this year popular materials and elements include bees, sheepskin, tassels, etc. Therefore, the product team will take these demands into consideration when developing and designing models, allowing users to buy popular items on Weibo or Instagram at very low prices.

(2) Market analysis: planning category growth points

① Market data combined with the ability to create hit products

In addition to user analysis, Yanxuan also deeply mines market data. For example, through data crawlers, it is learned that the category of women's shoes has the highest consumption amount among all categories, and it is also a category that is growing very fast. When analyzing the entire women's shoe market data , it is necessary to break down into comprehensive factors such as the amount of money made in each category, the number of styles produced, the amount of stock available, and so on.

At that time, a very concrete analysis of the footwear market was conducted, combining seasonal attributes, and it was found that the largest share of the market was low-top shoes for all seasons, followed by summer sandals, canvas shoes, and finally boots. This proportion ultimately determined Yanxuan's entire production and stocking plan.

It can be seen that all-season low-top shoes occupy the most important part of the entire footwear category, so Yanxuan achieved very good results when developing some low-top shoes.

② Analyze the advantages and disadvantages of competing products and combine them with brand style

When Yanxuan was developing the following pair of slippers, it considered two aspects: one is the user's habits, and the other is the aesthetic taste of Chinese users.

This pair of slippers comes from the Japanese market. Japan does a particularly good job of separating wet and dry areas, so this pair of slippers is not anti-slip, waterproof, moisture-proof, or mildew-proof. Japanese users do not have this demand, but for Chinese users, firstly, there is the rainy season in the south, and secondly, our separation of dry and wet is not that good.

In order to solve this problem, the team went through 12 proofing processes and replaced the insoles with popcorn ones, which solved the previous problems of waterproof, mildew-proof, moisture-proof and anti-slip. They made this product into a highly cost-effective and long-term best-seller with improved quality.

On the other hand, considering China's large population and diverse aesthetics, this pair of slippers comes in 12 colors and the overall style has been adjusted to suit such an inclusive and diverse society as China.

(3) Own advantages: From a hit product to a category

Yanxuan began to expand its shoe categories in winter and launched snow boots. After the launch, it became a hot product due to its seasonality and high cost-effectiveness.

The shoe category has multiple colors, multiple sizes, and multiple inventories, and has a large market share, but the difficulty of operating the entire supply chain is also very high, so how can Yanxuan connect with its suppliers to make timely quick returns.

• First, we made a small order with a quick return. The small order with a quick return meant that the previous assembly line had 45 people, but was reduced to 9 people. This way the operation time was fast and the quality was guaranteed.
• The second point is to feed back supply chain planning through carefully selected user data and seasonal life cycle data. This also gives the team strong confidence in the shoe category and allows them to dig deeper into the subdivided areas of shoes.

Then we can dig deeper into specific shoe categories based on market data and user habits. The above models are specific categories derived from market data and user habits.

(4) User feedback: core users

① User experience and product transformation and upgrading

User feedback is also an important selection direction for Yanxuan. Since its establishment, Yanxuan has had a section called Selectors. These selectors come from all walks of life. They love life very much and can give Yanxuan advice in all dimensions. They have always been Yanxuan's seed users and loyal fans.

Yanxuan has opened multiple channels to users, including sample trials, style selection, and suggestion making. In 2017, it solicited 53 feedbacks from selectors, 109 sample trials, and 110 style selections.

For example: Last summer, Yanxuan was preparing to put a four-piece set on the shelves and had entered the stage of preparing raw materials for production. The selectors reported that this four-piece set was easy to get dirty, not wear-resistant, and easy to wrinkle. At that time, the product team discussed with the supplier how to upgrade and transform the product as a whole. This year, this product won the World Industrial Design Award.

Therefore, in addition to internal market data analysis, Yanxuan also combines some opinion analysis from Zengxuan experts to enhance user participation and trust in the brand. It also conducts targeted research and development of some specific products to improve the overall product research and development design and reduce risks in the education market.

② Community and core user maintenance

In addition to selecting experts, Yanxuan also builds communities based on the principle of like-minded people. As of December 20, 2017, the number of Yanxuan's core fans has reached 20,651, nearly the size of one hundred groups. Through the community, Yanxuan regularly organizes online and offline activities, and encourages user interaction by issuing coupons, so as to listen to more user needs and user voices.

