MoonFox Analysis | Grabbing the Market, Consumption Transformation under the Low Price Strategy
Aurora Mobile's sub-brand, MoonFox Data, has released a comprehensive analysis on the effects of the low price strategy in China's consumer market. In 2023, China's retail sales of social consumer goods reached RMB 47.15 trillion, marking a 7.2% year-on-year increase. However, macroeconomic challenges have led consumers to prioritize saving over spending, pressuring long-term market growth.
HEYTEA has shifted from high-end offerings to cost-efficient products, lowering prices to boost store traffic and app engagement. Similarly, in the coffee market, COTTI COFFEE's low pricing strategy has enabled it to surpass Starbucks and Luckin Coffee in customer flow despite having fewer stores.
The report also highlights the prevalence of low price strategies in the e-commerce sector, with platforms like Pinduoduo and JD.com intensifying competition through aggressive pricing and subsidies. While low prices attract consumers, they risk undermining product quality and brand sustainability, urging companies to balance affordability with quality.
- China's retail sales of social consumer goods reached RMB 47.15 trillion in 2023, a 7.2% increase year-on-year.
- HEYTEA's applet MAU reached over 15 million in August 2023 after price reductions.
- COTTI COFFEE surpassed Starbucks and Luckin Coffee in offline customer flow index in June-July 2023.
- Pinduoduo's low price strategy helped it grow significantly, with user repetition rates rising to 52.5% by March 2024.
- JD.com implemented a RMB 10-billion subsidy channel and lowered postage thresholds to attract consumers.
- The long-term growth of China's consumer market is under pressure due to macroeconomic challenges.
- HEYTEA's store traffic and applet MAU data began to fluctuate and decline in 2022.
- Large-scale price reductions may lead to inferior product quality and potential food safety hazards in the tea and coffee markets.
- Excessive focus on low prices in the game market may harm the overall industry by prioritizing cheap, low-quality products.
- Some brands are facing a 'lose-lose' situation where low prices damage franchisees' interests and reduce product quality.
Insights
MoonFox's analysis highlights the overall economic transformation under the low price strategy in China, which is highly relevant to investors. The shift in consumer spending towards more budget-conscious choices, driven by macroeconomic factors, underscores the pressure on companies to adapt their pricing strategies to remain competitive.
Key Insights:
1. Pricing Strategy Impact: The transition from high-end to cost-efficient offerings, particularly in sectors like tea-based drinks and coffee, shows a significant shift in business models. For example, HEYTEA's price cuts resulted in increased customer flow and monthly active users, but also indicate a potential squeeze on profit margins. Investors should watch how these companies balance between maintaining quality and reducing prices.
2. Market Penetration: Companies like COTTI COFFEE adopting aggressive pricing strategies to compete with established players like Starbucks and Luckin Coffee show the importance of market penetration over immediate profitability. This can lead to increased market share but might pressure financials in the short term.
3. E-commerce Strategies: The rise of platforms like Pinduoduo through low-cost strategies and competitive tactics indicates a broader trend where price competitiveness is crucial. The convergence in strategies among major e-commerce platforms suggests that price sensitivity is now a key driver for consumer loyalty.
Conclusion: While the low price strategy can drive short-term growth and market share gains, it could adversely affect profit margins and product quality if not managed well. Investors should consider the long-term sustainability of these pricing strategies and their impact on the financial health of the company.
The analysis presents important market dynamics that shape consumer behavior and business strategies. The gradual shift towards lower-tier city markets and the adoption of cost-effective measures highlight significant trends for stakeholders.
Key Insights:
1. Consumer Behavior: The widening gap between M1 and M2 money supply suggests a cautious approach by consumers towards spending, reinforcing the need for businesses to adapt to budget-conscious behavior. This is critical for sectors traditionally reliant on discretionary spending.
2. Competitive Environment: The low price strategy not only levels the playing field but also intensifies competition. For instance, the aggressive pricing by Luckin and COTTI COFFEE indicates a robust competitive landscape where only the fittest will thrive. This can lead to market consolidation, benefiting well-capitalized entities while squeezing smaller players.
3. Long-term Sustainability: The potential pitfalls of a low price strategy include deteriorating product quality and consumer trust. Brands that successfully integrate low prices with robust quality and service will achieve sustainable growth. Investors should scrutinize how companies maintain their brand identity and customer satisfaction amidst aggressive pricing.
Conclusion: The focus on low prices is a double-edged sword. While it drives immediate consumer engagement and market share, maintaining quality and brand integrity is essential for long-term success. Investors should monitor how companies balance these aspects to mitigate risks and ensure sustainable growth.
