Shanlan E-cigarette: He Spent One Year Developing the Product, with Annual Revenue of 27 Million RMB

In 2019, e-cigarettes became a hot investment trend. As users were swept up by numerous new brands, Zhu Yaxuan felt a bit anxious, but he was more excited.

"The influx of these entrepreneurs can accelerate the user education process and lower our costs of educating users. There has been significant feedback from users about the homogeneity of products and a lack of innovation in the market, and I think our opportunity has arrived."

He founded his own e-cigarette brand, Shanlan, back in October 2016. After 11 months of research and development, the product was finally launched. "Until last year, we had not stopped updating and iterating on our first product."

The reason for his meticulous attention to product details stems from Zhu Yaxuan's background. He graduated from the University of the Arts London. After graduation, he became the first industrial designer for the WeChat team, working in product design for four years. In 2014, he first encountered e-cigarettes and realized it was an industry with great potential. He provided two reasons:

First, the tobacco industry has been undergoing transformation, from traditional cigarettes to e-cigarettes, with enhanced harm reduction and more innovative forms that can spark public curiosity.

Second, as an industrial designer, he tried various well-known e-cigarette products on the market and found significant flaws in their design and user experience.

"E-cigarettes may be a trend for the future because they provide user value and can genuinely offer a better experience for users." Thus, Zhu Yaxuan began assembling a team to develop e-cigarettes. Based on user feedback and market research, he targeted users aged 25 to 30 with a mild addiction, smoking about a pack a day.

In his view, due to the solidified memory of taste and flavor, it is difficult to convert old smokers into users. However, young people have a stronger demand for health and 'scent and flavor' and are more willing to accept new things.

In September 2017, Shanlan's first product—the Dashanlan—was launched at a price of 699 RMB, and within 15 days, the user count exceeded a thousand under natural sales conditions.

When this batch of products hit the market, it not only brought considerable revenue but also valuable feedback from seed users. Subsequently, Zhu Yaxuan and his team adjusted the product based on this feedback.

Compared to some products that can be developed and launched in three months, Shanlan took over a year for R&D. "I believe spending time refining the product back then was the right decision. As users have been educated and have a higher level of awareness, they are now starting to provide feedback about the serious homogeneity of new products."

Redefining E-Cigarettes

Zhu Yaxuan categorizes e-cigarette companies on the market into three types. The first type is companies like Myle, which have strong R&D and production capabilities. The second type consists of companies with strong brand operation capabilities, like Lenovo, which can strictly control channel construction. The third type is companies similar to Apple.

At that time, processing companies like Myle were already mature, but Zhu Yaxuan still chose to design, develop, and mold the products himself. For Myle, a monthly order volume of 10 million from top e-cigarette brands is not significant, so the company would not reopen molds for them. Most products on the market are just minor adjustments—adding 2mm here, reducing 2mm there, changing from square to oval, etc.—and there are no real differences. "I want to make Shanlan a product similar to Apple, redefining e-cigarettes from its 'birth'." Zhu Yaxuan decided to differentiate Shanlan from other brands in the market in terms of appearance, functionality, and flavor.

In terms of appearance, the small Shanlan currently being developed can be sold individually or as part of a set. The box for the set is essentially a power bank; when sold individually, one Shanlan can last a day, but when placed in the box, its usage time can extend to three days. The individual small Shanlan has a removable front and back shell, making it easy for users to wipe off if there is any leakage.

The front and back packaging of the Dashanlan is made of genuine leather. At that time, it took the team nearly a month to bond the genuine leather with aluminum alloy. Additionally, the team used IML technology on the exterior of the small Shanlan, engraving phrases that young people like, such as "Get Rich Overnight". To ensure that the product meets food-grade standards, Zhu added a layer of film to the outer packaging, which not only prevents scratches but also ensures it is harmless when entering the mouth. #p#分页标题#e#

In terms of functionality, users can adjust the power when using the Dashanlan to meet different users' needs for throat hit. The Dashanlan also features a child lock function, preventing children from using the product out of curiosity when parents are not carrying it.

Besides appearance and functionality, the Shanlan series products also have certain innovations in flavor. Zhu Yaxuan explained that the flavor of Shanlan is similar to that of perfume, divided into top notes, middle notes, and base notes. When users inhale the smoke, the top notes warm up the user's mouth, adapting to the soft cotton feel; when swallowed, the middle notes bring a hint of apple flavor and nicotine; and when users exhale, the base notes peak the apple flavor in the mouth.

