What is the relationship between products, channels and shopping guide brands?

All customers will be involved in three major issues during the purchasing process: what to buy, where to buy, and how to choose. In order to solve these three problems, the concept of three realms of categories emerged: answering the question of what to buy, answering the question of where to buy, and answering the question of how to choose.

The following is an explanation of the three realms of categories one by one.

“The added value of product categories is more obvious”

We define channel categories as products or services that directly create value or utility for customers or users. Compared with channel categories, the added value of product categories is more obvious.

Three major characteristics of product categories:

1. Physical properties: They are the direct benefits inherent in the category and the biggest source of differentiation and category differentiation;

2. Market characteristics: Market performance that can influence customer choices is an important source of differentiation and credibility;

3. Economic characteristics: These are the characteristics of stakeholders that affect strategic alignment. Alignment and business models need to focus on economic characteristics.

“Channel categories need to enter the minds of customers”

There is a concept of “channel level” in channel categories.

The simplest channel is the "first-order channel":

For example, the various products sold in supermarkets, convenience stores, pharmacies, fruit stores, and food courts.

The earliest channel category was the market. The earliest market was the morning market beside the well within the primitive tribe, and the market at noon on the edge of the forest between tribes.

As trade increased, large regular markets developed permanent facilities, sedentary merchants emerged, and markets evolved into cities.

Sedentary merchants are the first-order channels, and cities are the second-order or even higher-order channels.

The other level is called “high-level channels”;

Other channel brands will settle in, and modern shopping malls usually belong to the second-level and high-level channels, with product categories such as restaurants, cafes, dessert shops, brand clothing stores, luxury stores, cinemas, beauty salons, fitness centers, etc., as well as supermarkets, department stores, cosmetics stores, toy stores, electrical appliance stores, bookstores and other channel categories.

In modern channel categories, the popularity of the Internet has led to unprecedented prosperity in sales channels for service-oriented product categories, such as Meituan for catering, Ctrip for travel, Maoyan for movie tickets, and Didi for taxi-hailing, which have overturned the situation in the past where service-oriented product categories could only be traded on-site.

Among them, cinemas are a relatively special product category, which is between product categories and channel categories, just like slime mold in the plant kingdom, which is between the animal kingdom, the plant kingdom and the native kingdom.

If classification is necessary, cinemas still belong to the product category.

But because the raw materials of cinemas - films - are highly branded, some people think that cinemas are channels for films, but this is a professional view.

In fact, movie theaters have stronger value-producing attributes. It is impossible to produce the same customer utility by buying a movie and watching it at home. The price of a DVD is usually not comparable to that of a movie ticket.

I tested this on multiple occasions:

The brand with the highest first mention rate in the “supermarket” category without any suggestion is “Wal-Mart”;

When asked about "shopping mall", it's " Wanda ";

There is no national preferred brand for “department stores”, but all the brands mentioned by the audience are offline regional department store brands;

When asked about "online department store", the first one mentioned most frequently was "Taobao".

It can be seen that online channels and offline channels are actually different categories. Therefore, using the same brand in both online and offline channel categories is a brand extension, which will increase customer decision-making and communication burden.

If Walmart uses the same brand name both online and offline, customers can no longer say "go to Walmart" but must say "go to a Walmart store" or "go to the Walmart online store."

When other conditions are the same, customers will blurt out short and catchy brands, and this tiny difference may produce the Matthew effect.

Channel categories also have physical, market, and economic characteristics.

Three major characteristics of channel categories:

The main component of channel costs is transaction costs, and production costs (such as grading and packaging of goods) account for a very small proportion; if production costs account for a large proportion, it is necessary to consider whether it belongs to the channel category (refer to the previous analysis of cinemas).

Therefore, the three major characteristics of channel categories are all related to reducing transaction costs:

Primary features: cheap;

It is cheap, reducing transaction costs for most people in most situations, such as buying a week's worth of goods at a large supermarket. In order to save money, we may sacrifice some convenience and features.

Most of the most valuable retail brands started out cheap.

For example, Wal-Mart is known as the “price butcher” and created the reputation of the “three-kilometer circle of death”. Wal-Mart’s boss, Sam. Walton has been crowned the world's richest man many times (both of Sam Walton's heirs were ranked in the top 10 of the 2014 Forbes Rich List, and combined they are still the world's richest man).