About us: Aurora Mobile (NASDAQ: JG) established in 2011, is a leading customer engagement and marketing technology service provider in China. Its business includes notification services, marketing growth, development tools, and data products. As its sub-brand, MoonFox Data is a leading expert in data insights and analysis services across all scenarios, aiming to help companies gain market insights and empower precise decision-making.
However, it is undeniable that the pace of development of a large number of once fast-growing industries has slowed down under macro factors such as the global economic downturn and international social unrest; The scissors difference between M1 and M2 has widened, and more consumers choose "saving" instead of "spending", and "careful calculation and strict budgeting" have become the main theme of the consumer market. On the whole, the long-term growth of the consumer market in the future is still under significant pressure.
In this context, the "low price strategy" began to be favored by more enterprises. With price reduction, subsidies and focusing on the markets in lower-tier cities, the competition among enterprises is becoming increasingly fierce. In the long run, does the low price strategy work? After acquiring users and occupying the market, how can enterprises further achieve user retention and long-term operation?
I. From high-end to cost performance, the tea-based drink market subverts itself
HEYTEA and Nayuki were the first to start, and the price reduction method has long been nothing new.
Take HEYTEA as an example,
In 2021, the high pricing strategy began to come under pressure due to compounding macro and other factors. HEYTEA began to focus on innovative products, including freshly squeezed phyllanthus emblica, bottled sparkling water/light milk tea, etc., but the popularity was always limited. In 2022, IP co-branding became its core strategy, with significant results in cooperative marketing such as HEYTEA x FRAGMENT and HEYTEA x 3CE.
From January 2023 to March 2024, HEYTEA's Trend of Offline Customer Flow Index and Monthly Active Users of Applet in
Date | Average monthly customer flow index | MAU (million/person) |
2024/3 | 510,643 | 16.13 |
2024/2 | 430,822 | 12.39 |
2024/1 | 432,150 | 11.76 |
2023/12 | 443,465 | 18.32 |
2023/11 | 423,414 | 10.12 |
2023/10 | 463,065 | 11.72 |
2023/9 | 457,795 | 11.24 |
2023/8 | 408,027 | 15.40 |
2023/7 | 387,358 | 9.76 |
2023/6 | 361,533 | 7.93 |
2023/5 | 318,280 | 6.94 |
2023/4 | 294,948 | 5.70 |
2023/3 | 274,002 | 6.47 |
2023/2 | 261,491 | 6.87 |
2023/1 | 231,830 | 16.13 |
Data source: MoonFox iApp & iBrand (MoonFox iApp & iBrand) Data cycle: January 2023 - March 2024 |
The statistical results only contain applet data, excluding ecological traffic data such as web pages, application clients and Quick App. |
Generally speaking, although the strategy is effective, the magnitude of high-end market is still limited. In 2022, the store traffic and applet MAU data of HEYTEA began to fluctuate and decline. In the context of consumption downgrading, HEYTEA began to officially focus on the markets in lower-tier cities.
In January 2023, HEYTEA announced that the prices of some products, including pure tea and fruit tea, were lowered by about
In the second half of 2023, HEYTEA and Nayuki announced further price cuts for their products, and the
II. The coffee market with continuous involution and fierce competition
"Let coffee return to a reasonable price". Compared with tea-based drink, the price war in the field of coffee started earlier.
In 2017, Luckin Coffee was established. Relying on the price advantage and the rapid opening of stores, Luckin quickly occupied the slightly blank coffee market in
But with the departure of the founders of Luckin, they brought their low price strategy and rapid expansion to their new brand - COTTI COFFEE. In 2022, COTTI COFFEE was established. With the formats of quick-access stores and in-store stores, it has grown rapidly and quickly entered the first echelon.
Comparison of Offline Customer Flow Index and Number of Active Business Stores among Leading Coffee Brands in the Chinese Market in 2024
Offline Customer Flow Index (April 7, 2024) | Number of Active Business Stores (Units) (February 2024) | |
COTTI COFFEE | 2,847,213 | 6,431 |
Starbucks | 1,787,452 | 6,849 |
Luckin Coffee | 1,467,712 | 13,080 |
Data source: MoonFox iBrand Data cycle: February 2024 - April 2024 |
Based on MoonFox Data, COTTI COFFEE's offline customer flow index surpassed Starbucks and Luckin in June-July 2023 and continues to grow. Currently, under the premise that the number of stores is less than that of Starbucks and Luckin, COTTI COFFEE can still maintain a high level of offline customer flow index.
