Brand and sales strategy

How to do branding?

1. The cycle of branding and selling products

In the past six months, the most frequently asked question is how to build a brand? After the investment tide receded last year, along with the fading of traffic dividends, consumer product entrepreneurs seemed to be in trouble. From the booming traffic carnival to today's brand anxiety, the switch is so fast in just a few years that it inevitably makes people feel a little unreal.

——A——

In the past few years, the Internet has continued to generate traffic dividends, from Xiaohongshu to live streaming and short videos. Some new consumer brands have a keen sense of smell and quickly drive product iteration and launch strategies, achieving rapid sales growth. This short-term ROI-oriented operating model goes against the traditional perception of brand marketing and is nicknamed a "selling brand" by the brand circle.

Driven by traffic dividends and venture capital, selling goods has gradually become the mainstream voice in the market. At that time, most entrepreneurs paid more attention to traffic operations and had more or less misunderstandings about branding, such as: a brand is just a showpiece if it does not bring goods; the brand will naturally emerge once sales volume increases; the purpose of branding is to sell at a higher price, and there is no need to brand if you want to achieve cost-effectiveness.

——B——

In 2021, the platform’s traffic dividend faded, and the ROI of selling goods shrank rapidly. The more sales, the greater the loss. The cooling of venture capital has caused brands to lose their main source of replenishment. Under pressure, brands and industries were reflecting and finally determined that the lack of brand power was the key.

Domestic brand marketing theories are mainly introduced from Europe and the United States, and research on application tools is relatively scarce. Most institutions’ publicity serves their business, and it is difficult to provide systematic help to entrepreneurs. Under the influence of the general environment, there seem to be a lot of brand-themed advertisements in this year's 38 Festival. There seems to be a misunderstanding: building a brand = finding an agency to shoot an advertisement. This also reflects to a certain extent the lack of understanding of brand marketing among operators.

——C——

As a rigorous niche vertical media, we have always advocated scientific marketing and opposed the creation of anxiety. We wrote this article hoping that by explaining our understanding of branding/selling, it may be of some benefit and inspiration to practitioners. Before writing formally, let me first state a basic point of view:

• Although I am a die-hard brand bull, I don't think there is any distinction between selling goods and brands, and there is no so-called chain of contempt.
• The business model that a brand prefers depends on two key factors: the inherent attributes of the product and the expertise of the operations team.

This article tends to be more theoretical in nature, and due to limited length and writing skills, the content is inevitably ambiguous. We welcome your comments and suggestions. If you are interested in brand marketing tools, you can check out the previous article "Reflections on the Ebb of Consumer Investment Fever".

2. Discussion on Definition

Unfortunately, during these three to five years of competition, one question has not been properly answered:

What is the difference between selling goods and building a brand?

What operations are actually involved in branding rather than just selling products?

——A——

The general understanding of the current market is: building a brand is to comply with traditional brand marketing theory, and expressing the brand's values ​​through feature films is one of the ways; while relying on Internet marketing tools to pursue ROI is selling goods, and the more representative ones are information flow delivery and private domain operations.

We believe that this distinction is not only simplistic and crude but also unscientific. Looking at the history of business development, which successful brand is not a top player in traffic? More efficient use of emerging traffic channels does not mean low-end, nor is it a sin. The same knife can make delicious dishes in the hands of a chef, but in my hands it is no different from a mallet. The same is true for traffic. What we are arguing about today, whether to build a brand or sell goods, is not a problem of traffic itself, but the difference in traffic users.

——B——

Brands’ attitude towards traffic usage reflects their understanding of user relationships, which can be divided into two basic paths:

• Sales brands: Most of them are based on industrialized delivery and pay more attention to the efficiency of single transactions. They usually use stimulating content to raise consumer expectations to ensure the ROI of a single delivery. However, the mismatch between users' actual usage experience reduces the possibility of future repurchases.

• Brand fans: They focus more on the long-term relationship between products and users, and hope to convey the brand’s values ​​and consumer benefits through channels such as information communication and product usage, reduce the difficulty of persuading users to buy next time, and seek the possibility of promoting word-of-mouth communication among users.

In order to avoid unnecessary ambiguity and improve the efficiency of the following explanation, we combine the operating results of the two paths and introduce new terms to replace them: single transaction (corresponding to selling goods)/multiple transactions (corresponding to branding). Therefore, the essence of the sales/brand competition is that when utilizing traffic, the brand is seeking sales efficiency for a single transaction or user relationships for multiple transactions.

