National Research Center ｜ The explosive growth of new domestic products, how to improve the competitiveness of the mid-to high-end market
In recent years, a new round of domestic consumption represented by "new domestic products" has risen in an all-round way, which is inseparable from China’s entry into a high-quality development stage. Generally speaking, new domestic products have entered a new stage of explosive growth, becoming a new engine for upgrading consumption and providing a new path for a high-level dynamic balance between supply and demand in the digital economy era. However, we should also see that the competitiveness of new domestic products in the mid-to high-end market still needs to be improved, the construction of "three products" ("increasing varieties, creating brands and improving quality") needs to be improved urgently, and the market environment and policy support are still not perfect. How to seize the rising opportunity of new domestic consumption and promote the development of domestic brands to a higher level? It is an urgent problem to think about.
First, new domestic products have entered a new stage of explosive growth.
New domestic products are a series of original brands and old brands that have emerged in China market in recent years. The main goal is to meet the upgrading of residents’ consumption, and digital technology and digital management are the main means. It is a new growth point of consumption with distinctive characteristics of the digital economy era.
(A) Multi-field concurrent, driving the upgrading of household consumption in an increasingly wide range of fields.
The new domestic products cover more and more areas of residents’ daily consumption. In 2020, the top 20 new domestic brands will cover 10 areas of life consumption, such as mobile phones, clothing accessories, smart cars, smart homes, smart hardware, food, drinks, maternal and child, home, beauty and personal care. In 2020, the sales scale of the top 20 brands of new domestic products averaged 22.2 billion yuan, with an average year-on-year growth rate of 229%; The top 100 brands have been established for about 6 years on average, and the average sales scale has reached 5.4 billion yuan.
(B) High-frequency new hair, the leading role in consumer innovation has been highlighted.
The fashion leading force of new domestic products is constantly rising, which has become an important part of "first store economy" and "first economy". According to the survey, there will be more than 390 first-store brands in China in 2020, of which domestic brands (including Hong Kong, Macao and Taiwan) will account for about 70%, up about 10 percentage points from 2019. New domestic products have gradually become the characteristics and highlights of China’s international consumption center city construction. Taking Guangzhou as an example, among the 53 national first stores in 2020, 47 are new domestic products, accounting for 88.7%.
(C) short-term outbreak, the supply capacity to meet the consumption upgrade continued to improve.
Shortening the innovation cycle promotes the continuous improvement of the supply capacity of new domestic products. According to statistics, in 2020, the top 100 brands of new domestic products were basically established within 10 years, with an average of about 3 years. Some brands achieved explosive sales growth in less than 2 years. For example, the brand "Perfect Diary", a new domestic beauty brand established in 2016, achieved sales revenue of over 100 million yuan in the "618" shopping festival in 2021; The revenue growth rate of Yuanqi Forest, an emerging beverage with "0 sugar" as its selling point, will reach 309% in 2020, which is 8 times that of Coca-Cola.
Second, new domestic products have become the new engine for upgrading consumption.
In recent years, in line with the trend and demand of upgrading residents’ consumption, new domestic products have rapidly developed on the basis of the online retail market, and have emerged in all aspects of consumption fields such as clothing, food, housing, transportation and use. Generally speaking, the consumption of new domestic products shows the characteristics of rapid increase in market share, expansion of market incremental contribution and increasingly strong consumption vitality, which injects powerful new kinetic energy into consumption upgrading.
(1) The attention and market share of new domestic products have increased rapidly.
The attention of new domestic products continues to increase, and the market share is rapidly approaching and surpassing international brands. From 2016 to 2021, the attention of domestic products has been completely reversed in five years, and consumers’ attention to domestic products has changed from 10 percentage points lower than that of international brands to 50 percentage points higher than that of international brands (see Figure 1). Take FMCG industry as an example. According to the survey, in 80% market segments, the market share of domestic products exceeds that of international brands. Especially in the online retail market, the consumption of new domestic products is growing faster. In the online retail market in 2019, the market share of new domestic products reached 72%. In some market segments such as home appliances and food, the market share of new domestic products is as high as 80%.
