Lessons from Dairy Giant Mengniu’s Milk Waste Controversy

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  • Lessons from Dairy Giant Mengniu’s Milk Waste Controversy

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    Chinese dairy conglomerate Mengniu [2319:HK] apologized on May 7, after its marketing campaign running in partnership with the iQIYI [IQ:US] show Youth with You 3 went awry. The apology came after a video showing a group of middle-aged people opening dairy bottles and pouring milk into the drain, which went viral online in late April. All these people interested in were the bottle caps with QR codes printed inside, which the online talent show’s fans could scan to vote for their contestants.

    The scandal triggered massive criticism online, because the country was strengthening efforts to eradicate food waste. Chinese authorities publicly blamed the marketing stunt conducted by the two companies. Xinhua News Agency posted a commentary, criticizing both the sponsor Mengniu and video platform iQIYI for using such a promotion method, which misled young people. On May 8, Beijing Municipal Radio and Television Bureau ordered iQIYI to suspend Youth with You 3. Three days later, the Cyberspace Administration of China called for video platform take its responsibility and strengthen the daily management as well as formulate community rules to guide the teenagers idolize stars rationally.

    iQIYI, the production and broadcast of the variety show, stated that it overlooked its value orientation and social responsibility, and would accept all the criticism and correct mistakes. As the biggest sponsor of the show, Mengniu said it would fully support and actively collaborate with iQIYI on the measures taken to rectify the issue.

    Dairy firms are the head players of variety show marketing

    In recent years, many dairy firms sponsored variety shows. Since 2015, Mengniu sponsored 18 variety shows, while its domestic rival Yili [600887:CH] sponsored 22 since 2014, according to Qichacha. Looking into their financial reports, Mengniu released its 2020 annual report in April, showing that its revenue reached RMB76.0bn and its marketing cost were RMB21.5bn, accounting for 28% of the total revenue. In Yili’s 1H20 report, the firm earned total revenue of RMB47.3bn, while sales expenses also accounted for a high proportion of 24%.

    Why dairy firms like Mengniu and Yili spare no efforts to spend money on variety shows? In the dairy industry, different brands often purchase milk sources from the same region, and the processing technology is also similar, leading to homogenization of products. To break the original competition pattern, dairy firms pay many resources to build own brands. Advertisement is an efficient method. In 2020, the advertising and publicity expenses of Mengniu reached RMB6.8bn, accounting for 8.9% of the revenue. That is to say, Mengniu spent RMB18m per day on advertisement fees last year. In its 2020 annual report, Mengniu highlighted that its Zhenguoli Fruit Milk Drink floral and fruity flavor light lactobacillus drink series were successfully launched through the title sponsorship of idol produce programs. It also stated the sales of products increased last year despite some disruptions during the COVID-19 pandemic and attributed the increase to its premium products and efforts to attract young consumers through popular media publicity.

    Mengniu started collaborations with such talent shows from 2019. Talent shows are different than other shows, which attract more capital, irrational young fans, as well as high frequency of discussion and exposure, making it a popular marketing channel by brands. The dumping milk incident caused a waste of social resources and did harm Mengniu’s brand, according to Lanjinger Finance, which also resulted in a consideration that such high marketing investments could not be sustainable. It is time for dairy firms to make adjustments, rethink their positioning and pricing, and shift their attention back to the quality and function of their products.

    Three lessons gaining from the incident that corporates should keep in mind

    On the regulation level, there are several rules that corporates should be noticed. In February 2020, the China Netcasting Services Association published guidelines that online programs should not set “pay per vote” rules for competitions, nor encourage viewers to buy products or pay membership fees for voting. Also, the law on preventing food waste, passed on April 29, stipulates that online video service providers could be punished, including a warning, a fine up to RMB100,000, or suspension, once they make, issue, or spread content that boosts food-wasting behaviors, according to China Daily.

    From the perspective of marketing, ESG rating agency Refinitiv set an indicator to judge if a company has policy for responsible marketing, aiming to protect vulnerable groups such as children and young people whose value system is still in formation. Mengniu’s overmarketing has been buried for a long time until the milk dumping incidents. Corporates like Mengniu should aware that they have responsibility in marketing towards young people. It should not just focus on sales of products. Seeking marketing creativity is more valuable than inducing consumers to buy products, and it is also more beneficial to the sustainability of the brand itself.

    As to the corporate social responsibility, in the era of fans’ economy, corporates should figure out more healthy and reasonable way to perform their social responsibility. In this case, Mengniu and iQIYI were accused of directly inducing fans to consume too much, then causing milk waste indirectly. If they considered social impact, they could be more sustainable. What companies could do are more than harvest fans. Those companies could combine fans’ needs with social welfare projects such as helping the elderly and helping the poor with nutrition, which is obviously a more meaningful way to both build brands and gain popularity.









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