——C——

It needs to be further explained that multiple transactions are usually a long-term investment process in user relationships, which is not only reflected in the repeated purchasing behavior of individual users in medium and high-frequency categories, but also in low-frequency repurchase categories, where individual users’ word-of-mouth communication affects the consumption decisions of others. This is even more obvious today when social media is highly developed.

Therefore, even in low-frequency consumer categories such as automobiles and home appliances, good product reputation is a powerful tool for brands to attract new users: although individual consumption behavior is more inclined to single transactions, its multiple transaction attributes are very obvious among the base user group.

Based on the above logic: whether a brand pursues multiple transactions has no necessary relationship with the traffic channels used or the product categories sold. On the surface, pursuing multiple transactions seems to be more technically demanding, but in fact, there is no difference between choosing one transaction method and another. What needs to be considered is the consumption characteristics of the category and the areas of expertise of the entrepreneurial team.

In order to define this issue more clearly, we will analyze it from two dimensions: user & brand, value & price, hoping to provide some inspiration and thinking.

01 From the user's perspective

As mentioned above, the consumption characteristics of product categories are one of the key factors that influence brands’ choice of transaction methods. That is, based on the user’s perspective, we observe how they view and purchase products, which largely reflects the user’s subjective willingness to establish a close relationship with the brand.

We selected two dimensions—category homogeneity perception/user search cost—as the benchmark for user consumption classification to help illustrate the impact of user behavior on transaction method selection.

1. Cognition of product homogeneity

Homogeneous categories are one of the commonly used terms in the industry, which refers to the phenomenon that products of different brands in the same category imitate each other in performance, appearance and even marketing activities, and gradually converge. We believe that the key cause of homogeneity is not the similarity of brand behaviors, but the convergence of user cognition. Taking women's clothing as an example, different brands have a wide variety of product styles, colors, and designs, but users tend to perceive them as homogenized. This is one of the important reasons for the high penetration rate of e-commerce and the popularity of the same styles.

——1.1 Category classification——

Based on users’ differentiated perception of categories, products can be roughly divided into two categories:

• Homogeneous categories: Users do not recognize the differences between products, are more sensitive to prices, and are unwilling to pay for brand premiums. Brands mainly use price promotions and traffic competition as the model.

• Heterogeneous categories: Users recognize product differences, are willing to pay higher prices for brands, have a certain degree of consumer loyalty, and brands value the maintenance of long-term user relationships.

We believe that users’ heterogeneous perception of product categories comes more from factors such as communication risks in social scenarios (such as clothing, shoes and bags), product usage risks (such as medicines and infant formula), and purchase prices (the higher the price, the greater the psychological pressure on users). Users' imagination of consumption risks will make them more willing to increase their consumption involvement and spend more time and energy to understand which products are more suitable for them. Compared with the passive reach of brand advertising, the sunk cost of users' active involvement is one of the key factors in maintaining their loyalty.

——1.2 User Cognition Analysis——

Based on positioning theory: the battlefield of brand competition is the user's cognitive mind. In other words, in order to save time and energy, users are more likely to seek satisfactory solutions rather than optimal solutions in trusted brands. Therefore, brands can gain a first-mover advantage in user awareness through repositioning. At this time, users lack corresponding satisfactory solutions, and it is easier to persuade brands. As supply increases, users’ brand trust list gradually becomes more complete, and they are unwilling to spend time and energy to learn more about products, making it more difficult for new brands to convince users.

In homogeneous categories, since users do not recognize the differences between products, there is no corresponding brand trust list, consumer migration will be more random, and it is difficult for brands to establish user cognitive barriers through positioning. In contrast, for heterogeneous categories, since users highly recognize the differences between products, they improve selection efficiency and avoid consumption risks by establishing a brand trust list. Only when the list brands cannot meet their needs will users be forced to spend time and energy looking for new products. Therefore, it is quite difficult to operate a new brand, which is more common among mid-to-high-end brands with mid-to-high prices.

——1.3 Summary——

From the above, we can see that users’ perception of category homogeneity directly affects the brand’s choice of transaction type:

• Homogeneous categories: The randomness of user consumption will force brands to prefer single transactions, which is very common in mid- and low-priced products (such as daily necessities, snacks and beverages).