Gome Electrical Appliances was once known as a price killer. When it started in Beijing, its peers joined forces to try to ban it. Its reputation for low prices created news of people queuing overnight when its first store opened in Shenzhen. Gome's boss Huang Guangyu also became China's richest man twice.

Taobao also started out by being cheap, which had a huge impact on the offline retail industry and created China's new richest man, Jack Ma.

Germany's ALDI supermarket has created lower prices, higher sales per square meter and higher labor efficiency than Walmart by streamlining its merchandise (SKU in jargon), completely driving Walmart out of Germany.

Walmart's standard store has 150,000 SKUs, while Aldi has only 700 SKUs. This results in Walmart's average purchase amount for a single SKU being less than 1/10 of Aldi's, and its purchasing bargaining power is therefore inferior to ALDI.

Too many SKUs also lead to higher management complexity, higher loss rates, and lower turnover rates. As a result, Walmart lost to the more focused Adidas, becoming a powerful example of “less is more.” Aldi supermarkets have expanded throughout Europe and are now beginning to expand in the United States.

It must be pointed out that "cheap" means "selling goods cheaply" rather than "selling cheap goods".

The former means that the same product is sold cheaper (a low price created by low quality is not cheap), but it does not prevent the sale of some high-priced goods (high-end goods); while the latter is a feature, such as a flea market that mainly sells cheap goods.

Similarly, “selling high-priced goods” is a feature, while “selling goods at high prices” puts oneself in a position vulnerable to competition.

To put it the other way around, not everyone likes to “buy cheap goods”, but everyone likes to “buy goods at a low price”, and no matter how rich you are, you don’t want to be taken advantage of.

More importantly, the brand war is a battle of minds. "Cheap" is not a number on the price tag, but the perception in the customer's mind.

Smart pricing strategies help build a perception of cheapness without degenerating into a pure price war, that is, to make prices both comparable (to build a perception of cheapness) and not completely comparable (to tap into customer surplus).

Therefore, pricing has become one of the four core technologies of retail. It requires the comprehensive use of pricing techniques such as competitive pricing, psychological pricing, price discrimination, bundled pricing, cross-subsidy, step pricing, time-sharing pricing, and price anchor points to fully expand sales and tap into customer surplus without causing customer disgust or making operational management too complicated.

Walmart founder Sam In his autobiography, The Nature of Promotion, Walton spared no effort to describe how he saved money and how he saved money for his customers, which was to spread the impression of cheapness and create the perception of cheapness.

In contrast, Pang Donglai, which became a media darling for a while, has been talking about Pang Donglai’s sentiments and corporate culture in all its public relations communications. A book titled “You Can’t Learn from Pang Donglai” has set off a trend of “Go to Pang Donglai to learn corporate culture”.

But what will customers think when they see these promotions? All these things cost money, and in the end it is the customers who have to pay for them.

Pang Donglai, which calls itself the "Haidilao of the department store industry," ignored the fundamental difference between channel brands and product brands and deviated from the three major characteristics of channel categories. Its bankruptcy was a natural result.

Ma Jiajia’s high-end publicity also had nothing to do with the three major characteristics of channel categories, which led to the failure of her Paofou adult products store.

Second characteristic: convenience;

Convenience and reduced transaction costs in certain situations.

When you are cooking and you run out of soy sauce, you will not drive to the supermarket to buy more. Even though the soy sauce at the convenience store downstairs is a few cents more expensive, you will still buy it.

When a friend comes from afar and you are short of half a dozen beers, you won’t run to the supermarket just to save a few dollars.

If you are in a hurry and want to buy a bottle of water, you are unlikely to go into the supermarket to search the shelves and pass the cash register to save a few cents. Instead, you will buy it from a roadside shop.

As mentioned earlier, the secret to category differentiation is to focus on the secondary characteristics of the category. By focusing on "convenience", retail brands have differentiated themselves into the "convenience store" category, and global convenience store chain leaders such as 7-11 have also been born.

As the average hourly income per capita increases, the opportunity cost of time increases, and the relative importance of "convenience" to "cheapness" increases, the original balance of the retail industry will change as a result.

International experience shows that the take-off point for convenience store chains is when per capita GDP exceeds US$5,000. China has already passed this take-off point, with statistics showing that over the past few years, China's convenience stores have grown several times faster than traditional large supermarkets and department stores.

