Smith Barney and Heng Yuan Xiang: The Future of Virtual Business Models

On August 28, 2008, Metersbonwe Fashion Co., Ltd. was formally listed. Chairman Zhou Chengjian stated that 85% of the funds raised will be used for channel construction. Shortly after November 30, 2008, when Beijing Olympic Games sponsors’ rights were about to be withdrawn, Heng Yuanxiang announced that it had become the first partner of the Chinese Olympic Committee from 2009 to 2012 and continued to be associated with the Olympic Ring. The two companies, Metersbonwe and Hengyuanxiang, known for their virtual business model, are moving toward two different development paths, and their different options may represent two futures of virtual business models.

Hit Jiang Shanyi, sit Jiangshan difficult

Hengyuan Xianghe and Metersbonwe (hereinafter referred to as "Meibang") have similar starting styles. They are all relying on brands to integrate other social resources, adopt manufacturing and sales, and concentrate their efforts on brand marketing. The difference is that Hengyuanxiang only works as a brand, factories and channels are joined, direct orders from the channel to the designated factories; and while Smith Barney is branding, it also builds direct channels, and also uses manufacturing outsourcing and sales joining methods. . However, both companies are mainly based on managing brands, and they manage their physical resources through virtual assets.

This mode of asset-light operation once enabled the two companies to concentrate their efforts on promoting the brand and achieved rapid development over the past decade or so. Currently, there are more than 300 cooperative factories and more than 2,200 sales terminals under Smith Barney. Hengyuanxiang owns 4 industrial groups, more than 70 franchised factories, and more than 5,000 sales terminals.

However, it is easy to hit the country, and it is difficult to sit in the mountains. With the increasingly fierce competition, a large number of clothing brands have used the virtual business model to achieve the rapid growth of the brand. In just a few years, only casual clothing brands have appeared including Benny Road, Jeanswest, Yichun, Semir, Pepsi, Tang Shi, Uniqlo, Giordano and other dazzling competitors. According to public information, the total market share of the top 20 brands in the apparel industry in China is only 5.9%, and none of them has a market share of more than 1%. Due to the lack of leading brands, brand competition is fierce and chaotic.

On this basis, if we want to win more franchisees and sales, it is only the industry consensus that companies can continuously develop their influence. In the past, the main way for brands to expand their influence was through the rapid expansion of advertising and retail terminals, which directly led to the competition between enterprises and consumers eventually evolved into competition for terminal resources and advertising resources. However, this practice has recently encountered a development bottleneck. On the one hand, the number of sales terminals has become increasingly saturated, and the space for further expansion is getting smaller and smaller, and some brands have begun to compete for franchisees by reducing the initial fee; on the other hand, the cost of expanding brand influence through advertising has also increased. The bigger it is.

There are two sets of data worth studying: One is the market price of brand advertising - in 1995, CCTV prime time advertising, a minimum advertising bid for a 5-second advertisement was 14.08 million yuan. Liu Ruiqi, the chairman of Hengyuanxiang, recalled the ad bids of that year and still remembers them. Before and after he participated in three bids, the first year's investment price was 13.13 million yuan, and the difference was 1 million without winning the bid; the second year's investment price was 20.99 million yuan, and the lowest winning bid price was 30 million yuan, and the gap became 10 million; the third year he went to bid, the price is 40 million yuan, the lowest bid price is 60 million yuan, the gap has been expanded to 20 million. According to estimates by Liu Ruiqi, maintaining a brand in China today requires an average investment of at least 200 million yuan per year.

The other group is the data of profit: The third quarter of 2008 reported by Meibang Apparel showed that the company’s net profit for the first three quarters was 342 million yuan. According to previous reports, the company’s annual net profit was 360 million yuan in 2007, compared with 2006. The increase is nearly 4 times year-on-year, and in 2006 it is nearly 8 times that of 2005. The official website of Smith Barney estimates that the net profit attributable to owners of the parent company in 2008 will increase by 60% to 70%.

On the one hand, advertising prices have doubled, while on the other, the growth rate of brand net profit has slowed down. Imagine that if the profit growth of the brand in the future cannot keep up with the growth of advertising costs (even enough for advertising costs), where is the brand's way out? This is not worrying people. Brand expert Li Guangdou pointed out that brands need continuous investment and management, and once they stop, brands will die out.

Go left or right

Both Smith Barney and Heng Yuan Xiang have clearly realized this problem, but they have chosen different solutions.

Smith Barney began shifting the focus of its work to channel construction to strengthen its own terminal control. It can be imagined that the reason why it chose to go public in the stock market downturn in 2008, and did not wait for the right time to sell a good price, one of the big reasons is that it urgently needs funds to expand channels. For Zhou Chengjian, it may be the best time for low-cost entry. The purpose of controlling channel resources of Smith Barney is not only to maintain and further increase the sales of brand products of Smith Barney. It is also very important to hope that based on channel resources, other brands will be replicated, and differentiated positioning and multi-brand operation will be carried out. In fact, less than two months after the listing, Smith Barney held a press conference for the new brand MECITY in Shanghai and announced the introduction of dual brand operation.

