Luckin Coffee Marketing Strategy

The ups and downs of life are too fast, it's too exciting——

This line from Stephen Chow's movie "A Chinese Odyssey: Part One" is indeed the most appropriate to describe the ups and downs of Luckin Coffee over the years.

Since revealing its financial fraud of 2.2 billion yuan in April 2020, Luckin Coffee, which once set the world's fastest IPO record, has quickly fallen to bottom. This move not only triggered a series of chain reactions such as stock price plummeting, delisting, class action lawsuits, and penalties from regulatory authorities, but also caused its reputation among consumers to plummet, making it the target of criticism.

Two years have passed in a flash. Luckin Coffee, which was once criticized by many people, not only did not collapse, but achieved a complete reversal of the situation. While returning to the public eye with the image of a new internet celebrity brand, its financial reports also frequently send signals to the outside world that its business is back on track.

According to Luckin Coffee's third-quarter financial report released in December 2021, Luckin Coffee's total net revenue in the third quarter of 2021 was 2.3502 billion yuan, a year-on-year increase of 105.6%; the net loss was 23.5 million yuan, a year-on-year decrease of 98.6%; the average monthly transaction customers were 14.7 million, a year-on-year increase of 79.2%; and the store operating profit margin increased to more than 25%.

It is no exaggeration to say that there is almost no other brand in China other than Luckin Coffee that has created many myths since its birth and has been able to make a comeback after experiencing negative events.

Of course, the marketing strategy behind Luckin Coffee's comeback, which did not get eliminated but instead became popular again, is also worth our careful consideration.

01From burning money to subsidies to refined operations

As a rising star in the coffee industry, Luckin Coffee, founded in 2018, initially aimed to compete with Starbucks. In order to seize Starbucks' market share, Luckin Coffee, like many other Internet companies, began to spend money crazily, hoping to achieve the goal of "grabbing market share, attracting financing, and expanding rapidly."

Data shows that since opening its first store in November 2017, Luckin has opened nearly 3,000 stores in just 21 months, and plans to exceed 10,000 stores by the end of 2021...

It’s the same principle as when we eat normally. If we eat too fast, it’s easy to vomit!

Especially after being delisted due to financial fraud, Luckin Coffee, which stopped expanding, suddenly realized that the side effects of its previous approach of blindly spending money to seize market share began to become more prominent. Because in the eyes of consumers, Luckin Coffee can attract them only because of its cheapness, not the Luckin Coffee brand itself.

In order to reshape its brand image, Luckin Coffee also began drastic reforms.

1. Reduce the burden

After learning from its mistakes, Luckin Coffee closed some stores with high rental costs and poor profitability, and used all the saved funds on its own stores with healthy profitability.

Data shows that as of the end of November 2020, the number of Luckin Coffee stores has dropped from 4,507 to 3,898, of which 894 underperforming stores were closed in the first three quarters. The number of stores of its sub-brand Xiaolu Tea has also dropped sharply from nearly 300 to 77.

At the same time, Luckin Coffee has further liberalized franchising. Since it opened up franchising in the fourth quarter of 2019, the company's franchise stores have reached 1,465 by the third quarter of 2021. While these franchise stores contribute cash flow to Luckin Coffee, they have also further enhanced Luckin Coffee's brand radiation capabilities and influence.

2. Price increase

Although Luckin Coffee still has a lot of coupons, compared with the previous coupons of 30% to 40% off, Luckin Coffee is now obviously more restrained and restrained.

But as the saying goes, there is no harm without comparison. Although Luckin's discounts are not as strong as before, compared with Starbucks, which costs 30 to 40 yuan per cup, Luckin's price advantage is still very obvious.

Although the price increase caught consumers off guard, there were even a number of new complaints about Luckin Coffee's false discounts and product price increases on the Black Cat Complaint Platform. But these are more of just growing pains for Luckin Coffee, which wants to reshape its brand image, because only in this way can it get rid of the "cheap" brand image in the minds of consumers as soon as possible and make its brand recognized and affirmed by more consumers.

3. Create a hit product

Of course, if Luckin Coffee wants consumers to gradually accept the fact that product prices have increased, it also needs to show some sincerity at the product level and win the hearts of consumers by creating popular products.

With monthly sales exceeding 1 million cups and even being sold out in many places, Coconut Latte is undoubtedly Luckin's most popular product.

After the success of Raw Coconut Latte, Luckin Coffee struck while the iron was hot and launched Velvet Latte with the gimmick of "Raw Coconut Latte is the better blockbuster of the year", stepping on its own product to become popular again, selling 3 million in ten days, and even sparked a large-scale online debate about the two products.

