Chairman of Lvmama, Hong Qinghua: Differential Strategy as the Base for Success

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Chairman of Lvmama, Hong Qinghua: Differential Strategy as the Base for Success

Upon graduation with a Master’s degree 12 years ago, Chairman of Lvmama Hong Qinghua entered the industry of tourism and founded several companies. In 2008, he established in Shanghai the online tourism website “Lvmama” to provide the “donkey friends’ with products of entrance tickets for attractions, resort hotels and tour services, focusing on the independent travel services. By now, the website has nearly one thousand registered members and its revenue amounted to about RMB 2 billion in 2012. It is one of the biggest websites by distribution of entrance tickets for attractions in China and a black horse catching up from behind in the online tourism with fierce competition. The Company started in 2010 to make the overall arrangement for the market nationwide. By now, it has set up five branches in Beijing, Chengdu, Guangzhou, Huangshan and Sanya. In 2011, it started to setup the offline experience shops.

In recent two years, the online tourism has been observed a fierce price war, with all major websites successively investing a huge amount for occupying the market at a loss. Facing such fierce competition, what kind of development strategies has Lvmama taken? How will Hong Qinghua to be the age of 40 summarize his gains and losses in entrepreneurship? What opportunities and challenges will the Chinese tourism market? During the interview with Knowledge @ Wharton, Hong Qinghua discussed profoundly probed into these questions. “In my opinion, Chinese tourism does not lack of domestic demands, but domestic supplies,” expressed he.

The edited interview is as follows:

Knowledge @ Wharton: at the very beginning its establishment in 2008, Lvmama was invested by the heavy-weight angel investors. Afterwards, the enterprise developed rapidly and continued to finance successfully and expand the scale, establishing its position in the sector. Why has Lvmama been so successful in entrepreneurship?

Hong Qinghua: there may be several factors. Firstly, we have adopted the differential strategy and have not taken part in any competition of homogenization. My orientation for founding Lvmama was to found the best independent travel service provider in China. Before us, there had been no large-scale independent travel service providers in China. In those days, the main business mode of online tourism market was the business travel mode of “air ticket + hotel”, such as “ctrip.com”, or the vertical search engine such as “qunar.com”, basically without any mode of serving the independent travel.

Where should we start for providing independent travel services? Since there are more than ten thousand resorts in China, we started with resorts. The resort entrance tickets were so costly, without any discount for the individual travelers. Therefore, what we did at that time was just to break through the price barrier of entrance tickets as well as to bring more comprehensive benefits for the resorts. Since the individual travelers would not consume once for all and would take food, lodge and buy tourist souvenirs in addition to the discounted entrance tickets, a virtuous circle was gradually formed, which benefited the resorts as well as the tourists.

The second key factor was to study and grasp the next development trend. In 2008, I found the trend of the whole tourism market was just the increasing vacation tourists and independent travelers; the second trend was that the demands of tourists became increasingly personalized. Therefore, my estimation at that time was that the times of individual tourists were coming and more people would uphold the personalized and characteristics travel services. According to the report released by National Tourism Administration last year, of all the travel person-times in 2011, the group travel was only 6.3%, while the independent travel was up to 93.7%. Yet, it was absolutely not so in the year of 2008. Therefore, Lvmama has developed over the years, by grasping the tide of rapid development of independent travel in the Chinese market.

Another factor may be that Lvmama is the third business I have established. The first two were both associated with tourism, providing planning and designing, consulting, marketing and operation management for resorts. Hence, I have a clear picture of resorts and have also accumulated many resources. Lvmama is just the part above water, while Joyu Group is at the back. The Group has several subsidiaries. The first one is Kchance Tourism Planning and Consulting Co., Ltd founded in Shanghai in 2004, which undertakes planning and designing services for resorts. The second one is Joyu Tourism Development Co., Ltd, which undertakes the operation management of resorts. The third one is Joyu Tourism Marketing Service Co., Ltd, which is engaged in resort marketing, planning and execution. Therefore Lvmama is supported by the competitive companies providing B2B services in the tourism. Accordingly, the mode of Joyu is B2B2C. We serve the resorts on the one hand and the tourists on the other hand. Additionally, during the course of establishing these businesses, we have established, trained and accumulated a team of talents, as is extremely critical for an entrepreneurial company.

Knowledge @ Wharton: what kind of setbacks have you encountered in entrepreneurship?

Hong Qinghua: we have encountered all the problems an entrepreneurial company has to face. For instance, initially when working on resorts, we also received various setbacks. Not all the resorts would be willing to cooperate with a startup company from the very beginning. We were familiar with the head of one resort in the Changjiang River Delta for we had cooperated with them before. In 2008, when I called him, he said it was an entirely new business and they had to make studies. Such studies lasted one year. In 2009, over the phone, he said: if we offer this price, it will be an impact on the market and the offline travel agencies will complain. In 2010, when I called him again, he said: it is a very good mode and we should hurry up with the cooperation. At that time, Lvmama was in cooperation with the surrounding resorts, such as the Oriental Peal, Lingshan Grand Buddha and Zhouzhuang. Thus, it took three years for him to change his attitude.

