Chapter 56 Marketing Case The Marketing Dilemma of Nongfu Spring

"Profits in the water industry are not made, but saved." Liu Ke, general manager of Nongfu Spring, looked helpless at the huge costs and meager profits of this industry.Under the reporter's repeated questioning, Liu Ke used the vague quantifier "meager" very prudently to describe the company's hard work for a year. A piece of data obtained by the reporter also verified Liu Ke's answer.For a box of 24 bottles of 550ml Nongfu Spring with ordinary caps, the production cost of the bottle body and cap is about 0.5 yuan, and the production cost of a box of water is 12 yuan.Last year, Nongfu Spring’s advertising, promotion, channel expenses and staff wages added up to nearly 100 million yuan, which was diluted to 4 yuan per box of water.Adding in the average transportation cost of 3 yuan per box of water, the total cost is 19 yuan.Calculated according to the promotional price at the end of 2001, the wholesale price of the same box of water is only 19.6 yuan.Subtracting the two, the book profit of a box of water is only a few cents.

If we take into account the loan cost of the 350 million investment in Zhejiang Chun'an new plant and the 470 million investment in Northeast Jingyu new plant, and subtract the taxes handed over to the local governments of Jiande, Chun'an and Hangzhou, the profit margin of Nongfu Spring can indeed only be Use "meager" to describe it. What devoured Nongfu Spring's profits? The origin of the dilemma is that there has always been a strategic problem in the marketing of Nongfu Spring: Nongfu Spring has only one bottling plant, while Wahaha has 15 bottling plants across the country.The transportation radius is too long, resulting in much higher transportation and sales costs than competitors.Nongfu Spring must rely on the strength of a large network of wholesalers and dealers to distribute its products.Nongfu Spring attaches great importance to product planning and retail terminal construction, but is not very good at sales and dealer channel construction.

According to an industry insider who worked in Nongfu Spring at that time, at the end of 2000, the performance of Nongfu Spring, which won the "natural water and pure water" battle, fell sharply.Many dealers have suffered losses due to Nongfu Spring's unstable sales policy, and Nongfu Spring itself has generated a large amount of inventory and huge losses.The biggest problem is that in some areas there is even an inversion of wholesale prices and retail prices, and the channel has fallen into crisis. Another manager of Nongfu Spring told reporters that the six products of Nongfu Spring are too thin to compete with Wahaha's multi-series products.As soon as competitors oppressed, Nongfu Spring's wholesale distribution channels were immediately in danger.

At the beginning of 2001, Nongfu Spring began to cut prices. Although the sales volume of Nongfu Spring rose sharply after the price cut, it was popular but not popular, and the profit did not rise in a straight line, which caused the cost pressure on transportation and sales to suddenly intensify.It is imminent to solve the problem of marketing channels. The solution of Nongfu Spring In order to solve the problem of sales, Nongfu Spring underwent a big change in October 2000, and recruited a lot of people. It was at this time that Liu Ke entered Yangshengtang as the sales director of the water industry.Liu's task is very clear: to make up for the shortcomings of Nongfu Spring's sales.

Before the price cut in 2001, Liu made several adjustments to the sales force.First, change the original provincial sales of Nongfu Spring to a regional manager system.According to the actual sales situation of Nongfu Spring, the national sales force was divided into 11 regions including Zhejiang and Jiangxi, Central China, South China, Shanghai, and Beijing, and some unnecessary branches and finance departments were cancelled.In the main cities under the large area, offices have been set up, and the person in charge is the city manager.Second, Liu established a brand new sales reporting system.The new sales reporting system of Nongfu Spring has drawn on some experience of mature Taiwanese and foreign-funded enterprises, established its own series of sales reports, and provided real data support for many high-level decisions.The establishment and implementation of this system has greatly improved the level of Nongfu Spring's sales reporting system.

Finally, Liu also developed a corresponding compensation system to motivate salespeople.Although the price reduction did not bring more profits to Nongfu Spring, the new profit margins appease the injured dealer network.With the further rational distribution of benefits in the channel, this problem has been improved. Another problem with Nongfu Spring's sales channel is: transportation costs and the resulting distribution problems. In order to eliminate the "profit black hole" in the marketing channel, Nongfu Spring's solution is to open a new water plant in Jingyu County in the northeast.According to Zheng Bo, assistant to the president of Nongfu Spring, Jingyu’s new factory has invested 477 million yuan, with a total of 4 mineral water production lines and a designed production capacity of 1.4 billion bottles of water.

Liu Ke revealed to reporters that the new factory, which has just been topped out, is one south and one north of the original production base, and will cover the main markets in North China and Northeast China. After the transportation radius and distribution level of the three production bases are compressed and adjusted, the penetration depth of the entire market can be maintained.In this way, areas that were originally covered by advertising but not covered by sales can contribute more sales.The reduction in transportation costs can greatly increase profit margins. Nongfu Spring can kill two birds with one stone through the official commissioning of this new plant, and embark on an upward spiral channel in which profits and sales grow together.

The new question that follows is whether the mineral water of the new factory in Northeast China can continue to use the brand of Nongfu Spring. The intensive advertisements back then emphasized the high-quality water source of Qiandao Lake.If you want to sell new water points, you will have to spend a lot of money again to explain to consumers.Liu Ke revealed to reporters that Nongfu Spring has never stopped looking for water, but if every time a new water source is found, a large-scale advertising promotion must be done again, which is undoubtedly a kind of repeated investment.Wouldn't it be easier to just develop a new brand?

To launch a new brand is also a lot of trouble.First, the new brand also needs a round of advertising promotion. Second, if the positioning of the new brand is the same as that of Nongfu Spring, there will inevitably be competition among the same brands. In order to save distribution costs, the old brand of Nongfu Spring is bound to withdraw from the northern market. Give way to a new brand.Will the new brand be able to steadily take over the market that Nongfu Spring has withdrawn from? For these new problems, Liu Ke said that they have not set a specific plan. The in-depth distribution in the original market is still a heart problem of Nongfu Spring.Liu Ke told reporters that this year, the sales focus of Nongfu Spring has been adjusted to in-depth distribution in urban areas, mainly along the railway line.The sales growth target he set for Nongfu Spring this year is 38%.The immediate uncertain factor is that the urban market is the main battleground for many Chinese and foreign brands, and no one will give up easily.Will the high sales cost brought about by fierce competition put pressure on Nongfu Spring's profits?

This series of questions has brought a lot of confusion to Nongfu Spring in the New Year.