A Review of Zhong Xuega's Failure: It Wasn't the Ice Cream's High Price, but Taking Too Big Steps and Being Too Arrogant
Hello everyone, I'm your financial analyst. Recently, Zhong Xuega made headlines again due to its bankruptcy application. Many people's first reaction was, "Oh, that ‘ice cream killer’ that sold for 18 yuan per piece is finally failing."
But if you only focus on the word “failure,” you miss a very typical business case study. Zhong Xuega's story is a perfect example of a cycle that started with a good product and a good beginning, but ended with bad decisions and poor public relations. It didn’t fail because its ice cream was bad; instead, it died due to mismatched channels and arrogant crisis management.
Today, we’ll break down Zhong Xuega’s “tragic comedy” into five parts to understand how it came to this point.
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1. Choosing the Right Market Niche: If It Didn’t Sell for 18 Yuan, It Might Have Failed Long Ago
Many people criticize Zhong Xuega for its high pricing, calling it an “ice cream killer.” But if we look back at 2018 from the perspective of a startup, its choice was actually necessary and even the only way to survive:
- The low-end market was a competitive battlefield: Giants like Nestle, Haile Suo, Yili, and Mengniu were dominating the market with prices ranging from a few yuan to over ten yuan. As a small startup, how could you compete on cost or channels?
- There was an opportunity in the high-end market: The only high-end ice cream brand at the time was Häagen-Dazs, which mainly sold through physical stores and boxed products, not focusing on individual high-end ice cream.
- E-commerce provided a safe haven: Ice cream has high logistics costs; selling for 5 yuan would result in 2 yuan in shipping fees, making it unviable online. Selling for 18 yuan created a profit margin, making it suitable for online sales.
Conclusion: Zhong Xuega’s decision to target the high-end individual ice cream niche was correct. It was like entering the tea market ten years ago: if you wanted to sell bubble tea, you had to be more niche, such as lemon tea or light milk tea. Zhong Xuega avoided the giants and found its own niche.
2. Launch Strategy: Internet Influencers Are a Powerful Tool for a Cold Start
Why did Zhong Xuega become popular when it first launched? Because it understood how to use internet influencers. Many traditional brands dismissed them as unreliable, but during the early stages, influencers are the most effective marketing tool.
Xiao Ma Song identified three key factors for success, and Zhong Xuega met all of them:
- High initial traffic: It targeted social media, generating a lot of buzz.
- Novelty: The “Ecuadorian Pink Diamond” ice cream, priced at 66 yuan, was a collaboration with Luzhou Laojiao, combining luxury with a unique concept. People might not buy it, but they would talk about it.
- Desire to share: Taking photos with Zhong Xuega gave people a sense of luxury and exclusivity.
Conclusion: Zhong Xuega’s launch was impressive. It used internet strategies to quickly build brand awareness and attract high-net-worth customers.
3. The Fatal Mistake: Putting “Luxury” in Convenience Stores
This was the turning point of its decline. The company made a huge channel mismatch mistake:
- The Real Reason for the “Ice Cream Killer” Label: It wasn’t because of the price, but because of lack of awareness: Häagen-Dazs, although more expensive, was sold in specialized stores and premium supermarkets, where customers expected a higher price. Zhong Xuega, however, sold its 18-yuan ice cream alongside cheaper brands in convenience stores. The prices were not clearly marked, leading to customer frustration.
- Declining Sales: Online sales showed that customers were willing to pay for high-quality ice cream, but convenience store customers were more casual. Only a few of the 100 people entering a store could afford Zhong Xuega’s ice cream, and they might just want a cheaper snack.
- The Ice Cream Freezer Trap: To address this, Zhong Xuega tried selling its ice cream in small refrigerators in stores. This worked for popular, inexpensive products like Coca-Cola and Mengniu, but not for its more expensive, niche product. The strategy led to wasted money and inventory buildup.
Conclusion: Zhong Xuega overestimated its ability to sell in convenience stores. It tried to appeal to a broader audience with a luxury brand, but it lost its premium image and failed to increase sales.
4. Misguided Expansion: Trying to Sell Frozen Dumplings
Later, Zhong Xuega tried selling frozen dumplings under the brand “Lixiangguo,” hoping to leverage its cold chain advantages. The idea was sound, but the pricing was flawed:
- Different Consumption Behaviors: Ice cream is for special occasions, while dumplings are for daily use, with a focus on cost-effectiveness.
- Pricing Incompetence: Zhong Xuega’s dumplings were much more expensive than cheaper alternatives, making them unattractive to most customers.
Conclusion: The dumpling business wasn’t a fatal mistake, but it revealed Zhong Xuega’s blind confidence in expanding into unrelated categories, ignoring the different consumer expectations for each product.
5. Public Relations Disaster: Arrogant Responses Led to a Major Crisis
If the channel mistake was a slow poison, the 2022 “ice cream not melting” incident was the final straw:
- The Incident: Consumers reported that the ice cream didn’t melt even at 31 degrees Celsius, leading to speculation about additives. Zhong Xuega’s official response was simply, “The product meets all national standards.” This response was seen as arrogant and dismissive by consumers.
- Cognitive Bias: Ice cream melts slowly because it contains milk and carrageenan (a safe thickener derived from algae), but consumers often fear additives. A clear explanation could have prevented the crisis.
- Missing the Opportunity: A simple video explaining the reasons for the slow melting would have helped, but Zhong Xuega chose to remain silent, further damaging its image.
Conclusion: In the social media era, being “correct” doesn’t mean being understood. You need to communicate in language that customers can relate to. Arrogance is the biggest enemy of a brand.
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Summary: What Really Caused Zhong Xuega’s Failure?
Zhong Xuega wasn’t a scammer; it was a tragic case of bad timing, poor decision-making, and poor public relations.
1. The Niche Was Right: High-end ice cream was a untapped market.
2. Wrong Channels: Selling in convenience stores ruined its premium image and sales.
3. Hasty Expansion: The company tried to grow quickly by expanding into new categories, but this led to financial losses.
4. Wrong Attitude: Lack of empathy and clear communication during crises further damaged its reputation.
Lessons for Startups:
- Don’t Rely Excessively on Online Data: Online traffic doesn’t directly translate into offline sales.
- Channels Affect Price Perception: The same price can mean luxury in a specialty store but seem expensive in a convenience store.
- Public Relations Must Be Accessible: Explain things in simple terms that connect with customers.
Zhong Xuega’s story teaches us that entrepreneurship is challenging, but even more so is maintaining clarity after success and staying humble during crises. I hope future startups will avoid arrogance and show more respect for the market and their customers.