All in all, an entrepreneur shall keep a positive and optimistic mentality, as is extremely important. During the course of startup, you may fall for one thousand reasons, but you can succeed for one reason. Since you will face so many setbacks and hear negative news every day, you have to have an adequately strong heart. For instance, when the financial manager tell you that the cash available with the company is only enough for two months, what to do about the salaries of next month? HR manager tells you that such persons cannot be recruited for the company is a small potato and the salaries offered will not satisfied. You will be also told that one superior administrative authority is looking for you. Every day, you will have to face many hindrances, internally or externally. Therefore, an entrepreneur has to have a positive mentality, perseverance and confidence about the future.

Knowledge @ Wharton: in the industry of internet, entrepreneurial enterprises emerge in an endless stream, but few of them can grow sturdily. What suggestions will you make for the entrepreneurs?

Hong Qinghua: firstly, in view of project selection, it is necessary to train on differential opportunities. Nowadays, there is no chance for working on platforms. Never confront the tough with toughness where the giants are crowded. The red-sea market should be no longer tried, but the next blue sea should be looked for. In the industry, form a differential strategy with the giants and fight the flanking warfare. Secondly, make sure to find an excellent complementary team. It is very important. Different industries stress on different talents as it should be. If it is in the new modern services, e.g., tourism internet, make sure to have an excellent product management and excellent profession marketing personnel.

Knowledge @ Wharton: how has Lvmama established the top management team of its own?

Hong Qinghua: KChance, Joyu and Lvmama have a team of their own. In 2008, I won over the principal of Kchance Li Dan to Lvmama to act as General Manager and he gradually established a team. CTO of Lvmama came from EBAY and CMO from Allyes. We also searched marketing professionals from market or relevant talents from the conventional travel agencies. Different companies have their different tracks of development and different paths for team building. You may also have products first before finding a leader from market. Different companies have different genes.

Knowledge @ Wharton: what is the gene of Lvmama?

Hong Qinghua: understand the market, form a differential strategy and change as per needs, as is our gene. Since we have walked out from the conventional tourism, we are more familiar with the conventional tourism, know more about what resorts want and what tourists want and then we change according to the needs, continuously change and provide different services according to this differential market we understand. This is just the gene of Lvmama.

Knowledge @ Wharton: what are the important milestones of Lvmama in development? How has it developed its core competitiveness?

Hong Qinghua: I think Lvmama grows like a tree. Its business mode is continuously built in its organic growth. We started with selling resort entrance tickets and have by now earned ticket revenue of several hundred million annually. Though this scale is still small compared the total amount of RMB 130 billion for the resort entrance tickets nationwide, we are already one of the biggest distribution nets for resort entrance tickets in China. Later, we found tourists in need of resort hotels, for Ctrip and others provided business hotels only in those days. . Then we started to provide resort hotel services. Recently, we have also invested to construct the resort hotel for tenting travelers. Then, the tourists indicated that there was nothing to see. We started to sell online the entrance tickets for entertainment activities in all major resorts, such as Impression Xihu, Impression Lijiang and other performances. Some other tourists said: sometimes, I would like to travel in a group, but dislike standard meals. Then, we started to provide the semi-independent travel service with groups. We provide routes, tour guides and transport, but not shopping and meal services. Instead, we would bring the tourists to some places with characteristics. Lvmama has done so, growing continuously along with the increasing and changing demands of tourists. By now, it has become a comprehensive website, but all such services focus on independent travel.

In the future, we may add personalized tour guide service. Many of the tourists want individual guide for accompanying service according to their itinerary. We plan to collect the tour guide information of tour destinations for pricing openly on the website. For instance, one day service charges RMB 300~500. Tourists can choose one tour guide and pay upon being satisfied after the tour. Just like Alipay, tourists will make advance to Lvmama that will pay the tour guides after the tourists are satisfied with the service.

Knowledge @ Wharton: e-business (including tour e-business) can avoid falling in the price war this year. Ctrip, Elong, Tuniu, 17u and Mango all have declared to join in. It has caused most of tour e-business service providers to fail in earning money. An online retail enterprise cannot avoid the fate of fighting prices, is it correct?

Hong Qinghua: we have not come face to face with Ctrip in the price of USD 500 million. Price war is harmful to the industry to some extent and is not beneficial for its long-range development and tourists will not benefit from it because the service quality is sacrificed.

To avoid the price war, in my opinion, it is necessary to first of all implement the differential strategy and provide differential products or services. Price war is among homogenized products only. The harder-hit areas of price war are air tickets, hotels and homogenized resort products. Since we sell different products, we cannot launch a price war. By allying with the upstream and downstream, we introduce preferential entrance tickets and promote resort hotels. Our free-walker products are also characteristic, such as “happy donkey tour”, which is completely a free-walker product. The packaged free-walker products include entrance ticket + resort hotel and special tour services, which are not available at other websites. This is differential. The group tour is also differential: e.g., without standard meals and shopping. Such micro innovation is just differential. Additionally, we launch different subject tour programs, including, for instance, perfect hot-spring tour, free micro tour, new-concept overseas tour. Such subject tour programs in different forms are just the characteristic differential products, different from other websites. There will be also tour guide service in the future. Overlapping of micro innovation is just the disruptive innovation.