As for the low price strategy, COTTI chose to further lower the average order value after entering the market. At the initial stage of brand establishment, the average order value is
Meanwhile, with the fermentation of the "price war" between Luckin and COTTI, low price gradually became an important feature of the coffee market and brand consensus, and "how to be cheaper" began to become the core focus of emerging brands. For example, Mixue Ice Cream & Tea, which is famous for its cost performance, incubated the coffee brand "Lucky Cup" in 2017, focusing on low-priced coffee drinks and drip coffee bags; For example, Jueco Coffee, which continues to lower the price of the basic model and introduce American coffee for
III. Simultaneously focus on the markets in lower-tier cities online, and there are rich cases in the fields of e-commerce and games
The "low price" strategy is not only fermented offline, but also the low-priced method in many fields online has been implemented earlier and achieved remarkable results. The first is the e-commerce industry that intensifies the involution and the leading platforms compete fiercely with each other.
In 2018, Pinduoduo, whose GMV was less than
Not only Pinduoduo, Taobao and JD.com also pay close attention to the integration of low price strategy and platform. For example, Taobao, its own brand "Taogongchang", which is responsible for docking the source factory, further reduces the entry threshold and accelerates the simplification of the entry process, including individual industrial and commercial households uploading business licenses to apply for settlement, 5-minute approval, and Taobao and Tmall merchants one-click settlement. Meanwhile, focusing on the platform itself, Taobao use the supply side advantages to further expand investment, rich merchant categories to enhance the overall number, further intensifying the internal competition of sellers and continue to compete for prices; Facing buyers, it launched special channels such as "comparison of prices for the same model" and "99 sale" to enhance consumer stickiness.
Take JD.com as an example. In 2023, JD.com began to fully implement the low price strategy. In March, it launched a special channel of
From March 2022 to March 2024, Trend of User Repetition Rate in Taobao, Pinduoduo and JD.com
Date | Repetition rate |
March 2022 | 41.3 % |
March 2023 | 49.7 % |
March 2024 | 52.5 % |
Data source: MoonFox iApp; Data cycle: March 2022 - March 2024 The statistical results only contain application client data, excluding ecological traffic data such as web pages, applets and Quick App; Repetition rate - coincident users / union |
On the whole, regardless of the platform tonality and service characteristics, the market strategies of the leading platform gradually converge, and the low price strategies of different forms and dimensions have achieved certain results, and the giants are also gradually eroding each other's share.
Based on MoonFox Data, Taobao, for example, in March 2024, its user overlap rate with JD.com and Pinduoduo was
Not only in the e-commerce industry, have low prices also frequently appeared in the marketing cases of the game industry.
With the strong support of WeChat and Tiktok, and the accelerated integration of ultra-leisure and multi-category method, the mini-game market has developed rapidly, and now it has gradually entered the stage of accelerated competition. As a result, the pressure on medium-level developers has further intensified. In this context, a large number of medium-level developers rely on the relatively low development cost of mini-games, and begin to choose to start from the unit price to seize market share.
Take marketing materials as an example. Based on DataEye data, in the past 30 days until January 11, 2024, the titles of purchased materials included "0.1 off" creative materials for mini-games, and the total number of videos and pictures exceeded 5,337. Take products as an example. For example, Mad City Pixel, Demon Warrior, etc., take the role card drawing as the core payment point, and add copywriting such as "winning XX in
IV. Avoiding the trap of low price, quality/brand should be the core
Lowering the price of a product is in itself consumer-friendly behavior. Enterprises gain market share and cultivate user loyalty by sacrificing profits or even some losses. But at the moment, more "low price" strategies are going to extremes, and some price wars are beginning to destroy the enterprise business model. Meanwhile, some brands are facing a "lose-lose" situation in which the interests of franchisees are damaged and the quality of products obtained by consumers is reduced.
Take the industry as an example. As for tea-based drink brands, large-scale price reduction leads to the decline of the quality of tea products, and broken tea and inferior fruits cannot guarantee the taste and have food safety hazards; In the coffee market, a large-scale price reduction on the brand side will give franchisees greater stocking pressure, and problems in the supply chain will make a large number of single products out of stock for a long time; Even in the game market, excessive marketing around low-priced internal purchases will significantly affect the overall development of the mini-game industry, as a result that bad money drives good money out of circulation.
Under the general trend of consumption downgrading, users' consumption habits tend to be more rational. In our view, low prices should be a means, not an end. Enterprises should focus on the integration of low price and brand identity, and make clear the subsidy strategy that meets the needs of key users; Meanwhile, ensuring the core competitiveness of products, quality and service are still the key factors for enterprises to develop, acquire and maintain competitiveness in the long run.
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Contact number: 400-888-0936
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Title: Director of Sales, Industry Insight Division
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Email: zhouxt@jiguang.cn
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SOURCE Aurora Mobile Ltd
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