No Worries About Policies, Heavy Investment in Channels

China's tobacco industry has seen over 1 trillion RMB in tax revenue for four consecutive years, but policies have always hung over e-cigarette entrepreneurs like the sword of Damocles. Since 2019, the regulatory void has been mentioned multiple times. From the very first day he decided to enter the e-cigarette business in 2016, Zhu Yaxuan repeatedly discussed this issue with his colleagues.

"The policy issues mainly focus on two points. First, whether e-cigarettes contain tobacco components; second, whether e-cigarettes are made using cigarette equipment. For both points, Shanlan does not meet the criteria, so there is no legal risk." He hopes the government can quickly introduce relevant policies, believing it would be beneficial for both practitioners and consumers. Regardless, he maintains an optimistic attitude towards industry development.

The reason for his optimism is his understanding of the policies. He believes that the overall environment is improving, and the probability of policies banning all practitioners is low; 90% of the world's e-cigarettes come from Shenzhen, yet few brands are internationally renowned; furthermore, going overseas has become an irreversible trend, and e-cigarette products should be included in that.

Zhu Yaxuan has already laid out plans for the overseas market. There is a channel manager in the Shanlan team who has maintained good relationships with various overseas channels. Currently, overseas channel revenue accounts for 40% of Shanlan's income.

Domestically, for online sales, Shanlan will use various media exposure as a primary funnel, directing traffic to Shanlan's Taobao, Tmall, and JD.com platforms as a secondary funnel. Zhu Yaxuan admits that the third-level funnel, the WeChat mall, has the highest repurchase rate, accounting for 40%.

In his view, the WeChat mall is more suitable for conveying brand tone, and the effect is twice the result with half the effort. For example, for this year's New Year's special, to present the best sales effect for the product, the team revised the public account copy repeatedly for a month. "Our public account only has over 10,000 followers, but the open rate that day was nearly 80%, and sales increased sixfold."

Fully laying out offline channels is also one of Shanlan's key focuses this year. Previously, since Shanlan appeared relatively early, user education was not as widespread as it is now, and Shanlan's channels were primarily in the 3C category.

By mid-year, Zhu Yaxuan estimates that more than half of the national agency system can be improved. He divides the agency system into two categories: regional agents, provincial agents, and special channels. Special channels refer to places driven by consumption scenarios, such as bars, KTVs, and bathhouses. "In these places, price-sensitive customers are fewer; although the price of 299 RMB per set is not high, first-time consumers may not perceive it as low." Capital Supply and Bloodbath

In September 2017, the four-person Shanlan team received investment from Inno Angel and IDG Capital, completing an angel round of financing of 8 million RMB.

Before receiving investment, Shanlan had already spent nearly a year refining the product. Until last year, the product was still undergoing continuous iteration. Zhu Yaxuan stated, "This year, we will focus on channel layout; on one hand, the product has been refined, and on the other hand, a large number of competitors have suddenly emerged in the market, so we also need to expand our market share."

In 2018, Zhu Xiaomu, a former employee of Smartisan, started his own business, launching the e-cigarette brand "flow"; in January 2019, the original founder of Tongdao Dashi, Cai Yuedong, announced in a social media post that the "YOOZ" e-cigarette had begun its stock mode; additionally, the widely circulated "Lingxi LINX" brand is backed by five self-media figures, including the chairman of Tongdao Dashi and the CEO of Visual Zhi.

With a flood of internet celebrities entering the field, Zhu Yaxuan believes, "If e-cigarettes are merely viewed as a tool for monetizing traffic, from a cognitive perspective, I think it's still shallow."

He believes that e-cigarettes are different from products like facial masks, which have a low unit price and a wide coverage of the population, and the domestic e-cigarette market is not as friendly as the facial mask market environment. "The effectiveness of traffic remains to be tested; if the story is told more attractively, they may be suitable for the To VC path." #p#分页标题#e#

He predicts that the first half of this year will mainly be a war for channels, expecting a small climax in June and July. From mid-year to the end of the year, a fierce competition among major brands will emerge. By the end of the year, the giants will basically be revealed, and the e-cigarette market will be defined; he speculates that relevant policies for e-cigarettes will be introduced next year.

"However, the scale of this battle mainly depends on the capital supply of ammunition. If capital remains in a wait-and-see state, it is likely to be a localized battle; if capital rushes in, then a major battle is inevitable." To secure ample "weapons" and "ammunition," Zhu Yaxuan is also seeking financing of about 20 million RMB, primarily to improve the product system and expand channels.