③Negative review monitoring and quality control

For products that have been launched, Yanxuan not only refers to the needs and opinions of the fan base and selectors, but a more important reference standard comes from user comments. Yanxuan’s data background allows you to view users’ positive and negative reviews of a product in real time. At the same time, the positive review rate is also one of the important dimensions that Yanxuan uses to determine whether a product is a Class A or Class B product, thereby determining the entire life cycle of the product.

At the same time, Yanxuan also has a negative review monitoring system. Every day, the person in charge of the product will receive email summaries and instant messages of extremely negative reviews, and then make an objective evaluation of the product based on user reviews.

After receiving the email, the product team will work with quality inspection and customer service to find the problem from the root. Is there a problem with the product itself, the service, or the user's understanding of it deviates from the situation of the product itself? Issues that need improvement and optimization will be tracked and handled in a timely manner.

For example: categories such as agricultural products are easily mixed with some debris, which cannot be detected by machines. If Yanxuan receives such comments, the quality inspection team will rush to the supplier to deal with these problems as soon as possible. Whether it is the management of suppliers or the control of raw materials, rectification will be implemented to reduce some risk factors and reduce the risk to the lowest level.

2. Product planning and layout

A large e-commerce platform must first make a very detailed product planning and layout. This is the only way to reduce the risks brought by inventory and increase the profit margin of products, while also reducing some risks brought by some education markets and product trial and error that arise during the product development process.

(1) Product positioning and quantity share

The first point of product planning and layout is the quantity and positioning of the products. Yanxuan will divide the products into several dimensions, covering design models, volume models, high-profit models and other dimensions.

• 8% of Yanxuan’s products are designer items, which are mainly used to attract young and new users. These products often take into account both design trends and certain profits.
• The other 35% are evergreen models. These evergreen models serve as basic models, with spare yarn raw materials all year round to meet the support of the entire supply chain. They can achieve the best cost-effectiveness and meet the needs of all age groups and families.
• High-profit models account for about 57%, which is already very low compared with other platforms. The overall gross profit is only about 30~45%.

First of all, why do we define it as high gross profit?

From the supply chain perspective, it is a seasonal product, so the requirements for effectiveness and planning are very high, and the manpower and management costs invested are relatively high; secondly, since it is a high-gross-profit product, Yanxuan will also return some profits to suppliers, allowing suppliers and Yanxuan to have a virtuous cycle of interaction.

(2) Product life cycle and sales expectations

As mentioned earlier, Yanxuan has more than 14,000 SKUs. So behind so many SKUs, we need to pay attention to its life cycle, sell-out rate, and inventory cycle. For such a large number of goods, the most important thing for Yanxuan, in addition to observing its overall sales, is to carry out targeted operations.

Now let’s take women’s shoes as an example: Generally speaking, the life cycle of women’s shoes is about 75 days, and the pricing gross profit margin of the goods must meet the final gross profit margin after each stage of operation and promotion activities.

During these 75 days, during the new product launch phase, sales will have an explosive growth due to the early new product launches and related activities. In the mid-term, sales will slowly slow down, and finally at the end, it will be equivalent to a big clearance sale at the end of the season.

However, we still need to observe the costs, and finally make sure the cost gross profit margin reaches a break-even point.

According to the product cycle stage, Yanxuan will also control the pace of operational activities accordingly. Within the gross profit expectations, we must grasp the sales of goods in the first 20 days. For example, for all qualified shoes, the sell-out rate in the first 20 days must reach 50%. After that, the goods will be replenished, or directly removed from the shelves, or iterated and developed directly on the original products.

In order to optimize the inventory and cycle of the entire product, keep up with the trend of the times, quickly iterate some products, and improve the utilization rate of funds, we mainly carry out operational activities that match the different sales cycles of each category. These operational activities are mainly used to increase the repurchase rate of old users and the conversion rate of new users.

In order to allow Yanxuan's users to feel the richness of Yanxuan's products without stimulating a reduction in gross profit, how does Yanxuan do it?

