TMTPOST--Lin Sheng, once hailed as the visionary behind well-known food brand Zhong Xuegao, finds himself in a starkly different narrative during the 618 (June 18) e-commerce shopping festival. From being celebrated as the Tmall 618 ice cream champion creator to grappling with unpaid wages and steep product prices, Lin Sheng's entrepreneurial journey has taken a tragic turn.

On the evening of May 28, being prohibited from taking a flight and high-speed trains, Lin took a slow train to start a live-streaming sales session on Taobao. The backdrop of the live stream prominently displayed the number 729, representing the number of unpaid employees. Lin's decision to sell sweet potatoes as a means to repay debts symbolized a dramatic fall from his earlier entrepreneurial heights.

Zhong Xuegao, once dubbed the "Hermès of ice creams" for its luxurious Ecuador Pink Diamond priced at 66 yuan (US$ 9.1), faced a swift backlash for exorbitant pricing. Lin's attempt to pivot to selling sweet potatoes at 42.9 yuan for 2.5 kg earned him the moniker "sweet potato assassin," highlighting the ongoing controversy over pricing strategies.

The genesis of Zhong Xuegao in 2018 coincided with the wave of consumption upgrades sweeping China's market. Alongside ice cream, sectors like baking, specialty coffee, and craft beer saw a surge of entrepreneurial ventures, driven by a belief in catering to an evolving consumption mode tilted towards more spending on better-quality and higher-priced goods.

Lin's marketing prowess once propelled Zhong Xuegao to annual sales exceeding 100 million yuan, clinching the Tmall 618 ice product category championship for three consecutive years. However, the euphoria of initial success was overshadowed by persistent questions about the brand's value proposition.

Critics argue that Zhong Xuegao's high prices did not correlate with tangible differentiation in product quality compared to more affordable alternatives. Lin's three-step marketing strategy—creating controversy, fostering viral topics, and securing influencer endorsements—seemed more attuned to generating buzz than ensuring sustained consumer loyalty.

The tendency of "consumption upgrade," once heralded as a beacon for industry growth, was being doubted as consumers increasingly prioritized affordability over perceived luxury. Influencers like Li Jiaqi faced backlash for endorsing expensive brands, underscoring a shift in consumer sentiment towards practicality and value.

Investment in the consumer goods sector surged during the boom years of 2020-2021, fueled by optimistic projections of consumption upgrade potential. However, the subsequent decline in premium or luxury goods consumption reflected broader skepticism about the sustainability of premium pricing strategies.

Companies like Zhong Xuegao and Banu Hotpot faced public relations crises when high prices clashed with consumer expectations of value. The backlash shows a disconnection between supply-side aspirations for luxury and consumer demand for practicality.

Pagoda Orchard and Bestore responded differently to changing market dynamics, with Pagoda Orchard doubling down on high-quality fruit offerings while Bestore adjusted its pricing strategy to enhance cost-effectiveness. Both companies recognized the importance of aligning product positioning with consumer preferences amidst evolving economic conditions.

As the industry navigates the aftermath of the consumption upgrade wave, experts caution against overreliance on supply-driven strategies. Consumer feedback remains pivotal in shaping successful brand narratives, with market leaders emphasizing the need for genuine consumer-centric innovation.

A glimpse into Japan’s consumption evolvement may offer some clues. From the perspective of Japanese consumers, two scenarios emerge: first, when economic prospects improve, consumers anticipate future economic gains, leading to higher prices for everyday goods as disposable incomes rise. Second, there's a pattern of consumption upgrade as a person’s age increases. A prime example lies in the cosmetics sector where despite a shrinking market, Japanese consumers are opting for higher-priced products.

Toshifumi Suzuki, a revered figure in Japan's convenience store industry and founder of 7-Eleven, encapsulated a crucial insight: "Think from the standpoint of consumers, not for consumers." This perspective challenges the traditional approach to product design, advocating instead for consumer-centric innovations.

For instance, while most diaper brands emphasize absorbency, Unicharm took a novel approach by developing diapers with a moisture-repellent layer. This discomfort prompts babies to indicate discomfort sooner, encouraging them to potty train earlier—a clear case of catering to consumer needs.