At the beginning of 2022, Luckin’s new product, Hua Kui, once again topped the trending searches on Weibo and became the hit of the year. A few days later, Luckin Coffee officially issued a message saying that the sales of Oiran were very good. On January 11, Luckin Coffee announced that Huakui was sold out in some cities and stores - Luckin Coffee, which had just entered the boutique coffee market, had created another "hot product."

4. Private Domain Operation

Since its establishment, Luckin Coffee has been committed to building a private domain position.

In addition to using methods such as free first cup and issuing coupons to direct consumers from offline stores, mini-programs, official accounts, and Weibo to place orders on the official APP and accumulate platform traffic, Luckin can also optimize and accurately plan subsequent store location selection by analyzing consumer data.

After the outbreak of the epidemic, Luckin Coffee began to shift to community operations.

Through the menu bar and tweets of Luckin Coffee’s WeChat official account, consumers can see the message “Add Luckin’s Chief Welfare Officer Lucky to receive a 58% discount on drink coupons”; in offline stores, mini-program malls and APP pages, users will also be guided to follow the official account and add the “Welfare Officer”’s corporate WeChat when receiving coupons. After adding the welfare officer’s WeChat, users will receive an entry link to join the group and will be pulled into different customer groups based on their personal location.

These traffic-generating activities enabled Luckin to quickly accumulate more than 9,100 customer groups, more than 1.1 million social group users and more than 1.8 million corporate WeChat customers in the three months after its private domain layout. This move greatly increased Luckin's sales and user stickiness.

02Choosing the right spokesperson will make marketing more accurate

According to the financial report, Luckin's marketing expenses accounted for 20.1% in 2019, which dropped to 13.2% in 2020. In the first semi-annual report of 2021, marketing expenses further dropped to 12.8%.

But the adjustment of marketing expenses does not mean that Luckin Coffee will give up marketing and subsidies, especially after "coming back" after a period of silence, Luckin Coffee's marketing has also become more precise.

First of all, there is Liu Xuxu. In a variety show that originally required "fighting", Liu Xuxu became a limited top star for a period of time because of the strong contrast with other contestants.

Luckin Coffee also seized this opportunity and quickly asked Liu Luxiu to endorse its new product "Fresh Coconut Latte", coupled with the slogan "Fresh Coconut Latte YYDS", making Raw Coconut Latte the most popular drink in 2021.

At the Beijing Winter Olympics which just ended, Luckin Coffee bet on Gu Ailing in advance. After she won the gold medal in the freestyle skiing big air event at the Beijing Winter Olympics, Luckin Coffee immediately added the word "winning" to the "Gu Ailing Recommendation" menu in the mini program and launched an exclusive coupon at a 48% discount. This wave of marketing sold out many of Luckin's Gu Ailing customized products, and made it to the hot search list, taking advantage of the popularity.

It is worth mentioning that after the two parties officially signed the contract in August last year and officially announced the endorsement cooperation in September, Luckin Coffee started related publicity early.

In addition to continuously promoting various materials online, offline, we set up Gu Ailing standees in stores, and opened two pop-up theme stores in Beijing in January. Cup sleeves, paper bags, gas signboards and other peripheral products have been launched online one after another, continuously reaching users online and offline.

Luckin Coffee’s official account also took the initiative to bring this treasure girl to life: it made an official announcement on Gu Ailing’s birthday, reposted Gu Ailing’s training videos, joined the fan super topic, issued posters to celebrate the championship, and even live-streamed the entire event with pictures and texts on the day of the Winter Olympics... She is definitely a die-hard fan.

Not only that, Luckin Coffee launched a series of activities immediately after Gu Ailing won the championship, including a "championship ticket package" and a photo-sharing event on Weibo, which triggered many netizens to place orders passionately, achieving the goal of "Gu Ailing won the championship one second and Luckin Coffee was on the street the next second."

From the series of marketing moves after signing the contract in advance and winning the championship, Luckin Coffee not only linked to hot topics but also highlighted the importance the brand attaches to its spokespersons, gaining user favorability to a certain extent and helping convert brand sales.

In conclusion:

From hitting rock bottom to its current comeback, Luckin Coffee has too many highlights worth savoring both from a business perspective and in terms of marketing.

This series of self-redemption actions exemplifies not only Luckin's courage to learn from its mistakes but also its determination to innovate. It understands the preferences of today's young consumers and is willing to work hard on the product level, gaining brand favorability, user activity and stickiness from consumers by creating hit products.

What is certain is that Luckin Coffee, which is close to achieving profitability, will continue to create surprises for consumers in the future, and will truly be able to compete with well-known coffee brands such as Starbucks and Costa Coffee in the domestic and even international arenas.

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Author: Brand Advertising Officer

Source: Brand Advertising Officer