East Selection "binds" fans with a 199 yuan offer | Insight Research

Less than a month away from this year's Double 11, major e-commerce platforms have already pulled out their "killer moves".

Tmall has set "lowest price across the entire network" as its core KPI; Xiaohongshu claims to have invested "unprecedented support"; Tencent and Alibaba have turned "enemies into friends", with Video Accounts offering up to 600,000 traffic incentives that can directly lead to Taobao Live.

Clearly, the main theme of this year's Double 11 battle still revolves around the competition for traffic with "lowest price" as the core, but Dongfang Zhenxuan seems to have chosen a different path.

On October 17th, Dongfang Zhenxuan officially launched a paid membership system of 199 yuan/year within its own self-operated app.

The price is higher than the mainstream e-commerce platforms Taobao's 88VIP membership at 88 yuan/year and JD PLUS membership card at 99 yuan/year, but lower than the membership fees of membership supermarkets like Sam's Club at 260 yuan/year and Costco at 299 yuan/year.

Members can enjoy benefits such as 12% off on hundreds of self-operated products, 12 membership vouchers per year, and a 66 yuan voucher package as a membership gift. Dongfang Zhenxuan's page introduces that paid members can save up to 12,000 yuan per year.

It can be seen that Dongfang Zhenxuan is accelerating the establishment of a "self-operated platform" in the minds of consumers. Its focus is not on the "lowest price across the entire network" pursued by ordinary live streaming rooms, but on the platform advantages established through providing high-quality self-operated products and membership services, similar to Sam's Club.

Its price may not be the lowest, but the quality is definitely trustworthy after being "selected".

Although this approach goes against the current trend of low-price promotions in the e-commerce industry, it is a necessary path for Dongfang Zhenxuan to achieve its online "Sam's Club" ambition.

Dongfang Zhenxuan is eager to "break away from Douyin"

The rise of Dongfang Zhenxuan has overturned our understanding of traditional internet celebrity live streaming sales.

While a group of Douyin internet celebrities are immersed in "shouting-style sales", Dongfang Zhenxuan has chosen a different path - gathering a group of high-culture anchors who don't rely on shouting to sell products, but use stories to promote them.

The unique label of "cultural influencers selling products" quickly captured the hearts of the public, and both traffic and reputation flourished for a while.

Of course, Dongfang Zhenxuan also understands that it is not possible to always rely on a single platform. In fact, since the summer of 2022, Dongfang Zhenxuan has been preparing for independent e-commerce platforms. After Dong Yuhui became popular in June, Dongfang Zhenxuan launched its independent app on major app stores in August.

This year, Dongfang Zhenxuan's "break away from Douyin" move is even more aggressive.

A landmark event was in late July when Douyin took down Dongfang Zhenxuan's self-operated product live streaming room for violating regulations. This seemingly powerful blow instead created a shining moment for Dongfang Zhenxuan's own app, with GMV exceeding 110 million yuan in just 4 days. Under the pressure of "food shortage" on Douyin, Dongfang Zhenxuan APP has become more valuable as a platform, successfully achieving traffic import and sales conversion.

Another strategic move is that on August 29th, Dongfang Zhenxuan officially entered the Taobao live broadcast room.

Jianzhi Research has analyzed in detail the significance of "leaving Douyin and entering Taobao" in an article titled "Taobao snatches Dongfang Zhenxuan" (source). This move is not only about breaking away from reliance on Douyin traffic, but also about valuing Taobao as a shelf e-commerce platform that is more suitable for selling self-owned products.

Seeking "Certainty" in "Uncertainty"

Although Dongfang Zhenxuan's debut on Taobao attracted millions of attention, this glory did not last long and seemed to have a "high opening and low closing" trend.

Not only did the live streaming traffic on Taobao in September experience a cliff-like decline, but since October, the number of views and GMV per live stream has continued to hover around the million level.

At the same time, Dongfang Zhenxuan's performance on its main platform Douyin is also not optimistic.

According to data statistics from Xueqiu user "Changkong Muxingchen", Dongfang Zhenxuan's total GMV on Douyin and APP platforms in September was 723 million yuan, a year-on-year decrease of 16.2%, and Douyin's GMV on a single platform decreased by 26.82% year-on-year.

It is difficult to attract viewers with ordinary product promotion, and even for Dongfang Zhenxuan, the novelty for viewers is fading. Dongfang Zhenxuan's implication of having Taobao live broadcasts in its Douyin live rooms has triggered Douyin's punishment of limiting its traffic.

It is not difficult to see the current situation of the company: although it has developed three product promotion platforms, Douyin, Taobao, and the app, the performance foundation is still on Douyin, and the delicate relationship of competition and cooperation between the two will continue. The company is currently facing a bottleneck in terms of traffic and is struggling to make a breakthrough.

At this critical juncture, Dongfang Zhenxuan chose to take a step further and decisively launched a membership system, trying to seek "certainty" from the "uncertain" external environment. Costco's membership fees accounted for as much as 54% of its EBIT (earnings before interest and taxes) in 2022, which is enough to illustrate the huge profit potential of the membership business model.