According to San, a partner at Zhenxuan Capital, Chinese companies often overlook detailed consumer research, opting for broad strokes instead of understanding segmented groups deeply. San highlights the necessity of refining consumer insights, such as understanding the leisure activities of 30-35-year-old white-collar women in major Chinese cities.

Fu Yifu, senior research fellow at Star Atlas Institute of Finance, expands on the concept of consumption upgrade as enhancing "consumer welfare." This broader notion encompasses increased consumption, optimized spending patterns, elevated product quality, enriched content, diverse consumption formats, enhanced convenience, and the maturation of consumer mindsets.

Indeed, consumption upgrading unfolds gradually, each stage reflecting distinct characteristics. A prominent Japanese designer once questioned the necessity of designing a Coke bottle in the shape of a rocket in the 1980s, reflecting on whether such innovations truly meet consumer needs. This resonates with the idea that ultimate consumer markets will gravitate towards simplicity, as articulated in "The Fourth Consumption Era."

Miura Atsushi, author of the book The Rise of Sharing: Fourth-Stage Consumer Society in Japan, explains that modern consumers are reducing their spending due to diminishing returns on consumption—suggesting that true happiness no longer hinges on material acquisition.

During the recent 2024 China Convenience Store Conference, Yan Qian, Chairman of 7-ELEVEN China, emphasized adapting convenience store offerings to cater to diverse consumer demands. For instance, introducing the Red Label 7P category for staple goods and the Gold Label 7P range for premium items underscores a tailored approach to consumption preferences.

While many in China believe in the inevitability of consumption upgrade, the complexity of the Chinese market complicates this process. Timing, location, and consumer demographics all play pivotal roles in determining successful consumption upgrades. For example, as cities in China reach specific GDP thresholds, convenience store formats experience varying degrees of growth.

Notably, regional disparities also impact market dynamics. Meiyijia, known as the king of convenience stores in China, has thrived in lower-tier markets, challenging assumptions about consumption downgrade. Lower-tier markets refer to the ones, located in remote areas, that cater to less affluent consumers. Meanwhile, Japanese chains like Lawson have expanded rapidly, highlighting the potential for consumption upgrading in diverse market segments.

Higashikata Tojiro, a researcher at Genbridge Capital, elaborates on Japan's approach, noting how convenience stores continuously evolve alongside demographic shifts. Initially focused on catering to white-collar lunch needs, these stores have broadened their offerings to include all demographics and consumption occasions.

Demographic changes and the influence of social media further complicate consumption trends, with modern consumers increasingly influenced by micro-cultural groups. Song Xuan, Vice President of Xibei, underscores how interest-based segmentation on platforms like Douyin drives niche consumption patterns—a departure from mass-market assumptions.

The craft beer industry serves as a microcosm of consumption upgrading challenges. Despite its potential, craft beer faces hurdles in defining its niche amidst stiff competition from industrial giants dominating distribution channels and pricing structures.

Shen Kai, founder of 8PINTS Craft Beer, highlights the industry's struggles with product definition, distribution, and pricing. Craft beer's appeal lies in its authenticity and experiential value, primarily thriving in specialized craft beer bars due to its niche appeal and higher pricing.

Brand longevity emerges as a critical factor in navigating consumption upgrades. Shen's experience mirrors Sam's Club's slow but steady growth in China, underlining the resilience and enduring appeal of well-established brands in an evolving market.

Central China’s Henan province-based Fat Donglai, dubbed by some as Haidilao, the dominant player in the hotpot catering business, of the supermarket industry, exemplifies this trend, blending product innovation with a fashionable retail environment to redefine supermarket experiences in cities like Xuchang and Xinxiang in Henan province. By eschewing discounts and emphasizing brand appeal, Fat Donglai shows a nuanced approach to consumption upgrading that resonates with discerning consumers.

While recent market shifts have tempered extravagant consumption, the essence of consumption upgrading endures in fostering genuine consumer value. As brands and enterprises adapt to evolving consumer needs, they redefine their roles in shaping consumption trends—a testament to the enduring relevance of strategic consumer engagement.