• Heterogeneous categories: User consumption is more likely to form multiple transactions based on trust relationships. This is more common in categories with higher risk expectations, and is particularly typical in the mid- to high-price segments.

It should be noted that our judgment on the perception of category homogeneity is more based on the cognitive performance of the main users, that is, there are also some users in homogeneous categories who recognize product differentiation and there are opportunities for multiple transactions. However, the user ratio is low and it is impossible to form an ideal market scale.

2. User search cost

User search cost is a basic concept in "Pricing Strategy and Tactics", which is the non-financial cost that users are willing to pay to find alternative products. Our understanding is more like opportunity cost, which is based on user purchase and includes two parts: the time and energy invested in collecting information and comparing products before purchase, and the possibility that the product may not meet consumer expectations after purchase. These cost items are extremely difficult to measure quantitatively and remain more at the user's cognitive level.

——2.1 Category classification——

According to the different search costs of users, product categories can be roughly divided into two categories:

• Search categories: Users’ search costs are relatively low, and they can easily identify the differences between products and evaluate consumption benefits and usage risks. It is relatively easy for a new brand to convince users.

• Experience category: Product differentiation is difficult to evaluate, and users need to spend a lot of time and energy to make judgments before purchasing. It is relatively difficult for new brands to gain user trust.

To explain this phenomenon, we introduce Maslow's hierarchy of needs model:

• When a product satisfies basic physiological needs with its physical properties, it is relatively easy for users to obtain information and make independent judgments. A novel snack packaging is enough to stimulate users' desire to buy.
• When product consumption is more inclined towards professional fields or spiritual experiences, users will prefer well-known brands in order to reduce consumption risks. For example, users will purchase financial management through professional institutions (such as banks).

——2.2 User Cognition Analysis——

We believe that whether a new brand can successfully convince users to buy is related to the users’ perceived value. As mentioned above, users’ value perception is composed of financial cost (the price difference between new and old products) and non-financial cost (user search cost): price is not the only reason for users to choose new products. If a product has a certain degree of consumer risk or the user is unwilling to spend time and energy to learn about alternatives, the price difference between products may not be able to make up for the gap in product search costs. This is very typical in categories such as medicines and baby food.

After observation, it is found that the level of user search cost is related to factors such as their existing product awareness, difficulty in obtaining information, product complexity, and purchase price. When users are unable to rely on their own cognition to make independent decisions, they have to seek help from external information. If information access is limited (such as in offline stores) or the product is extremely complex, users will have to pay higher search costs. Like the sunk costs brought about by high unit prices, they will reduce users' subjective willingness to seek alternative products and seriously weaken the communication efficiency of new brands.

——2.3 Summary——

From the above, we can see that if a new brand wants to enter the user’s trust list, in addition to the regular price comparison, it also needs to consider the user’s search cost. Even if users have a certain willingness to learn about new products, brands also need to take into account multiple influencing factors such as the complexity of the product, the difficulty of obtaining user information, and the purchase price.

If the product is more of an experience product, it will be more difficult for the brand to communicate with new users, but old users will be more stable and it will be easier to form a consumer relationship with multiple transactions. If it is more of a search product, it will be easier to acquire new customers, but it will be more of a one-time transaction.

3. User classification analysis

As mentioned above, from the user's perspective: according to the different perceptions of product differentiation, they can be divided into homogeneous categories and heterogeneous categories. Users are more sensitive to the consumption price of the former, but are more willing to pay for the brand premium of the latter; according to the different search costs of seeking substitutes, they can be divided into search categories and experience categories. Users are easier to judge the former, which is more conducive to the entry of new products; but in order to reduce consumption risks, users prefer familiar brands when choosing the latter.

——3.1 Classification of user consumption types——

Based on the above two user cognitive dimensions, the following four-quadrant model of product consumption can be established:

——Homogeneous categories——

• Convenience-driven: Users pay more attention to convenience when purchasing, without any specific consumption orientation.
• Price-driven: Users are willing to spend time and effort looking for cheaper alternatives

——Heterogeneous categories——

• Relationship-driven: Users are highly loyal and will not easily switch to familiar products.
• Value-driven: Users collect and evaluate product information and can easily find alternatives

The above product types are very common in daily consumption: based on individual users, if they want to buy paper towels, they are more willing to go to a convenience store (convenience-driven), while to buy cooking oil they will go to a farther supermarket (price-driven). However, in the consumption of differentiated products, people will have more brand choices when buying home appliances in shopping malls (value-driven), but they prefer familiar products (such as Moutai/Zhonghua) when choosing gift products, which is a typical relationship-driven approach.