Moreover, talking about the price war, when a market shows a trend of rapid development in all aspects, attracting numerous enterprises for participation and causing the market to become a red sea, the price war will be naturally a riffling process to be experienced.

Knowledge @ Wharton: how is the planning for the future development of Lvmama?

Hong Qinghua: I think it will become a tour e-business community focusing on independent travel. Step 1, if you want to go for a tour, you can consult the travel guide written by the donkey friends. Step 2, you may wish to order some excellent travel products, including hotel or entrance ticket. Step 3, during travel, if you need a taxi, tour guide, or local characteristic catering, we will be also involved to provide you with a very good platform and service. Therefore, Lvmama is making a supermarket of independent travel. Joyu Group has an ultimate aim to become a respected group of tour operation in the world.

Knowledge @ Wharton: how about the future development opportunities for the overall tourism market, especially the opportunities for the online tour service providers?

Hong Qinghua: I think that as a whole of tourism, vacation and recreational sightseeing will flourish together. In view of the market, products will surely become increasingly differential. As a general trend in the future, market will be classified, products will be verticalized and services will be refined. Online travel market will be also gradually promoted along with the technical development. As another major trend, mobile client will surely bring about many new business opportunities.

I prefer to divide tourism into five stages: (1) define the tour destination; (2) search information of the destination; (3) make reservation; (4) all services required during the tour; (5) service and share after the trip. After the smart mobile becomes extensively popular, the services during the tour (Stage 4) will be more timely and accurate. There will be a lot of business opportunities accordingly. Now, many emerging applications and tools are also meant for it.

Actually, in my opinion, Chinese tourism does not lack of domestic demands, but domestic supplies. The supply of quality tour products is really limited, including the quality resort hotels near the resorts, or quality tourist souvenirs, which are really limited and far inadequate for demand. Therefore, excellent companies will appear in terms of shopping; resort hotels and catering will be much prospective; tour guide market will be increasingly regularized; different emerging application will surely have a considerable market. In this regard, a lot of business opportunities continue to emerge as the tour demand and supply is promoted and regenerated. As a result, all the entrepreneurs need to continuously cut in the next tendency to make products required by tourists.

Knowledge @ Wharton: how to manage an entrepreneurial enterprise in rapid development, with personnel scale expanding rapidly and uncertain status of profiting?

Hong Qinghua: I always believe that an enterprise of more than persons must be managed with corporate culture. All rules are only a constraint and a norm. Corporate culture is extremely important. Our corporate culture is: one army, one family and one school. The corporate values are: good faith, passion, innovation, and multi-win.

In terms of employing people, we are not fuzzy about education background and relatively open. What I stress on is: the size of stage depends on the extent of responsibility. One has to be courageous to undertake, willing to learn before he may have a platform and space for development. Give full play to the strengths and leave the weakness to the team because team members are relatively complementary. We have also set up Joyu Elite College to cultivate talents. Joyu has one constitution which specifies what kind of employees we need and how to ensure the enterprise to move in the specified direction.

Knowledge @ Wharton: what role are you playing in the operation of Lvmama?

Hong Qinghua: I was involved in the particular operation of Lvmama at the beginning of its establishment. However, at different stages, as the founder and chairman, I naturally played different roles. When the company has 100 persons, I will be surely the forward. I have to lead all to score, while others may also see: oh, scoring is just like this. When the company has 300 persons, I will be surely the centre, for I have to pass the ball to everyone. When the team has 500 persons, I will be the guard to keep our goal and continue to innovate and witness changes. Currently, Joyu has more than 1,000 persons, of which more than 900 are at Lvmama. At the current stage, I do only four things at Lvmama: (1) formulate the development strategic for Joyu Group and Lvmama; (2) feel the user’s experience and see timely all the complaints; (3) integrate all different resources (I have always emphasized that Joyu is a mutual-feeding industrial chain; (4) choose persons. I also attach special attention to the internal construction, including the corporate vision and the corporate culture mentioned above.

Knowledge @ Wharton: what is your view about the future of internet industry?

Hong Qinghua: WEB internet shall definitely deepen the interaction with the end users. Furthermore, mobile Internet shall be the future. Mobile-client shall be the trend of development and end users will gradually get used to it, while different mobile services will be also made increasingly convenient. The conventional internet is a net, but mobile internet is of a grid structure rather than a net, in which there will be walls between each other. Each mobile application (APP) is an independent unit, while the mobile internet is composed of all the APPs. One APP may be an artist living everywhere, but you must have a high rate of updating and innovating. Therefore, everyone has a chance in mobile internet is an opportunity for all. In this area, more entrepreneurs will emerge to challenge the conventional internet. I think it will be the major trend.

Knowledge @ Wharton: what is the biggest challenge for you now?

Hong Qinghua: it is whether you can seize the next tide or not. I always think that the present advantage will be definitely replaced by the future tendency. An entrepreneur must maintain adequate sensitivity to grasp the next tide and tendency and change as per needs so as to become an industrial leader.

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