However, Dongfang Zhenxuan's business model of making money through membership fees is quite different from that of Sam's Club and Costco. Dongfang Zhenxuan does not set a threshold for membership shopping, and the core of membership lies in "increasing user stickiness and enhancing repurchase rate". The 199 yuan membership fee is more like buying a set of coupons, similar to mainstream platform e-commerce companies like Vipshop and Pinduoduo.

Specifically, after joining Dongfang Zhenxuan's membership, the benefits include a limited-time membership gift pack, a 12% discount on self-owned products for members, and 12 monthly 100 yuan discount coupons. Coupons can stimulate consumers' desire for cheap deals, and in order to use up the coupons and drive repurchases, consumers need to purchase at least 100 yuan worth of goods every month.

Therefore, the coupon's minimum purchase requirement needs to be combined with certain high-frequency repurchase products. For example, if the total price of a beef with a high discount rate is 80 yuan, the user can get a 12 yuan discount by reaching 100 yuan. This will test whether Dongfang Selection has enough SKUs that meet the purchasing habits of users and have higher cost-effectiveness compared to other platforms, in order to attract users to repurchase in order to use coupons.

As of June 23, Sam's Club and Costco have 4,500/3,700 SKUs respectively, with 600/334 of them being self-operated products, accounting for nearly 10%. However, as of September, Dongfang Selection only has 214 self-operated products, which is relatively low compared to other membership stores.

If the number of SKUs is limited and there are no suitable products to meet the requirements, over time it will not truly meet consumer demand and may result in user loss.

In addition, for ordinary users and new users who are not very familiar with Dongfang Selection and have a low purchase frequency, the threshold of 199 yuan/year is still relatively high.

These users may still be in the stage of "mainly watching live broadcasts and occasionally making purchases," relying more on the value recognition of anchors such as Dong Yuhui rather than brand awareness. It is not a cost-effective deal to pay 199 yuan membership fee for a purchase frequency of once a month or even once every three months.

Obviously, for Dongfang Selection, the goal of membership is not to attract new users, but to increase the repurchase rate of existing members.

Dongfang Selection also has a refund policy in its membership terms, "refund balance upon cancellation." This design is beneficial for reducing the threshold for ordinary users to try the membership and increasing their willingness to try. Even if they cancel the membership early, they can recover the cost, reducing the overall trial cost and helping Dongfang Selection reach more potential members.

In addition, some platforms' membership mechanisms involve certain "black box operations," where users find that the benefits cannot be realized after joining, and when they want to cancel the membership, the previously paid membership fees and accumulated benefits are all reset, resulting in loss of benefits.

Dongfang Selection's practice of refunding the balance also alleviates this concern for users.

Dongfang Selection still has a long way to go.

Since the beginning of this year, Dongfang Selection has launched a series of initiatives, from focusing on its own app, entering Taobao Live, to now launching paid membership, all of which demonstrate its clear logic of transitioning from "live-streaming sales" to "self-operated e-commerce."

Dongfang Selection's goal is obviously not to be a traffic-driven "live-streaming influencer" or a "big department store" like JD.com or Taobao, but to create a small yet refined "online boutique store."

In this grand blueprint, live streaming is gradually becoming an icing on the cake, and the supply chain will be the top priority for self-operated business. Differences between Dongfang Zhenxuan and Sam's Club, JD.com, and Taotian

However, compared to offline membership stores, Dongfang Zhenxuan still has certain limitations. On the one hand, online users cannot "browse the store," so the stickiness is not as strong as offline.

On the other hand, membership-based e-commerce platforms offer the convenience of online selection and home delivery. Therefore, most of the products are small-sized, small-packaged, and low-priced. In contrast, offline membership stores target large-sized, large-packaged products and benefit from bulk purchases, which lower costs and increase gross profit margins.

In addition, self-operated platforms are different from live-streaming sales. The focus is not only on product selection and brand negotiations but also on inventory management, pricing autonomy, cost control, and even fulfillment. This requires significant investment and is an area where Dongfang Zhenxuan lags behind offline membership supermarkets.

Dongfang Zhenxuan has also recognized this gap and is making efforts to make up for its shortcomings.

In January of this year, it announced an investment of 17.52 million yuan for the expansion of its self-operated sausage factory. It has also reached cooperation agreements with SF Express and JD Logistics to establish 20 self-operated product warehouses in five cities, including Beijing, Guangzhou, and Chengdu.

As of May 31, 2023, Dongfang Zhenxuan's overall self-operated product and live-streaming team has reached 1,103 people, with the supply chain and product teams totaling 346 people.

When asked about further actions in the supply chain by Jianzhi Research, Dongfang Zhenxuan did not respond as of the time of writing.

In summary, we can see that Dongfang Zhenxuan is on the right track, although the road ahead is challenging and long.

Relying on external traffic platforms for sales is a low-asset operation, but external traffic may only be temporary. Dongfang Zhenxuan is striving to convert traffic into brand assets.

However, as a self-operated platform, it is highly likely that a large amount of resources will be invested in the short term without immediate returns. The conversion effect is also not as easy as live-streaming. But this is a crucial step that Dongfang Zhenxuan must take.

As Chairman Yu Minhong said, "The lively business model established based on external platforms is highly vulnerable. To solidify the foundation for long-term development, we still have a long way to go."