Figure 1 Changes of domestic brands’ attention from 2016 to 2021
Source: Baidu & People’s Daily Online "2021 National Tide Pride Search Big Data Report"
(B) New domestic products have created more consumer market increments.
New domestic products have become an important source of incremental consumption market. According to statistics, in 2018, new domestic products contributed 76% of the growth of China FMCG market, which was 52% higher than that of international brands. In some large-scale e-commerce platforms, the contribution of new domestic products to the market increment is rapidly increasing. Research shows that the contribution of new categories to the market increment reached 44.8% in 2019, an increase of 15.2 percentage points over 2018. In addition, the active consumption of new domestic products has also attracted more social capital investment.
(C) Youth groups pay more attention to the new domestic products, which greatly drive the consumption vitality.
The improvement of China’s comprehensive national strength, the staged victory in epidemic prevention and control, and the achievements in safeguarding national enterprises represented by Huawei have greatly encouraged consumers, especially young people, to feel patriotic and identify with domestic products. In 2020, among the age distributions concerned by "National Tide", the post-80s, post-90s and post-00s accounted for 16.9%, 48.6% and 25.8% respectively, making a total of 91.3%. According to the survey, 90.7% of consumers are more willing to support domestic products, 64.5% will give priority to buying domestic products, 61.4% will pay special attention to whether the brand they choose is domestic products, and 56.7% will persuade their relatives and friends to support domestic products.
Third, new domestic products provide a new path for the dynamic balance between supply and demand in the digital economy era
Behind the rapid development of new domestic consumption is the interactive docking of manufacturing enterprises, brand enterprises and e-commerce platforms in China, which uses digital technology to reconstruct the supply chain of production, circulation and consumption, builds a new development model of accurately identifying demand, efficiently organizing production and quickly docking the market, and walks out of a new path of supply and demand matching and dynamic balance in the digital economy era.
(1) Fully tap the value of big data elements, and accurately understand and tap new demands.
Big data is a new production factor for new domestic products to gain insight into consumption trends, capture consumer demand and create consumer markets. Traditional commercial and retail enterprises focus on traditional factors such as land, manpower and capital, and their ability to use big data production factors is not strong, resulting in inefficient matching between supply and demand. E-commerce platform has become an important market information and consumer intelligence hub in the digital economy era. The innovation and development of new domestic products closely rely on digital channels such as e-commerce platform, social platform and live broadcast. Through the analysis and mining of big data information, we can accurately identify new demand and create new supply, thus constantly discovering new market opportunities. For example, a cutting-edge sparkling wine brand tested 14 new products on 10,000 consumers in four months by using the digital platform, and finally the listed products achieved far more sales than expected.
(B) to build Internet traffic operation capabilities, and quickly spread and connect with new markets.
For a long time, relying on the advantages of capital and experience, international brands seized and controlled the superior commercial circulation channels, and did not open them to domestic brands, resulting in domestic products being at a disadvantage in market competition. As China’s e-commerce market has become the most innovative and largest market in the world, new domestic products have seized the opportunity to establish a mature Internet "traffic" operation capability in the market competition, and created new marketing models that directly reach consumers, including social e-commerce, live broadcast and short video operation, and built new advantages for domestic brands in modern circulation. It is found that some international brands that have withdrawn from the China market in recent years have reserved their marketing departments to learn from China’s digital marketing model.