——3.2 Relationship-driven implementation path——

Based on the above analysis, I believe that the goal of most entrepreneurs is to build a relationship-driven brand: with obvious differentiation in user perception, high search costs increase the user's migration barriers, and form a high-loyalty consumer brand. In terms of actual operation, it can be divided into four basic paths:

• Technical barriers: The products provided by the brand contain some technical barriers that cannot be replicated in the short term, such as special medicines/lithography machines
• Network barriers: Brand users have already formed a network, and abandoning the product will lead to isolation, such as WeChat/Office system

• Cognitive barriers: The brand has formed a labeled cognitive consensus among the target user groups, such as luxury goods/mass brands
• Channel barriers: Brands have unique advantages in distribution penetration depth or special channels, such as Wahaha/Yangshengtang

In the field of mass consumer goods, products with technology/network barriers are relatively rare, so consumer goods are relatively homogeneous and price competition is fierce. If a brand can gain a first-mover advantage in cognition and thus form a barrier, it will be easier to reap excess profits. Of course, a more common path to achieve this is channel barriers, which is particularly typical in the traditional retail era, such as Wahaha's penetration into villages and towns, Marubi & Proya's CS store distribution, Belle's department store system, and so on.

——3.3 Summary——

Based on users’ homogeneous perception/search costs of product categories, daily consumption can be divided into four groups: Convenience is the most basic consumer demand of users. On this basis, users may be willing to spend more time and energy due to price differences (price-driven), may choose certain specific brands based on concerns about consumption risks (value-driven), or may establish relatively stable consumer relationships with certain brands (relationship-driven).

As the goal of all brands, relationship-driven brands are mainly caused by cognitive or channel advantages: the former requires a longer period of information accumulation and often originates from periods when supply is relatively limited. In traditional retail scenarios, since channels and media resources are closed and stock competition occurs, channel barriers become the choice of most brands. That is, the relationship between users and brands is not mutual, but based on information asymmetry, it is the optimal solution when there are no more choices.

4. Changes brought about by the Internet

As mentioned above, based on the traditional store retail scenario, users' daily consumption is divided into four types: convenience-driven/price-driven/value-driven/relationship-driven. The basis for building this model is the geographical traffic rules centered on stores. When users shop across stores, they must pay corresponding time and opportunity costs. But the emergence of Internet space traffic rules has profoundly changed all this.

——4.1 Internet traffic rules——

Since it is impossible to obtain store product information in advance, users who go to stores farther away not only have to pay extra time costs, but may also bear certain opportunity risks (no satisfactory products or inappropriate prices). Based on the certainty of consumption, users prefer to buy in familiar stores. The lower the price of the product, the more inclined they are to consume nearby (such as convenience stores). Only when the price difference of products is large enough (such as purchasing large appliances) will users have enough motivation to go to stores farther away, but even so they will choose relatively familiar stores.

Different from the geographical traffic rules of stores, the spatial traffic rules of the Internet have brought about two obvious changes: it breaks the spatial distance between stores, and the user's store migration cost is extremely low, even if the two stores are thousands of miles apart; users can obtain information faster with the help of the Internet, whether browsing online stores they have never visited or collecting and evaluating content on social platforms, which can improve their consumption judgment ability. The reduction of information asymmetry changes the conventional classification of user consumption.

——4.2 Changes in User Types——

As mentioned above, based on the spatial flow rules of the Internet, e-commerce has broken the spatial barriers of store retail, and users have obtained information more quickly and improved their consumption judgment, which has led to changes in user consumption classification:

• Convenience drive is broken:

  E-commerce has broken the distance difference between offline stores. Based on the existing delivery capabilities, no matter how far the shipping location is, arrival can basically be guaranteed within 1-2 days. For homogeneous categories (such as household products), especially those that are not immediately in demand, consumption will shift from convenience-driven to price-driven.

