In a market with significant product homogeneity characteristics, service-based brand power is the only way to build a differentiated competitive advantage.
01 Homogenization dilemma
From accommodation functions such as house types, decoration, furniture, and home appliances, to living facilities such as public kitchens and gyms, to commercial facilities such as convenience stores and parking spaces, there is little room for innovation in product design for long-term rental apartments. Product homogeneity is the general consensus of the industry.
However, with the help of policies, such a low-profit track as long-term rental apartments has become a "sweet spot" in the eyes of capital. On the one hand, the high rent-to-sale ratio in economically developed cities with a large floating population has discouraged the "Generation Z" who is "light on material and heavy on experience", giving rise to strong market demandOn the other hand, with the excellent performance of rental housing REITs in the capital market, the capital side has seen the dawn of rapid recovery of investment.
In the face of the tempting big cake, enterprises are forced to accept the reality of homogeneous competition and paper-thin profits. This is how one veteran describes the current long-term rental apartment market. In his view, the core reason why most long-term rental apartment brand operators are difficult to achieve profitability under the cost method is not the cost side, but the inaction of the marketing side.
Due to the relatively rigid cost structure, fierce market competition, and highly fragmented market share, long-term rental apartment companies cannot control the pricing power, and the rent is basically at the lowest point of the market equilibrium. And, while the demand for rentals is strong, long-term rental apartments are not the only option for tenants, with individual landlords owning large rentals**. For example, in Hangzhou, as a "quasi-first-tier" city, there are many aunts and uncles holding signs at the entrance of the community to rent their houses every day, such as a one-bedroom and one-bathroom house of about 20 square meters in West Lake District, and the monthly rent is only between 1500-2000 yuan.
Therefore, when major consulting agencies "advertise" in their research reports that long-term rental apartments have a strong market demand and are still in the growth period, most long-term rental apartment companies are still difficult to achieve profitability under the cost method, and can only use the term "long slope and thick snow" to talk about it.
In most cases, even in industries that do not have significant barriers to entry, those with first-mover advantages can enjoy the dividends of industry development and obtain considerable profits when they are in the early stages of growth. For example, Wang Shi, the founder of Vanke, was engaged in the video recorder business in the 80s of the last century, and the profit margin was as high as 200%-300% due to the significant first-mover advantageAnother example is the high-growth new energy industry in recent years, and enterprises with first-mover advantages have made a lot of money in the upward cycle of the industrial chain.
This is not the case in the long-term rental apartment market. For example, Vanke, which began to lay out the long-term rental apartment business more than ten years ago, is not expected to achieve profitability under the cost method until 2023, and most of the other companies are still in a loss-making state.
In essence, the fierce market competition of long-term rental apartments not only comes from within the market, such as individual landlords and even rental housing and low-rent housing are their competitors, which is why in a growth market, long-term rental apartment companies are difficult to achieve profitability. At the end of the day, long-term rental apartments are entering the rental market as "alternatives", and disruptive innovation is the only way to grab market share from other competitors.
To a certain extent, long-term rental apartment companies should not only focus on the market, but also how to use their own market-oriented advantages to subvert other alternatives with innovation in products and services, which is also one of the directions that need to be considered. At the same time, looking at various industries, homogeneous competition is not uncommon, and it is not uncommon for catering, FMCG and other industries that are closely related to everyone's lives. Referring to the development path of these industries, the core of the leading brands to stand out from the crowd lies in the differentiated competitive advantage of brands based on services, such as high-involvement and homogeneous products such as long-term rental apartments.
02 Haidilao mode
In fact, long-term rental apartment companies are also aware of this, and in recent years, they have increased brand marketing around post-rental services, such as holding a variety of community activities from time to time, which has almost become the "standard" for major apartments to deepen their brand value. It's just that the operation is as fierce as a tiger, and the business performance is still not improving.
Michael Porter pointed out in the book "Competitive Strategy" that differentiation strategy is the performance of a company that is higher than the industry average by providing unique products or services. In this way, companies can increase brand loyalty among consumers, which in turn can improve profitability across the board. To put it bluntly, all brand marketing that does not aim to improve business performance is "hooliganism".