Take women's shoes as an example: when women's shoes were launched in September, if they were through the normal new product display traffic position, or a traffic source actively searched by users, their life cycle was generally about 45 days. Then Yanxuan will mainly set the target quantity and price around 45 days of its life cycle.

The second point is that during these 45 days, Yanxuan may encounter a holiday or other promotional activities. If it is directly fed back to users in the form of discounts, users' expectations of the products themselves will be lowered. Therefore, some hidden discounts are generally adopted, such as: helping to bargain, returning coupons, returning certain amounts of money, and giving away certain inventory items. However, the average discount rate must be taken into consideration and will not be lower than 12%.

During the period of 45 to 60 days, the product's life cycle is actually on a downward trend. At this time, the product is mainly promoted through activities, and the average price will not be lower than 28% off.

During the 60 to 75 days of the clearance season, Yanxuan does not focus on occupying the entire inventory and storage space. Because Yanxuan has 14,000 SKUs, if some products are still in a high inventory state, it will increase the entire Yanxuan's inventory turnover cycle and storage area occupancy, so at this time Yanxuan will sell at a price slightly higher than the cost price.

At this time, you can optimize the capital utilization rate and inventory turnover, and basically sell goods at a 30% discount.

Finally, Yanxuan had carried out a round of promotions and discounts before, as well as previous traffic exposure and hot spot tracking as well as user comments. The final conclusion was that sales volume multiplied by sales revenue is some set of product ABC3 categories.

(3) Horse Racing Mechanism

• Category A products have high sales volume and sales revenue, as well as very high gross profit margins. Yanxuan will choose to continue replenishing this type of products and keep them online. Most of the products belong to Class B products. Yanxuan will adopt product iteration to improve their quality, material, color, style, etc.
• Category B means that there is no problem with the product itself, but it may not meet the user's expectations in terms of style or material. The company still hopes to attract some old users to repurchase and activate some users who hesitated and did not buy before.
• As for Category C products, the main focus will be on digesting inventory and no longer updating or replenishing them. Through such an elimination mechanism, Yanxuan will gradually eliminate Category C products, improve the quality of Category B products, and at the same time further promote and expose Category A products to make them hot-selling products.

3. Product planning management

(1) New product project establishment process

Step 1: Submit project

Yanxuan has a very strict product project establishment process in the early stage. When a new product is established, the product specialist will first fill in some product-related information. This information can cover the advantages of the product itself, as well as some current market data, competitive product analysis, etc.

Step 2: System data evaluation

The data group evaluates the future sales and break-even ratio of the goods based on these materials, and then divides the goods into ABC3 categories through the data group's predictions, because these three categories directly determine their order volume and product life cycle, as well as a judgment on inventory conversion volume.

Step 3: Approval by Product Group Leader & Category Manager

This stage is the time for the product group leader and category director to review. They will work together to determine whether the product can pass the project approval process and whether it can be submitted for review. They will use market data combined with their own work experience and intuition to determine whether such a product should be submitted for review and project approval.

Step 4: On-site review

The next step is the on-site review, which will be participated in by product quality control, operations, marketing, design, business, planning and order follow-up, data, channels, customer service and other departments. The review will be conducted by a product specialist through a PPT project presentation.

Operations propose operational ideas, marketing proposes which highlights are suitable for promotion, design proposes which products have optimization potential, business will assess whether the cost of the products is suitable for the market, planning and follow-up will estimate the overall expansion cycle and life cycle, as well as the planned order quantity.

The data will analyze whether the market space to which the product belongs can support the current sales expectations. The channel will evaluate whether there are suitable channels for promoting the product. For example, Koala is more suitable for maternal and child products, and JD ’s 3C and household products are also popular. Through this channel, the final number of products required by the channel and the channel’s revenue plan will also be evaluated. Customer service will also propose risk anticipation plans from the user’s perspective.

Next, each department will work together to write their own review plan and voting results to decide whether such a product can proceed to the next round of approval. As for quality control, they have a veto power over all products. If they think that such products may contain some risks such as industrial raw materials, quality control can directly veto such products from going online.

Step 5: Online approval by product director

The next step is online approval by the product director. If the previous votes have received 80% support, the product director will directly review and approve it, and finally the project will be successfully established and the production order will be placed.