• Information barriers are broken:

  In the traditional retail era, some brands took advantage of information asymmetry and packaged themselves as foreign/high-end brands. The Internet has broken down information barriers, allowing users to obtain rich content information to assist in making decisions. The shrinking living space forces these brands to turn to the low-end market

• Channel barriers are broken

  Retail stores are a closed environment of stock competition. Brands can continuously squeeze the living space of competitors through sales and form a relative monopoly position. E-commerce virtual shelves provide all brands with the opportunity to showcase themselves, while brands that rely on channel barriers have to face fierce value competition.

——4.3 Summary——

As mentioned above, the emergence of the Internet has reduced users' search costs, forcing brands to face more intense competition from similar brands, thereby reducing users' consumption costs. As a new brand, there are three paths to consider:

• Homogeneous categories: If the product is not an immediate necessity, it is recommended to shift from convenience-driven to price-driven, and convert sales through low-price promotions + traffic delivery.

• Heterogeneous categories: Focus on value-driven positioning. It is recommended to pay attention to valuable content associations in niche culture and avoid market pressure from existing mainstream strong brands.

• Relationship-driven: Based on value competition, brands can gradually expand the number of loyal consumer users by exchanging time for space through long-term and continuous cognitive accumulation.

Due to the late start of domestic consumer goods, existing brands tend to rely more on channel barriers and traffic dividends, and lack sufficient user awareness. Entrepreneurs need to be more patient in accumulating content to make up for the lack of time window, and this is especially true for brands positioned in the mid-to-high-end market. Based on the complexity of the domestic consumption structure, targeting people with homogeneous cognition and focusing on cost-effectiveness is also a good choice, but it also has very high requirements for traffic operation capabilities and control of cost structure.

5. Brand selection

(Please see the horizontal picture)

As mentioned above, based on the dimension of user homogeneity cognition/search cost, combined with the impact of the Internet on retail business, the following suggestions are made:

——Homogeneous categories——

If category consumption tends to be homogenized, that is, users do not recognize the differences between brand products, then the transaction model tends to be more inclined to single transactions, and consumption classification tends to be more price-driven. Users are more willing to choose low prices and give up immediate use of products when they are not immediately necessary.

Specifically in terms of products, triggered consumer categories (such as beverages) tend to be more convenient consumption and seek active exposure of products (such as beverages and convenience stores), while targeted consumer categories (such as furniture) tend to choose traffic optimization within users' habitual purchasing scenarios (such as furniture and Taobao).

——Heterogeneous categories——

If category consumption tends to be heterogeneous, that is, users recognize the differences between brand products and are willing to pay for brand premiums, then the transaction model is more inclined to multiple transactions, and consumption classification is more value-driven, selecting the products they need through a brand trust list.

Since the cognitive accumulation required for relationship-driven development takes a relatively long period of time, brands are more focused on competing in the value-driven quadrant. While ensuring sales through traffic operations, they also maintain good user relationships and seek opportunities to upgrade to relationship-driven development. The content capability requirements for brands are relatively high.

Based on the above analysis, we consider from the perspective of the entrepreneurial team:

• If the team is better at traffic operation, it is recommended to consider products of homogeneous categories, focus on single transactions, and seek the highest efficiency of single traffic exposure. Correspondingly, most products are positioned in the mid-to-low-end mainstream price range, price promotions are the main tool to persuade users, and there are few successful cases of brand upgrading.

• If the team is better at content operation, it is recommended to consider heterogeneous product categories, with the business goal of continuously optimizing multiple transactions of user relationships. Most brands are positioned in the mid-to-high-end market, with slow sales growth in the initial stages. However, accumulated content can help brands obtain higher profit returns, which requires relatively strong tolerance.

Simply put, if the team is good at generating traffic, choosing homogeneous categories to focus on cost-effectiveness and focusing on single transactions, the volume will increase quickly but will always be accompanied by the two-way pressure of rising traffic costs and user migration. However, if you are good at creating content, choose heterogeneous categories to operate user relationships, and seek the possibility of multiple transactions, although the growth will be slow, you can gain consumer loyalty and high profit returns as user awareness accumulates.

Due to the large base of domestic consumer users, even for highly homogeneous/heterogeneous categories, a very low proportion of reverse cognitive users can support a considerable market size, but it is not comparable to the overall sales of the category, so the upper limit of brand sales is relatively low. Entrepreneurship, like consumption, is also seeking relative certainty. Therefore, we recommend seeking opportunities for single transactions in homogeneous categories (selling goods) and the possibility of multiple transactions in heterogeneous categories (building brands).