Profitability Dilemma of SMEs Under Excessive Marketing Investment

A common operational paradox prevails among micro, small and medium-sized enterprises (SMEs): marketing investment intensity is negatively correlated with profitability. Scaling up ad placements, launching live-stream sales, expanding distribution channels and tilting budgets toward marketing have become standard industry practices. Yet despite full-link marketing deployment, most enterprises fail to achieve corresponding growth in disposable profits. This predicament stems from three fundamental logical deviations in operational cognition.

I. Misaligned Marketing Value Orientation: Prioritizing One-time Conversions Over Long-term Asset Accumulation

The marketing activities of the vast majority of SMEs focus solely on short-term transactional targets, relying heavily on low-price lead generation, trending bestseller imitation, homogeneous copywriting and discount-driven order closing. While this model delivers instant transaction conversions, all deals remain sporadic one-time purchases. The entire marketing chain is built merely to capture user attention, without incorporating compound-value-driven objectives such as building differentiated brand value, establishing user trust systems or accumulating brand equity. As a result, no solid user value moat can be formed.

Essentially, this model purchases one-time traffic through continuous marketing spending, inevitably triggering a vicious cycle: enterprises rely on low prices to secure deals during traffic booms, only to face exhausted user pools once traffic dividends fade. Trapped in perpetual new-user acquisition, businesses suffer chronically low user retention rates. Intensifying traffic competition continuously drives up marginal customer acquisition costs, squeezing profit margins relentlessly.

II. Distorted Industry Competition Logic: Marketing Involution Drives Up Marginal Costs and Deprives Pricing Initiative

Homogeneous, conversion-obsessed marketing has sparked an industry-wide prisoner’s dilemma. Non-production costs — including platform commissions, traffic procurement fees, influencer collaboration expenses, promotional subsidies and sales discounts — keep surging. Every escalation of industry involution pushes marketing costs to a higher tier. SMEs are ultimately left with only thin marginal profits from operational execution, completely losing product pricing power and being forced into undifferentiated price wars.

Burdened by soaring marketing expenses, enterprises continuously tilt resources toward front-end promotion. Management attention is occupied by frequent marketing data optimization, causing severe neglect of fundamental operational foundations including product polishing, service iteration and organizational capability building — a fundamental reversal of sound business logic.

Profitable mature enterprises follow a clear logic: they first solidify core operational fundamentals including robust product strength and reliable delivery capabilities, then leverage marketing to amplify operational results. Most SMEs, however, reverse this order completely.

III. Inefficient Resource Allocation: Mismatched Front-end Traffic Investment and Back-end Delivery Capacity, and Shallow Trial-and-error Traps in Omnichannel Layouts

Many SMEs launch large-scale front-end traffic campaigns with immature products, unperfected service systems and underdeveloped team capabilities, leading to a severe mismatch between traffic scale and backend service capacity. This triggers declining user word-of-mouth and near-zero repurchase rates. Users acquired through traffic investment churn after a single consumption, forcing enterprises to continuously reinvest in new traffic procurement and fall into an ineffective loop of endless acquisition and user loss.

Some operators mistake frequent adjustments to ad delivery data, live-stream scripts and creative materials for diligent operation. In reality, such optimizations only improve platform user experience and daily active user metrics, without generating positive accumulation of the enterprise’s own core operational capabilities.

Another major source of efficiency loss lies in blind omnichannel expansion. Many enterprises hastily deploy across all mainstream channels including Douyin, Xiaohongshu, live streaming, private domains and offline ground promotion, yet fail to conduct in-depth operation on any single channel. Without clarifying brand positioning, precise user portraits, consumer behavior insights and core value propositions in advance, resources are scattered in a fragmented, unfocused manner.

The typical outcomes are universally underperforming channels: Douyin ad ROI hovers barely above the break-even line of 1.2; Xiaohongshu content gains negligible exposure; live-stream GMV yields almost no profit after deducting influencer fees; accumulated private domain user groups lack long-term refined operation. Ultimately, corporate time resources and cash flow are continuously depleted through repeated shallow trial and error.

It is critical to clarify that the above analysis does not negate the value of marketing itself. It targets the inefficiency of random, systemless marketing practices. The traditional media era featured standardized professional marketing workflows: consulting firms first formulated top-level strategy, brand agencies delivered comprehensive brand cases based on strategic positioning, and marketing teams executed refined implementation plans. In the new media era, low operational thresholds have democratized marketing access, yet leading enterprises still adhere to this professional logic. Most SMEs skip the core links of strategic planning and brand positioning, launching direct tactical execution without systematic guidance — this omission is the root cause of ineffective marketing investment.