New Oriental: A Model Exploration for Transforming Live Streaming Custom Case Solution & Analysis

Evidence Brief: Case Extraction

1. Financial Metrics and Performance

• Revenue Collapse: Following the Double Reduction policy in July 2021, New Oriental faced a 90 percent drop in market value and a significant revenue decline as its core K-9 tutoring business became illegal for profit (Source: Paragraph 2).
• Pivot Performance: By June 2022, Oriental Selection (Dongfang Zhenxuan) saw its followers jump from 1 million to 17 million within ten days. Daily Gross Merchandise Volume (GMV) peaked at approximately 60 million RMB during this period (Source: Exhibit 1).
• Operating Costs: The company laid off over 60,000 employees and incurred nearly 20 billion RMB in costs related to tuition refunds and severance (Source: Paragraph 4).
• Stock Valuation: Koolearn Technology stock rose more than 600 percent in June 2022 following the viral success of knowledge-based streaming (Source: Exhibit 3).

2. Operational Facts

• Core Model: Knowledge-based live streaming. Tutors act as anchors, teaching English, history, and literature while selling agricultural products and books (Source: Paragraph 6).
• Platform Dependency: Operations are primarily hosted on Douyin, utilizing its algorithm for traffic distribution (Source: Paragraph 8).
• Product Mix: Agricultural products (corn, steaks, fruit) and books. The company emphasizes a self-operated brand strategy to control quality (Source: Paragraph 10).
• Infrastructure: Transitioned from 100 teaching centers to a centralized live-streaming studio model in Beijing (Source: Paragraph 12).

3. Stakeholder Positions

• Yu Minhong (Founder): Positioned the pivot as a way to help farmers and maintain the dignity of teachers. He maintains a high-risk appetite for business model experimentation (Source: Paragraph 5).
• Dong Yuhui (Lead Anchor): Former English teacher turned viral star. His personal brand is currently the primary driver of traffic, creating a high level of key-man risk (Source: Paragraph 14).
• Investors: Initially skeptical of the agricultural pivot; shifted to aggressive buying after the June 2022 viral breakout (Source: Exhibit 4).
• Chinese Regulators: Monitoring the live-streaming sector for content quality and tax compliance following the tutoring crackdown (Source: Paragraph 18).

4. Information Gaps

• Supply Chain Margins: The case does not provide specific net margins for the agricultural products versus the previous tutoring services.
• Customer Retention: Lack of data on the repurchase rate of customers attracted by the novelty of the teaching style.
• Platform Fees: Specific take-rates and advertising spend paid to Douyin are not detailed.

Strategic Analysis

1. Core Strategic Question

• Can New Oriental transform a viral content moment into a sustainable, scalable e-commerce business that survives the inevitable decline of its lead influencer?
• How can the company build a defensible supply chain in agriculture, a low-margin and high-risk sector, while remaining dependent on a third-party platform like Douyin?

2. Structural Analysis

The competitive landscape of Chinese live streaming is defined by extreme low-price rivalry. New Oriental has successfully differentiated through content. However, Porter’s Five Forces indicates significant threats:

• Bargaining Power of Platforms: Douyin controls the traffic. If the algorithm shifts or fees increase, Oriental Selection has no direct access to its audience.
• Threat of Substitutes: Other tutoring firms (e.g., TAL Education) are mimicking the knowledge-streaming format, eroding the first-mover advantage.
• Value Chain: The pivot moves the company from a high-margin intellectual property business (tutoring) to a low-margin physical goods business (agriculture) with high logistics complexity.

3. Strategic Options

4. Preliminary Recommendation

New Oriental must pursue Vertical Integration combined with a Talent Incubation model. The current success is a content fluke; long-term survival requires becoming a supply-chain company that happens to use teachers as a marketing channel. The company should prioritize building a private-label brand for high-frequency agricultural goods to stabilize margins.

Implementation Roadmap

1. Critical Path

• Phase 1 (Days 1–30): Secure long-term contracts with tier-1 agricultural cooperatives. Establish standardized quality control protocols at the source.
• Phase 2 (Days 31–60): Launch the internal Anchor Academy. Transition from a single-star model to a multi-channel schedule (Oriental Selection Books, Oriental Selection Beauty, etc.).
• Phase 3 (Days 61–90): Pilot the independent Oriental Selection App to begin capturing direct user data and reducing platform transaction fees.

2. Key Constraints

• Agricultural Perishability: Unlike tutoring, physical goods involve spoilage. A 5 percent increase in logistics failure can wipe out the entire monthly margin.
• Content Fatigue: The novelty of learning English while buying steak will diminish. The content team must innovate beyond the classroom format within six months.
• Talent Retention: As anchors become celebrities, their market value will exceed New Oriental’s pay scales. Equity-based retention is mandatory.

3. Risk-Adjusted Implementation Strategy

To mitigate the risk of platform de-platforming or algorithm changes, 30 percent of marketing spend should be diverted to building a private domain database via WeChat Mini-programs. If Douyin traffic drops by 20 percent, the company must have the capacity to trigger sales through its own direct-to-consumer channels. Contingency funds should be allocated specifically for cold-chain disruptions during peak seasonal periods.

Executive Review and BLUF

1. BLUF

New Oriental’s pivot to Oriental Selection is a successful tactical recovery, not yet a proven long-term strategy. The company has successfully converted its surplus of teaching talent into a unique marketing asset. However, the business currently functions as a high-risk talent agency for a few viral anchors. To survive, the firm must transition from a content-led model to a supply-chain-led model. This requires aggressive investment in private-label products and logistics. Failure to diversify away from a single anchor and a single platform (Douyin) leaves the company vulnerable to the same sudden regulatory or market shifts that destroyed its tutoring business.

2. Dangerous Assumption

The analysis assumes that the audience’s emotional connection to the New Oriental brand and its teachers will translate into long-term loyalty for commodity agricultural products. In e-commerce, price and quality eventually override sentiment.

3. Unaddressed Risks

• Regulatory Sensitivity: The Chinese government is increasingly wary of the influence of mega-anchors. Dong Yuhui’s massive popularity could trigger the same regulatory scrutiny that impacted the tutoring sector.
• Quality Control Scandal: Agriculture is prone to food safety issues. A single batch of contaminated product sold to millions of followers would be fatal to the brand’s credibility.

4. Unconsidered Alternative

The team has not considered a B2B Education Technology pivot. Instead of selling corn to consumers, New Oriental could license its streaming technology and pedagogical content to public schools or vocational centers, staying closer to its core competency while remaining compliant with current laws.

5. Final Verdict

APPROVED FOR LEADERSHIP REVIEW