(C) the construction of a digital supply chain system, efficient coordination and organization of new supply
Digital supply chain system includes production organization and service innovation. On the one hand, foundries with high-quality manufacturing capabilities accelerate their docking with the domestic market with the help of new domestic products. As an important intermediate link, platform enterprises help foundries to connect brands and consumers, realize digital transformation and improve their ability to respond quickly to market demand. For example, a large-scale e-commerce platform quickly organized production and hatched a number of new domestic brands in response to the consumption boom of "small household appliances" such as "one-person food". Last year, the sales volume during the epidemic increased by 5-20 times compared with the same period of last year. On the other hand, the connotation of digital services supporting the development of new domestic products is constantly innovating and expanding. For example, the number of multi-channel network (MCN) organizations providing integrated digital services has rapidly developed from 160 in 2015 to more than 20,000 in 2020, which has helped the "online celebrity economy" to grow and develop. The digital supply chain system has changed the development mode of low-price competition in the past, supported new domestic products to move towards the high end of the value chain and quickly seize the middle and high-end market share. According to statistics, in 2020, the market share of new domestic products will reach 24.2%, 30.9%, 51.9%, 46.7% and 41.9% for the mid-to high-end products in the online market segments such as household appliances, food, medical care, culture and entertainment, and 3C digital products.
Fourth, the problems and obstacles faced by the development of new domestic products
New domestic products are still in the early stage of development, and the competitiveness of high-end markets at home and abroad still has much room for improvement. The ability to build "three products" is insufficient, the market environment and policy support are still not perfect, and sustainable development and lasting operation still need to be tested.
(A) the competitiveness of new domestic products in high-end markets at home and abroad is still insufficient.
At present, except for some fields such as food and beverage, cosmetics and clothing, the international competitiveness of new domestic products is still not strong in areas such as milk powder, luxury goods, high-end electronic products, health care products, etc., where the threshold for R&D investment is high and consumers demand higher, and there is still a large-scale consumption outflow every year. In addition, the recognition of new domestic products in some fields in the domestic market is not high. From the sales situation of the two e-commerce shopping festivals of "double 11" and "618" in the past two years, among the top 20 brands in cosmetics sales, new domestic products only account for 3; There are no new domestic products in the top 10 brands of milk powder. For some new domestic products whose quality is close to the international first line, there is still a big gap in investment in product research and development, brand management and human capital accumulation, especially in the construction of design talents, marketing talents and operation talents.
(B) New domestic products "three products" building capacity needs to be improved
There is still a big gap between the development of new domestic products and the international advanced level in the construction of "variety, quality and brand", and the effective supply capacity and level are still difficult to fully meet and fully adapt to the needs of consumption upgrading. In terms of varieties, large-scale enterprises lead the product design innovation, and a large number of small and medium-sized enterprises follow the imitation, and the original ability needs to be strengthened. In terms of quality, the foundry has formed a strong path dependence on OEM production and processing trade mode, and the release of manufacturing capacity to the domestic market is still insufficient; The concept of "small profits but quick turnover" and the self-positioning of "big brand replacement" of domestic brands are still deeply rooted. Some brands regard the national tide as a gimmick and ignore the improvement of quality connotation. On the brand, the marketing mode is mainly "explosive" marketing, lacking the long-term planning of building the overall image of the brand. Some brands rely too much on the domestic market and lack the awareness, vision and confidence of international development. In addition, the disorderly expansion and blind follow-up of capital have also contributed to short-sighted behaviors such as low-price competition and false propaganda.
(C) the market environment to promote healthy competition needs to be improved.
Small and medium-sized enterprises are the main players in the market of new domestic products, which are prone to low-level competition and unfair competition such as shoddy and false propaganda. For new brands and products, there is a problem of "one product is hot, and thousands of people copy it", so the protection of intellectual property rights and trade secrets needs to be strengthened urgently. The technical standard system lags behind the product production iteration, and some cross-border products lack relevant technical standards formulated by relevant departments and associations. The profit of some enterprises’ new products dropped from 80% to 10% within one year, which affected the continuous innovation power of enterprises. Due to the fast iterative speed of updating new domestic products, the accumulation of business information and credit information of enterprises is relatively insufficient, and the supervision cost is relatively high. At the same time, due to the rapid innovation of online marketing model, there are still a lot of regulatory gaps in the fields of live delivery and social e-commerce, and the collaborative governance model of government departments, platforms, industry associations and consumers is far from being established. Once the quality and food safety risks of "explosive models" appear, they will spread rapidly and widely, which will greatly impact consumer confidence.
