Search Chinese shopping sites for nut-related snacks and you will find that there are almost only two companies in the previous pages of the search results, one of which is “Three Squirrels” founded in 2012. You can easily identify this brand because its logo is three lovely cartoon squirrels.
According to the 2019 financial report, Three Squirrels achieved revenue of 10.194 billion yuan (about $1.47 billion USD) last year, making it the first company in China’s leisure snack industry to exceed 10 billion yuan in sales. As its brand name suggests, Three Squirrels’s best-selling product is nuts, but as the company grows, it also starts selling bread, twist, duck neck, candy and a variety of other snacks.
But what even many Chinese consumers don’t know is that it hardly produces any snacks, but is a buyer’s shop. His founder Zhang Liaoyuan used Mao Zedong thought as a guide and successfully changed the market pattern of Chinese nut snacks.
The buyer model of Three Squirrels
From the consumer’s point of view, Three Squirrels is popular because it has snacks that almost all users want. And when you search for snacks on Chinese e-commerce websites, you can always see it in the first few search results.
Three Squirrels attaches great importance to marketing and the user experience associated with it.
Unlike ordinary brands, Three Squirrels’s Logo is not just a brand Logo, it appears on all product sales pages and product packaging. In 2018, Three Squirrels even invested in a 52-episode animation featuring Three Squirrels in Logo.
On Chinese e-commerce sites, customer service often refers to consumers as “Darling”(亲，qīn) when communicating with consumers, while customer service at Three Squirrels refers to consumers as “hosts”.
And, Three Squirrels sets two different customer service styles: the first is polite and intelligent, and the second is funny and humorous, which will interact in with consumers. Consumers can choose different customer service styles when they spend for the first time, and then the customer service staff in the fixed group will receive the consumers each time.
According to Three Squirrels, Three Squirrels’s online customer service, which is different from other brands’ online customer service, has an average of 90 non-shopping-related chats and more than 10 jokes with consumers every day.
Of course, marketing is not just such soft power that, Three Squirrels is able to occupy the top ranks of e-commerce search results because the company buys a lot of advertising services in e-commerce. From 2016 to 2018, the sales expenses of, Three Squirrels accounted for 20.76%, 19.36% and 20.82% of the total cost respectively. Although the proportion did not change, the marketing expenses actually increased significantly due to the increase in total costs.
On Taobao (and other similar e-commerce sites), there is a marketing service called “Direct Impression Ad”(直通车), which similar to Google Ads, helps merchants get more clicks by inserting ads in the front row of search results. Unlike search engines, e-commerce sites often do not clearly identify advertisements. That’s why three squirrels were able to occupy the front row of search results.
For comparison, the proportion of research and development of Three Squirrels in 2016 to 2018 was 0.27%, 0.30% and 0.48%, respectively. This means that Three Squirrels has hardly developed any new snack products.
In fact, most of the goods in, Three Squirrels are produced in the OEM mode, and consumers can find the original manufacturer on the sales page and packaging of the goods.
So, Three Squirrels actually runs its own brand with a model similar to that of a fashion store: when a new snack rises, Three Squirrels finds the corresponding manufacturer to place an order, and then packages it with its own brand and marketing. For consumers, you can only remember the brands of Three Squirrels, but not the manufacturers.
This means that, Three Squirrels is not necessarily the best or cheapest of its kind, but it is often the biggest seller.
However, this model is not perfect, it has three defects:
First, it is difficult to innovate snacks because they are not involved in the production. In the past few years, with the rise of the consumption level of Chinese residents, more and more new snacks are appearing on the market. But Three Squirrels can only follow up after other manufacturers have developed snacks, and can’t launch snacks with exclusive flavors. Although Three Squirrels offers almost all kinds of snacks, its mainstay business is still nuts.