In contrast, Heng Yuan Xiang chose to continue to expand its brand management business. The difference is that it repositions itself as a strategy, management, consulting, consulting company with a consumer brand. The focus of its work will be on the brand's promotional marketing to transfer to the formulation of brand strategy, brand management and research, as well as the search and implementation of brand resources, and to provide brand marketing solutions for the members of its alliance. In other words, the focus of Hengyuanxiang's future work will shift to the improvement of brand management capabilities.

In fact, the essence of Hengyuanxiang's joining mode in the past was that Hengyuanxiang was a professional company to carry out brand planning, publicity and communication work, and franchisees shared the cost of advertising marketing. But now it wants to improve its ability to manage its brands, increase the value of the brand from the perspective of digging and realizing the brand's cultural connotations, and provide franchisees with solutions for brand marketing. In fact, franchisees will share the cost of brand research and management.

It should be said that as a decision maker of Heng Yuan Xiang, Liu Ruiqi is very far-sighted. He said: "In the future, consumers will spend 50% of their income on spiritual and cultural aspects of consumption." He studied the development history of world-famous brands and found that many brands have no product boundaries, such as Siemens involved in household appliances. Power, medical equipment, communications and many other industries; Disney is across television, travel, clothing, toys, food, stationery and other fields. Why do these brands have such a strong extension? Because these brands are backed by cultural support. For example, Siemens represents a reliable and rigorous brand culture; Disney represents a happy, cute and stylish cultural image. It can be seen that when a brand becomes a representative of a culture, it has more vitality.

In contrast, the lack of domestic brands is precisely the research and exploration of the spirit level of consumers. The possession of such brand resources and the establishment of links with consumer culture are the capabilities that Hengyuanxiang currently lacks and which are also The future direction that needs urgent breakthrough.

Direction decision path

Because self-construction channels require large amounts of money, the choice of Smith Barney will be listed even if the stock market is low. In the same way, Hengyuanxiang chose to sponsor the Olympic Games and become a partner of the Olympic Committee because he wanted to become a strategy, management, consulting and consulting company with a consumer brand.

According to Heng Yuanxiang's logic, on the one hand, it needs to use the resources of the Olympic brand to enhance the brand's reputation. On the other hand, it hopes to use the Olympic Games platform to tap and promote its brand culture. Liu Ruiqi believes that hosting the Olympic Games is the best time for the establishment and promotion of a national brand, and the national brand is based on leading companies to achieve. The appearance on the Olympic platform has enabled Hengyuanxiang to promote its own brand culture. During the Olympic Games, Heng Yuanxiang's appearances of dresses, official dresses, and dragon and phoenix costumes all lay its cultural meaning behind it, involving a large number of studies on Chinese folk customs, popular colors, and auspicious cultures.
Liu Ruiqi said that another original intention of sponsoring the Olympic Games is to learn from and learn from the experience of other brands. Before formally proposing a strategic transformation, Heng Yuanxiang formed a virtual organization, the Hengyuanxiang consortium, on all links and members of the value chain. Then, in accordance with the division of provinces and municipalities directly under the Central Government, a regional branch of the Consortium will be set up. Each of the branches will be the center for the development of regional market game rules. In addition, the Consortium also set up four industrial committees for knitting, knitting, apparel and home textiles; six professional committees for advertising, counterfeiting, communication, training, networking, and research. The main work of these organizations, including the functional departments and product companies of the group for the consortium, is the output of services and management.

In addition, Hengyuanxiang also differentiates its franchised factories according to industry and products, while dealers and retailers ensure uniqueness according to the operating area, thereby creating a cooperative atmosphere within the consortium and gaining mutual management and marketing experience. .

The template of this organization precisely refers to the operating system of the Olympic brand. In addition, becoming an Olympic sponsor and partner of the China Olympic Organizing Committee has enabled Heng Yuan Xiang to get a close understanding of the actual operation of the Olympic Committee and further enhance its ability to manage the brand. At the same time, it also used the identity of the Olympic sponsors to approach other sponsored brands in the Olympic family and continue to learn and learn. At present, Heng Yuanxiang has visited the famous brands such as Coca-Cola, CNN, and Home Depot and Monet Research Center as Olympic Games sponsors. He learned many ways of brand management and learned how the classic brand resources are realized and Olympic resources grafted.

The strategy needs to predict the future in advance. If we say that the virtual business model created by Hengyuan Xiangmeibang was a mistake, then it is more profound to study the different choices that the two companies are interested in in the uncertain market situation.