(2) Growing SKUs and Quality Control

Yanxuan places orders for 60 to 100 new products every week. With so many SKUs, the quality control team is particularly important. So what methods does Yanxuan use to control the quality of the entire Yanxuan product?

They achieve stable and rigorous quality through the following five processes.

Step 1: Project establishment

As mentioned earlier, the quality control team is involved in the project establishment phase and has a veto power. For high-risk products, their first choice is to eliminate the products directly, or quality control must be involved in the entire production chain of the product, from pre-production, during production, and post-production of raw materials to full quality control of finished products to ensure the safety of the products on the market.

Step 2: Factory selection

The factory selection is the responsibility of the business team and the quality inspection team. They will conduct a comprehensive investigation of the factory's technical patents, new product development capabilities, production process control capabilities, and quality management capabilities. If the inspection result is C, then even if such products have a very high market share, Yanxuan will choose to eliminate them and conduct a second factory selection and inspection.

Step 3: Product selection

After selecting the factory, the product selection stage will begin. All goods must pass third-party quality inspection before entering the procurement process. After the pre-production raw material screening, they also need to send some raw material synthetic products to third-party testing agencies, such as ITS BV and SGS and other very authoritative third-party testing agencies. Only after passing the strict selection will they enter the approval process.

Step 4: Production

After the final approval process is completed, it reaches the production stage, which is the responsibility of quality control and order follow-up. They are stationed in the factory all year round to supervise the standardization of the entire operation process and the standardization of the production model.

We mentioned earlier that whether it is agricultural products or maternal and infant products, their risk factors are particularly high. For products with particularly high risk factors, we monitor the production mode of suppliers and upgrade the workshop management to achieve the safest and most standardized product line production before the entire product goes online.

Step 5: Quality Inspection

The last step is to conduct unpacking quality inspection after entering the warehouse. If the damage rate exceeds 0.02%, it will be returned to the factory for rectification.

Part 3 Traffic Breakthrough

How do we select high-quality users?

Let me talk to you here about the breakthrough of Yanxuan traffic, the mining of online traffic and the layout of offline traffic. It is divided into three parts: deepening the development of advantageous channels and tapping into owned traffic; laying out multiple online channels, including e-commerce and social media ; and expanding offline channels and laying out new retail.

1. Deepen the development of advantageous channels: tap into own traffic

(1) Carefully select online traffic: dig deep into high-quality channels

① Using email: understanding the user’s attributes and interests

Regarding in-depth exploration of high-quality channel traffic, many friends will ask, what if we don’t have traffic?

In fact, we can cultivate our own traffic pool, understand our own traffic attributes, and thus improve our traffic conversion rate. Yanxuan was born in NetEase's research institute in Hangzhou. When Yanxuan was just in its infancy, the entire team came to the email business department.

The email business unit is the department with the largest traffic in the entire NetEase, and its traffic is of very high quality, and the overlap with Yanxuan users is also very high. First, Yanxuan launched a splash screen ad for the mailbox. NetEase Mail has nearly 900 million active users, and has a general understanding of the attributes of these users, such as their family background and education. Many of them are middle class, and they usually receive a lot of brand push information, such as push notifications from high-end shopping malls and brands.

After in-depth understanding and analysis of users, Yanxuan will push some high-quality advertisements to potential users of Yanxuan.

② Attracting new customers and repeat purchases: How to improve conversion rate

After understanding the users’ dependence on the brand and the attributes of the family itself, we began to recommend products in a targeted manner and operate and activate users by issuing exclusive email user coupons. For example: for new users, use new user coupons plus other special preferential policies for new users to increase the purchase rate of new users as a whole. Yanxuan will continuously push discount coupons and return coupons to old users, reaching old users through such operational activities.

Therefore, in the initial period, Yanxuan will use email to increase purchases from new users and repurchases from old users every day.

In 2016, Yanxuan sent out 8 million to 10 million emails every day for targeted promotion to Yanxuan's high-quality users. The conversion rate of email users has always been very high, at around 4.5%. How does Yanxuan achieve such a high conversion rate?