Second, because the factory is not owned by Three Squirrels, it is difficult for it to have particularly strict control over the quality of its products. As of March 9, 2020, there were 447 complaints about Three Squirrels, ranking first among similar brands, according to Black Cat Complaints, a Chinese consumer rights protection group. According to the recent situation, the main reason for the complaint of, is hygiene and quality problems, such as moldy products, containing hair, insects and foreign bodies.
And most importantly, because this marketing strategy works only on the Internet, Three Squirrels’s sales rely heavily on e-commerce platforms. But China’s e-commerce platforms have been in fierce competition for a long time, and they sometimes require merchants selling things on them not to participate in promotions held by another platform. This often hurts the sales of big brands like Three Squirrels, which are sold on multiple e-commerce platforms at the same time.
Three Squirrels is aware of these problems and has begun to try to solve them through joint ventures and offline stores. But so far, progress has no obvious result.
Entrepreneurial history of Three Squirrels
Three Squirrels’s admiration for the Internet sales model may come from the entrepreneurial experience of its founders.
Zhang Liaoyuan, the founder of Three Squirrels, who does not have a high school degree, left his hometown at the age of 19 to do almost all the jobs in China in the 1990s. Such as opening a restaurant, selling VCD discs, working as a bodyguard in a nightclub, and so on.
Zhang Liaoyuan’s experiences are not pleasant, and his business is almost never a success. But in the process, he learned how to get along with different people. This is also the reason why he pays special attention to marketing, in his view, marketing is a mode that keeps enterprises paying attention to users, and it is easy to focus on products behind closed doors.
In 2003, Zhang Liao Yuan joined Zhan’s food company as a walnut inspector, which was his first contact with the nut industry.
At the beginning of the 21st century, the management of Chinese enterprises is often not strict, and the problem of internal corruption is serious. Zhang Liaoyuan introduced the electronic purchase, sale and stock system for Zhan’s food company, which was rarely used by Chinese companies at that time, greatly reducing the corruption within the company. Later, through marketing and packaging changes, pecan was sent to high-end supermarkets only for low net worth consumers. These measures attracted the attention of the managers of Zhan’s food company and made him the sales director of Zhan’s food company.
In 2011, as a representative of the company, he attended Alibaba’s annual meeting and was immediately convinced by Jack Ma that Internet sales is the future. The next year, he left Zhan’s Foods to start three squirrels.
Zhang Liaoyuan once wanted to name the company and brand as little squirrel, but because this trademark has been registered by others, he can only give up. Inspired by his son’s book Three Musketeers, he designed the three squirrels brand.
In the founding team of Three Squirrels, there are cook, part-time Internet friends, former clerk of Zhan’s food company, and a cosmetics salesman. Zhang Liaoyuan once mocked himself that this is the lowest configuration entrepreneurial team, almost rubbish.
But eight months later, they were successful – on November 11, 2012, in the promotion festival of Taobao, the new enterprise achieved a single day sales of 7.76 million yuan, becoming the sales champion of food category.
The secret is as mentioned above. In an interview, Zhang Liao Yuan said : “I’ve been advertising and buying a Direct Impression Ad. I spent 1 million of my savings until I had only 8000 yuan left. Things have taken a turn for the better. “
According to analysis, Three Squirrels’s model is successful because it captures the gap in online snack sales in China.
In the past, sales of snacks in China, especially nut snacks, have long relied on offline dried fruit stores. Dried fruit stores in China not only sell nuts that have already been made, but also many of them are made in-store. This allows people to buy completely different nuts at a time, even though they come from different brands, and some don’t even have a brand.
And as consumers move from offline to online, people still expect to buy different types of nuts in a single purchase. But traditional nut snack producers tend to sell only a few limited types of nuts. Because three squirrels does not produce nuts on their own, they can rapidly increase their SKUs by placing orders with different kinds of nut producers.
In 2015, Three Squirrels initiated the “daily nut” sales model in the Chinese market. It offers consumers 30 packs of nuts in a box, each containing a mixture of nuts. Consumers like this way of selling, because they can eat a variety of nuts every day without breaking multiple packages.
