Luckin Coffee: The Tricks Behind Starbucks’ Only Market Disrupter

In an article I wrote and published last week called WE Marketing: The Secrets To China’s Economic Success, we spoke about Viveca Chan (CEO of Chinese agency WE Marketing Agency) and the recent impact of “New Retail” on the e-commerce landscape in China.

New Retail is a term used to describe the recent Online Merges With Offline (OMO) phenomenon, where companies no longer work to the traditional format of advertising in an online environment to entice consumers to buy in an offline environment. Consumers can now go to the store to look at a product and then buy that product days later when they see it for a lower price online. Similarly, many consumers are now ordering online and picking up from the physical store. “There is an integration for on- and offline in terms of data, consumer insights and logistics.”

Though the OMO — or New Retail — phenomenon is a relatively new concept, it’s today recognised as the most innovative way of thinking when it comes to branding and marketing. So much so, in fact, that it saw start-up Chinese coffee chain Luckin Coffee break through the glass ceiling that was the Starbucks monopoly of coffee outlets in China, by using new, modern ways of branding and marketing.

The PPL method

According to Viveca Chan, the New Retail combines three things: “People, or in marketing we call it target audience, your product and location.”

People: When we talk about the target audience, it’s not enough to talk about your ultimate user, you now need to know who your core users are and how to get to them. “But ultimately, you need to know your key influencers who are going to help you sell to their friends. People don’t buy because the brand says it’s good, people buy because their friends say it’s good.”

Product: it’s not just about your product strategy or how good it is, “it’s about the content you create, how well you tell your story, how excellent the service is that you provide and how well you manifest the need for consumers, so that they want to buy your product.

Location: These days, it’s not just about online channels versus offline channels. “You don’t need more products; you don’t need another lipstick, you don’t need another pair of pants, you don’t need another phone.” What marketers need to do is create the moments and the need for the consumer. Use the media as a moment and generate consumption moments so that they’ll want to buy. “These days, we no longer just advertise; we have to look at the whole marketing suite.” Viveca calls this the ‘total marketing solution’ and it’s more than just integrated communication (creative strategy, content etc.)

When developing an all-encompassing marketing strategy, WE Marketing asks the questions:

What is the product idea?

Which channels should they use

What should their pricing structure be?

What should their promotion strategy be?

This includes their branding — the positioning of their brand — and product concept development. “All products are the same, but the product idea behind it is that makes it different — we always start with the product idea and end with the product itself.”

Clients no longer come to WE Marketing and ask ‘how can you sell my products?’ they work with them to create the idea from the ground up.

Luckin Coffee

A good example of starting with the end-user in focus is with the new start-up café chain Luckin Coffee. This local Chinese café chain was only launched in January 2018 but is today the only brand of coffee that have disrupted Starbucks in the history of its existence.

The End User

How have they done it? They didn’t market just coffee; they marketed the user’s point of view and built a strategy around their core user. And in China, a country of devout tea drinkers, this ultimately encompassed the younger generation of people, who were:

  • More willing to switch from tea to coffee
  • Living in a decentralised environment — they tended to order food from home instead of going out. Because of this, they had to operate within two kilometres of their market’s place of residence.
  • Would rather have fewer but better-quality products — interested in fashion
  • wanted things spontaneously and didn’t like waiting for things

“Why has coffee been not as popular as tea until today? Because it’s historically been too expensive. China’s consumption, in comparison to other major countries of the world, has always been relatively low, so in essence, we needed to make Luckin Coffee high quality, affordable and accessible.”

Upon researching the core user, WE Marketing developed the tagline for Luckin Coffee as ‘Any Moment.’ “We believe you shouldn’t go to the coffee; the coffee should come to you.

Pricing strategy

“We selected the best beans at a higher price to Starbucks and priced menu items 40% lower than Starbucks. How did we expect to make money with prices at 40% lower than Starbucks when our costs were higher? We don’t pay for expensive rent… rather than have big stores, we only have one flagship store in every major city. These stores were smaller, with only a few chairs but a lot of counters, which encouraged buyers to pick up their coffee and go.”

“Even if you go to our store, you can’t with pay cash. You have to download and order through the app. And by doing that, Luckin were able to collect data from every sale. “So, we knew every customer who came into the store, who bought and where they have bought from right away.” On top of the immediate benefits of having a surplus of fata, this strategy allowed Luckin to optimise their logistics; where the coffee beans go, how much they should order, where they should launch the next store. They could then send customers a message to cross-sell and upsell, which Starbucks can’t do.

Branding and advertising

To position themselves as market players, Luckin also needed strong branding. “If Starbucks was green, then we would be blue.”

Most of their advertising efforts were in media advertising through WeChat. WeChat is location-based, so the company could then gauge where users are at what point of the day. “By using location advertising, we were then able to send very contextual ads,” says Viveca. You might be sitting restlessly in a conference room or a meeting, and with a few taps on your mobile phone, you could order a cup of coffee and have it delivered to you within 30 minutes.

Customer rewards

every time a consumer buys a coffee, Luckin would then give the buyers an e-coupon for them to then pass on to their friends. If the friend downloaded the app upon receiving the e-coupon, they received a free coffee and so did their friend. “The more you send to your friends, the more free coffee you get. This is a very effective way of promotion by using your friend’s recommendation.”

Role of the data in developing the ‘idea’

In the past, the marketing process has always followed a stringent set of rules:

  1. Build brand awareness
  2. Apply acquisition
  3. Activate consumer
  4. Retain consumer
  5. Convert consumer

“Now, we start with the end or, the referral in focus. Word of mouth is getting more and more important.” What happens when as a new brand, you spend a lot of money on advertising, and people go to your e-commerce store to find there’s no past sale history, reviews or comments on the account? It’s a natural reaction to feel less inclined to borrow from a new site with no sales” Building your core user base and spreading the word before you actually advertise is essential.

From market education to sales conversions, WE Marketing built a strategy that allows for collection of comprehensive sets of data and information about the buyer, so they had a 360-degree view of who they are.

The modern formula for success

All marketing and advertising companies today, according to Viveca, needs to have four characteristics:

  1. Understand how to use data
  2. Understand how to use technology
  3. Be creative
  4. Succeed in driving business growth

“It’s not good enough to have a great social media strategy where you have good engagement and lots of people retweet your posts but no one buys… These days it’s all about sales conversions. If it doesn’t convert to sales, everything you do is useless.” In the past, marketers couldn’t track sales conversions, but today we can. Using modern technology to get ahead of the competition can be extremely advantageous for brands.

In 12 months, Luckin Coffee made it to 22 cities, had 2,000 stores, 12 million users, 60 million orders and 90 million cups of coffee sold.

“Luckin Coffee is a great example of how we use internet thinking to outplay top-performing brands who still use traditional marketing tactics.” According to Viveca, “that’s the only way to beat a competitor.”

If there is one thing we can learn from Luckin’s success story is that today, there is more opportunity than ever, to create your own brand and sell it. Think ahead of the game and outside of the box, as a new business owner, you have a never-ending trail of resources at your fingertips so use it to your advantage.

Listen at: www.aceedesign.com

Founder of ACEE Design, Marketing, and Branding Agency. (www.aceedesign.com)