So, how should the long-term rental apartment market build differentiated competitiveness with the help of brand marketing, and then comprehensively drive the improvement of business performance?The answer may be found through Haidilao, a catering giant that is also in the same position with significant product homogeneity characteristics and a highly fragmented market share.
Similar to the long-term rental apartment market, the cost structure of the catering market is also mainly based on fixed costs, and the operating leverage effect is significant, and the customer flow and turnover rate have become the core indicators affecting business performance, just like the occupancy rate and lease renewal rate. In terms of market competition, the catering market is even better than the long-term rental apartment market, and even the hot pot track with the highest degree of standardization is still highly fragmented. According to Frost & Sullivan data, there are more than 400,000 hot pot restaurants operating in 2020, and the CR5 is only 79%。
In the face of such fierce competition in the hot pot market, Haidilao got 58% market share, much higher than the second place 12%。So, how does Haidilao stand out?In fact, the reader in front of the screen already has the answer in his heart, that is, the differentiated brand value created by the ultimate service.
For example, during the waiting period, Haidilao is equipped with free board games, fruits, snacks and tea, as well as free manicures and shoe shine servicesWhen seated, we pay attention to the individual needs of our customers, and provide baby cots for customers with babies in their arms, headbands for customers with long hair, and glasses cloth for customers with glassesDuring the meal, aprons and mobile phone covers are distributed, live noodles and Peking Opera performances are provided, and once customers raise objections to the dishes, there will be no "ripping" phenomenon, and the order will be replaced or refunded immediately.
On the surface, Haidilao's ultimate service seems to be easily copied by competitors, but this is not the case. Ping An ** pointed out in the research report that behind Haidilao's ultimate service, it is a strong management organization created by the management model of "connecting interests and locking management".
For example, unlike many current companies that anchor KPIs and aim to shape employees into "humanoid robots", Haidilao does not over-quantify KPI indicators, but focuses on assessing customer satisfaction and employee effort, giving employees a high degree of autonomy. At the same time, in the construction of corporate culture, Haidilao fully respects every employee and realizes the same desire and consistent interests.
With its unique management model and deep-rooted brand image, Haidilao has also achieved rapid expansion of its business scale and achieved business performance far exceeding the industry average. By the end of 2022, the number of Haidilao's domestic directly-operated restaurants reached 1,371, and the compound growth rate of revenue and net profit attributable to the parent company from 2015 to 2021 reached 4655% and 7120%, and the return on net assets is stable at more than 30%.
Ning Gaoning pointed out in the preface to the book "Haidilao You Can't Learn" that most enterprises do not lack systems, and systems can also play a great role, but only systems will cause mechanical and passive;Most companies have rewards and punishments, and of course money plays a big role, but only rewards and punishments will cause exchange and estrangement;Many enterprises have a philosophy, vision and mission, but only these things that can be hung on the wall will cause a sense of form and emptiness, only when these three are properly put together, the enterprise is a complete management system.
Through Haidilao's success, it can be seen that the breakthrough of the product homogenization industry lies in taking corporate culture and management model as the cornerstone, providing consumers with the ultimate service, establishing brand differentiation and competitive advantage, and then achieving business performance higher than the market average. With the help of user loyalty formed by brand differentiation, on the one hand, brand premium can be realized, profit margins can be improved, and on the other hand, core operating indicators such as customer flow can be improved, and the negative impact of high operating leverage on business performance can be effectively avoided.
03 Differentiation breakthrough
If a brand can't develop a point of differentiation or maintain its differentiation, then all brands are exactly the same to consumers, and ** will become the dominant decision-making factor. This quote from David Acker, the father of modern brand marketing, aptly reflects the current state of the long-term rental apartment market.
Of course, long-term rental apartment companies may not agree with this, and everyone is sparing no effort to shout for their so-called brand differentiation. But as mentioned earlier, the essence of brand differentiation is profitability above the industry average. If there is no performance to support, then the so-called brand differentiation is impossible.