Zhang Liaoyuan claims to hate success studies and believes that the success of Three Squirrels cannot be replicated in the present. The first mock exam is also supported by some data. Three Squirrels can not rely on this mode forever because marketing and packaging can not become the eternal core competitiveness of enterprises.
In recent years, Three Squirrels has ushered in a strong competitor BesTore.
BesTore, founded in 2006, is one of the giants of offline snack stores in China. It began to adopt the online sales model and marketing strategy with Three Squirrels to compete head-on with Three Squirrels.
Three Squirrels had to invest more advertising to sustain sales, which reduced its profits.
Religious enterprise management
Three Squirrels’s management model is not common even among Chinese companies.
Unlike the young, lively and interesting marketing image, Three Squirrels adopts a “religious” management inside. Zhang Liaoyuan praises Liu Bang, Mao Zedong and Zhu Yuanzhang, and replaces “staff training” with “brainwashing”.
Zhang Liaoyuan even took the initiative to tell the media that he thought the best business management model was “religious”. He once said that Jobs also managed Apple through “religion and belief.”
(There is no evidence that the three squirrels controlled employees’ personal freedom or created illegal religions.)
He believes that if you want to run a business successfully, the responsibility of the founder is not to make the most professional decisions, but to make those who can make professional decisions loyal to their own business.
Zhang doesn’t have a high degree, but he has read a lot of books. He believes that the book that enlightens him most is the Selected Works of Mao Zedong. He believes that Mao Zedong can not only formulate a strategic direction, but also work out specific processes and mechanisms for the direction, and find problems and improve them in the process of implementing these mechanisms.
Unlike the nominal Party branches of many private enterprises, Three Squirrels promotes the culture of party members, and party members in different business departments often have dinners, outings, and exchanges, thus breaking the departmental walls within the enterprise. This is not common even in China.
In order to practice “religious” management, Zhang Liaoyuan stepped down from the CEO position of Three Squirrels in 2016, leaving the specific affairs of the company to the collective decision-making of 12 department leaders. He changed his position to “founder and chief brainwashing officer” and focused on “brainwashing” employees.
In this year, Three Squirrels had more than 2000 employees and had considered abandoning “religious” management. But in the end, three squirrels continued this way of management as Zhang Liaoyuan put all his efforts into “brainwashing”.
Three squirrels has set up a “Squirrel Brainwashing College” to train employees in corporate culture and professional skills at the same time. Within Three Squirrels, employees must call Zhang Liao Yuan “squirrel daddy” or “daddy”.
The headquarters of three squirrels is located in Wuhu City, Anhui Province, which ranks around 100 in the national GDP.
The reason for choosing here is that the labor cost here is lower. In Wuhu, a customer service worker with a monthly salary of 4000 yuan can do a good job, while a customer service worker of the same level in Beijing may need a monthly salary of more than 6000 yuan.
Due to their own experience, Zhang Liaoyuan does not care about employees’ academic qualifications and working experience. He encourages employees to be brave and tolerate all their mistakes as long as they have no fatal shortcomings such as laziness and dishonesty.
This model doesn’t always work. For example, Three Squirrels decided in 2015 to cap its 2016 marketing budget, stop putting in more ads, and reward employees with marketing savings. In this way, Three Squirrels is trying to “force” employees to come up with more free or low-cost marketing methods to achieve growth.
From the perspective of the report, the decision was not successful. In the three years after the decision was made, the marketing expenses of Three Squirrels were still increasing.
Zhang also confessed that he was not good at managing “mature” people, and that the top students of Peking University and Tsinghua University would not listen to his stories. He thinks that the top students have their own world outlook and methodology, which are not necessarily wrong, but not suitable for three squirrels.
Therefore, Zhang Liaoyuan believes that executives of three squirrels cannot succeed if they leave.
Because “they are a dragon when they are together, but it’s useless to see everyone alone.”
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