(D) insufficient policy synergy to support the development of new domestic products
Globally, in order to support domestic brands to become bigger and stronger and go global, governments all over the world attach great importance to planning systematic policies covering production, circulation and consumption. Take South Korea as an example. In order to promote Korean local perfumes and cosmetics, the South Korean government requires duty-free shops to sell domestic cosmetics in at least one third of the area. At present, cosmetics account for over 50% of the total sales of duty-free shops in South Korea, and domestic cosmetics account for half of the total sales of cosmetics. At the same time, the South Korean government issued a cultural industry development plan, and implanted the brand into film and television cultural works, forming a good publicity and driving role. China doesn’t give much consideration to new domestic products in the planning of cultural tourism, activity promotion and business development, and the efforts to support domestic products by using the tax-free policy system are not strong.
V. Policy suggestions
(A) to speed up the implementation of the "three products" upgrade strategy to enhance the quality of new domestic products.
On the basis of the original "three products" policy, we will implement the "three products" upgrade strategy, guide market participants to enhance the added value and soft power of products, and promote the "quality revolution." We will build a number of high-level laboratories for quality control and technical evaluation of consumer goods, accelerate the development of third-party quality inspection and certification services, and explore the establishment of a special certification system for quality traceability management systems. Strengthen competition behavior supervision, food safety supervision and quality supervision of new channels such as live e-commerce and social e-commerce. Improve the construction of relevant standards system for new domestic products, and promote the quality improvement and standardized development of domestic products.
(2) Accelerate the construction of an international consumption center city and create a number of world-renowned new domestic brands.
Take the brand of new domestic products as the focus of starting economy and first store economy, and form a benign mutual promotion between new domestic products and the development of international consumption center cities. Support domestic brands to enter world-class business circles, create new consumption scenes of domestic products in the upgrading of commercial streets, organize a series of distinctive new domestic products consumption promotion activities, and create a good domestic products business infrastructure and consumption atmosphere. Promote the integrated development of new domestic consumption and cultural tourism, and enhance the regional cultural characteristics and cultural connotation of new domestic brands.
(3) Actively explore the innovation of fiscal and taxation policies and enhance the incentives for the innovation and development of new domestic products.
Support domestic products to enter the duty-free retail market, encourage duty-free shops to sell more domestic brands, guide relevant enterprises to develop high-quality domestic products with special characteristics for duty-free channels, and build duty-free shops into an important platform to support domestic products, display their own brands and spread national traditional culture.
(4) Support new domestic products to go to sea and encourage new domestic products to continuously expand market space.
Support new domestic products to carry out cross-border e-commerce cooperation, lay out overseas warehouses, expand overseas supply chains, and promote the supervision mode of cross-border e-commerce enterprises exporting directly to enterprises and cross-border e-commerce exporting overseas warehouses to be applied nationwide. Support new domestic enterprises to cooperate with international brand enterprises in the form of equity participation, stock exchange and mergers and acquisitions, and improve the international operation ability of domestic brands. Strengthen the application of international law and enhance the ability to use international rules to safeguard the legitimate rights and interests of domestic brands in overseas operations.
(5) Strengthen publicity and support to promote the enthusiasm of "domestic consumption".
Set up the promotion content of new domestic products in publicity platforms such as "Double-product Shopping Festival" and "China Brand Day". Carry out a series of reports on domestic brands through multiple channels, introduce the development of various categories of domestic products, highlight the quality of domestic products, convey the spirit of domestic products, unite the brand identity of the people who love domestic products, and empower the brand building of domestic products. Analyze and tell the charm and advantages of "domestic products" from the perspective of the younger generation, improve consumers’ awareness and loyalty to their own brands, and enhance the pride of the people in buying new domestic products.
(The authors Wang Nian and Li Hanqing are both associate researchers of the Institute of Market Economy of the State Council Development Research Center, Su Nuoya is an assistant researcher of the Institute of Market Economy of the State Council Development Research Center, and Wei Wang is the director and researcher of the Institute of Market Economy of the State Council Development Research Center).