Combined with the Haidilao model, the reason why consumers are willing to accept its pricing higher than the market average is that it is based on the ultimate service based on taste and ingredients, and these services are composed of countless details, which shape Haidilao's strong brand value.
Compared with long-term rental apartment companies, they all convey corporate culture and brand concepts to tenants, and deepen them through community activities. But David Acker once said that brand differentiators must be meaningful to customers. In other words, the differentiated services provided by long-term rental apartments must be valuable to tenants.
The so-called details are real. According to Maidian's visit to a long-term rental apartment, most tenants said that the site selection and reputation are the core reasons for choosing this apartment, but in terms of service, it can only be described as basic satisfaction, and many details still need to be improved.
Some time ago, the elevator card was lost, and the young lady at the front desk charged me 20 yuan for the cost of work. Although I don't have a lot of money, a card that costs a few dollars and is charged 20 yuan still makes me uncomfortable. ”
The communal kitchen is located in a passage on the floor, and the lighting is dim, the pots and pans are messy, and the floor is always wet, making people have no desire to cook. ”
The sink in the common kitchen is often blocked, there were originally two, but then one was broken, and we reported for repair many times, and the housekeeper's reply was that it could not be repaired. The induction cooker is also broken 2, because it is built-in, no one has ever repaired it, and everyone needs to queue up to do it during peak cooking. ”
The energy efficiency of the air conditioner in the house is level five, and it is a second-tier brand, whether it is energy consumption or cooling effect, is this to earn our electricity bill?”
When these tenants were asked whether they would move if there was a lower-tier apartment brand in the vicinity under the same conditions, the general reaction was yes. In their opinion, although the current rented apartment will also hold regular community events and give out some small gifts to everyone during the New Year's holidays, these are not enough to establish an emotional connection with it, but in that moment, it will feel warm.
In fact, whether it is a community event or a holiday gift, it only plays the role of icing on the cake, and does not hit the real "pain point" of tenants. The services that tenants really need, one is to involve interests, don't have any "pulling", don't earn small profits like elevator cards;The second is that the housekeeper has autonomy over things that are closely related to the user's rent, and can quickly feedback and solve themThe third is to consider everything from the perspective of tenants, such as the procurement of household appliances such as air conditioners.
Of course, it is not easy to do this, which requires the reconstruction of corporate culture and management model. In particular, the mechanized KPI assessment is a "mountain" for long-term rental apartment enterprises to build brand differentiation competitiveness with the help of ultimate services. A practitioner who did not want to disclose his name told Milestone that because the headquarters will have a performance appraisal for the store, many times in order to complete the assessment indicators, the interests of tenants have to be sacrificed, and some rhetoric has to be used to prevaricate tenants, but tenants are not fools, they just don't break it.
Chen Pei, general manager of Milestone Housing Leasing Division, believes that in recent years, with the tightening of industry supervision and the influx of state-owned assets, the long-term rental apartment market has gradually entered a stage of benign development. In her opinion, the products and services of most apartment brands are good enough, but there are many service details that need time to improve.
Chen Pei further pointed out that from the perspective of market competition, in the case of limited innovation space on the product side, service innovation and brand renewal based on management mode and organizational structure will become the key to whether the long-term rental apartment brand can stand out in the future. In the future, only through the ultimate service can we truly win the favor of tenants, so as to build brand loyalty, and then comprehensively improve the occupancy rate, lease renewal rate and other business indicators.
04 Conclusion
In essence, the core value of long-term rental apartment enterprises to establish brand differentiation and competitive advantage is not the improvement of profitability, but the ability to achieve capital exit with the help of public REITs in the future by virtue of stable operating performance and cash flow level. Combined with the rental housing REITs that have been successfully issued so far, most of them assume that the rent will increase by about 2% per year in the future.
For rental housing, affected by factors such as policy supervision, in fact, the space for rent is limited, while the long-term rental apartment market is different, and the rent depends on market competition on the one hand, and the brand premium on the other hand. If public REITs expand into the field of long-term rental apartments in the future, the differentiated competitive advantage of the brand will bring enterprises to quickly return funds and accelerate scale expansion.