The increase in per capita hourly income also leads to an increase in the opportunity cost of leisure, so consumers want to achieve greater utility in the same leisure time, which leads to the development of business towards two extremes:

Either direct convenience, community convenience stores and "instant e-commerce " (delivery within an hour) will usher in a new era;

Or it can be a one-stop comprehensive consumption, where you can eat, drink, play, have fun and shop all in one place.

Large shopping malls will continue to squeeze out traditional department stores and some street businesses; while traditional department stores and supermarkets stuck in the muddy middle ground will find it increasingly difficult.

By the way, it is predicted that instant e-commerce based on O2O will be the disruptor of traditional e-commerce.

It should be emphasized that convenience stores are also a channel category, so in the competition among different brands within the convenience store category, cheapness is also the primary characteristic.

In short, convenience stores compete with supermarkets by being convenient, but compete with other convenience stores by being cheap. Perhaps one day, in the competition between channel categories, convenience will rise from a secondary characteristic to a primary characteristic, and then we may witness 7-11's market value surpassing Walmart.

The third characteristic: features.

The feature is to reduce the transaction costs of specific groups of people.

• There is a type of customer who doesn’t buy cheap goods, and for them there are boutiques and imported supermarkets;

• There is a type of customer who does not buy high-end products, and there are flea markets for them;

• There is a type of customer who are heavy consumers of a certain type of goods. For them, there are special channels such as bookstores, cosmetics stores, fruit stores, toy stores, maternal and child stores, wine shops, outdoor goods stores, and antique shops.

Features are richer characteristics than convenience (fast, close, complete), so the new channel categories differentiated by focusing on features are the most numerous. Supermarkets are also differentiated from department stores or farmers' markets by focusing on daily consumer goods.

While Suning and Gome are struggling under the impact of online retail channels such as Taobao, Tmall and JD.com, Shenzhen Suning is still living a comfortable life by focusing on high-quality electrical appliances.

Of course, since specialty is the third characteristic, it is difficult for specialty channel brands to exceed Walmart and 7-11 in market value.

However, is it not worthy for aspiring entrepreneurs to create distinctive channel brands? That's not the case at all.

Because enterprises and brands are two different things, corporate strategy and brand strategy are also two different things. We will analyze this point later.

The channels listed above are all retail channels, but the analysis methods used are also applicable to B2B channels, such as agricultural product wholesale markets, small commodity wholesale markets, steel trading markets, etc.

The game between product brands and channel brands.

We divide product categories and find from their guiding role in business that the basic strategy for product brand growth is to expand channels and create a brand that achieves pre-sales in the minds of customers.

Of course, when expanding product brands’ channels, conflicts with management channels must be avoided. Many companies use different brands online and offline, which is a wrong practice. The reason is that the product brand is the same everywhere, whether online or offline, customers think it is the same product, so it should be the same brand.

What is the basic strategy of channel branding?

1. To expand products, you need to answer multiple-choice questions instead of fill-in-the-blank questions;

Many companies cannot distinguish whether they are a channel brand or a product brand. It is obvious that there are many SKUs of channel brands that are still being produced, so this becomes a fill-in-the-blank question, which is a big problem.

2. Manage cognitive boundaries.

Expanding product lines is not something you can do as you please. You need to consider customers’ perception of the brand. Customers have psychological expectations.

The game between products, channels and shopping guides.

Products and channel brands need traffic from shopping guide brands, shopping guide brands need transaction monetization from channels and product brands, and they need product brands to share advertising fees and channel brands to share sales revenue.

But there is a conflict here.

Channels are worried that they will become mere backstage support, and shopping guides are worried that channels will cancel their support. Real trial and error cases have appeared in the three realms:

Taobao is worried that Mogujie and Meilishuo will become new traffic entrances, while it will become a warehouse. So as shopping guide platforms grew, it banned them from entering Taobao. As soon as the ban was issued, some shopping guide brands were forced to transform into channel brands, some of which were successful. For example, Mogujie became a long-term competitor of Taobao Tmall.

But Taobao is indeed the omnipotent Taobao. Jack Ma later adopted a better strategy. He began to embrace change , invest in shares, and promote the growth and competition between shopping guides and channels.