First, Yanxuan polished the product details page layer by layer, and each product details page was modified dozens of times. For these modifications, we first refined the keywords of the product's appearance and material, and then combined them with the hot spots of the entire market, hoping to touch the user's pain points and get them to open the email in a timely manner. At the same time, carefully selecting the quality and appearance of the products themselves is also an important factor in improving email conversion rates.

③ Adjust user structure: actively access new channels

In fact, the attributes of the email product also determine that the gender ratio is very unbalanced. Because the first wave of Yanxuan's seed users came from the email, the situation of Yanxuan was very similar to that of the email at that time, and the gender ratio was close to 7:3.

Therefore, whether it is for the development of future products or the future development of Yanxuan, we hope to reach more mainstream e-commerce people and increase the number of orders from new users. The main consumer power of e-commerce comes from the female group. In addition to the adjustments to the product categories mentioned above, Yanxuan also proactively adjusted its channels and actively connected to some of the traffic users it hoped to obtain.

(2) Case analysis: mining of owned traffic

① Access to NetEase Cloud Music channel

The user attributes of NetEase Cloud Music are different from those of email. Its female users are slightly higher than its male users, and users born after 1985 account for 86% of the entire user group. They are also the backbone of society. This group of people also have very high requirements for their living standards.

Therefore, from 2016 to 2017, Yanxuan launched exclusive promotions on NetEase Cloud Music and achieved a very high conversion rate. During this process, Yanxuan observed the data in the background and found that the proportion of female users gradually increased, which also prompted Yanxuan to actively develop products related to female users. For example: lotion, makeup brushes, as well as women's shoes, clothes, and accessories. After exchanging traffic with Cloud Music, these products have become Yanxuan's hot-selling products.

② NetEase Kaola Flagship Store

At that time, Yanxuan also introduced some traffic from Koala. Koala's users mainly came from corporate white-collar workers and young mothers in first-tier and second-tier cities. Such users have friends , relatives, and colleagues around them, so they are more suitable for word-of-mouth fission and community fission.

2. Online multi-channel deployment: e-commerce & social media

With multiple online channels, Yanxuan is divided into e-commerce and social media. How do you view the e-commerce channels?

In fact, the current situation is that the cost for users to place an order on a single APP is very high, and the cost for a single APP to attract traffic is also very high. In addition to converting traffic through the main APP, Yanxuan will also actively cooperate with other large e-commerce websites to convert Yanxuan's reverse traffic and diversified users.

The second point is about social e-commerce. Now that social e-commerce is booming, Yanxuan cannot lag behind and must carry out corresponding dissemination through word-of-mouth fission and crowd fission of social e-commerce.

(2) Online channel construction: e-commerce channel

Let’s first look at the e-commerce field. Here we select JD.com, Yitiao and Yami.com as cases for analysis.

Let’s first look at JD.com. JD.com is China’s largest self-operated e-commerce platform with a very large number of users. The core of JD.com itself is service and quality, and the high-quality experience of self-operated logistics is their important brand barrier. At the same time, compared with other e-commerce companies, JD.com has a higher proportion of male users, a relatively higher consumption level, and makes decisions faster. Therefore, JD.com became Yanxuan’s first strategic e-commerce partner.

However, after the cooperation, they did not copy Yanxuan’s own model and sell all kinds of products. As we all know, JD.com started out as a 3C company, so its home appliance sales account for more than 50% of e-commerce. At the same time, JD.com has expanded this advantage to areas such as home furnishings. Therefore, when Yanxuan operates JD.com channels, it mainly focuses on the two categories of home furnishings and electrical appliances, thereby improving the accuracy of the Yanxuan channel, transaction volume and the diversity of Yanxuan users.

The second one is Yitiao, which everyone may be very familiar with. Yitiao Lifestyle Museum can also be regarded as a phenomenal content e-commerce. In 2017, Yitiao's e-commerce annual revenue reached 1 billion yuan, which is a very astonishing number for a WeChat public account .

Yanxuan chose to cooperate with Yitiao mainly based on Yitiao's strong brand attributes. Its user base is positioned as high-income, highly educated elites. Based on Yitiao's own attributes, Yanxuan launched a series of high-order products with stories, such as handmade carpets, silk quilts, etc., which increased Yanxuan's average order value and brand value.

The last one is Yamibuy, which is the first overseas e-commerce company to cooperate with Yanxuan. On the one hand, this is a response to the country's Belt and Road Initiative, and on the other hand, it is also based on the layout of overseas markets. The main users of Yami.com are international students and overseas Chinese. Therefore, the products put on Yami.com are strictly selected, mainly products with high cost-effectiveness, high repurchase rate and high stickiness.

Based on the above cases, Yanxuan selects channels based on the user attributes and user size of the channels. Based on the above two points, we have only found a channel that matches Yanxuan. Next, we will differentiate different user attributes and divide products for different channels and carry out refined operations.

(2) Online multi-channel deployment: social channels

NetEase pushers are divided into three important operating methods:

• The first operating method is high rebates;
• The second method is hot selling operation;
• The third operator is the super promoter.

① High rewards

First of all, there are high rewards. NetEase promoters have at least two high-reward activities every day. The reward amount is more than 20%. Then every month, NetEase promoters also have two high-reward rebate activities, and these two activities have the highest monthly rebate amounts.

Therefore, many promoters will try to get a high bonus in these two rebate promoter activities in a month to upgrade their level. We will talk about the role of levels and incentive mechanisms later.

② Hot sales operation

In addition to cash rewards, promoters also need help to dig up some good stuff.

First of all, in terms of the attributes of the promoters, many of them are female users, because they are white-collar workers or mothers. Such user attributes determine that they will definitely be very interested in maternal and child products. So at that time I chose a caterpillar with a very high cost performance.

From the caterpillar itself:

• The first point is that Caterpillar has a very high cost-effectiveness. The second point is that the user repurchase rate and stickiness are also very high. Because the size of children's feet grows very quickly, users need to buy shoes for their children every six months.
• The second point is that it is benchmarked against a very big brand and the same factory and quality, so it also makes these promoters and their users feel that they have gotten a bargain, or that they can get a very cheap price. Buy products of the same quality and style as big brands.
• Thirdly, the price-performance ratio of the entire caterpillar has been carefully designed by the supply chain team and the product team. It has an optimal configuration in terms of both cost and profit. The diffusion of the entire graphic and text, as well as the grasp of users' pain points and the benefits for users, are all written very thoroughly.

Therefore, when promoters promote some copywriting , it seems particularly easy and simple, forming a diffusion effect within their group. A colleague of mine told me that she posted a caterpillar link and picture and text in a group of mothers’ group. She didn’t expect that 397 pairs were sold in about an hour.

Therefore, such a product with extremely high cost-effectiveness and copywriting, which is very much in line with user psychology, is highly recognized by users and can generate rapid fission among the user group.

③Super Pusher

Finally, there is a very important incentive mechanism for the pusher, that is, the super pusher. This is actually a conclusion drawn from the game, because people need to get some spiritual or material rewards within a certain period of time.

After reaching such a conclusion, we must start to classify pushers into levels and time points. According to the transaction amount, pushers are divided into pushers, senior pushers, pusher managers, and director pushers.

The more promoters promote, the higher the level they can get. At the same time, their bonus incentive commissions are also different. A promoter ranking list will be announced every month to encourage promoters to actively share good things, increase their amount of money, put their names at the front, and get higher commissions.

3. Offline channel expansion: testing the waters of Yanxuan Hotel & Yanxuan HOME

When it comes to the layout of offline stores, Yanxuan has its own unique approach. Last year, when Yanxuan was cooperating with many commercial formats, it chose Atour Hotel and a model house of Vanke. Why did it choose these two commercial formats as partners?

First of all, we know that when we are in the hotel we will be forced to establish a relationship with the hotel. For example: when I sleep, I must use such products on my pillow and quilt, and when I wash myself.

Yanxuan hopes to let more users understand the cost-effectiveness and quality of Yanxuan products during the use process by delivering some goods. Because we know that seeing is believing in offline stores, we focus more on bringing real physical sensory pleasure to users.

The author of this article @郑如晶 is compiled and published by (Qinggua Media). Please indicate the author information and source when reprinting!

Product promotion services: APP promotion services, advertising platform, Longyou Games