Click to read the original article for details Recently, New Distribution hosted the "Swordsmanship on Mount Hua · 2021 First FMCG O2O Seminar", where brand owners, platforms, and the operating service providers behind them discussed topics related to O2O. If O2O was once an uncertain trend, now it can be said to be a certain future. In the past year, catalyzed by the pandemic, O2O achieved rapid growth, and major brands have successively entered the field. From initial confusion to now many brand owners having clear organizational structures, supporting models, and tactics, O2O is becoming an important part of some brand owners' strategies. Facing such a new and extremely important channel, how should FMCG manufacturers respond? Embrace or wait? Go all in or just dip their toes? New Distribution had the privilege of interviewing Xuan Kun, COO of Happy Fruit Digital Intelligence. As an operating service provider behind many FMCG manufacturers' O2O efforts, Xuan Kun has rich experience and methodology in helping brand owners do O2O. We hope these insights and methods can bring some inspiration and thought to FMCG manufacturers. Happy Fruit Digital Intelligence COO Xuan Kun 3%, 5%, 10%: The Three Stages of Brand Owners' O2O Development Happy Fruit Digital Intelligence was established in 2004, initially doing airtime top-ups, i.e., phone recharge cards, mainly offline. In 2015, it was renamed Happy Fruit Network, shifting its business from offline to online, such as serving as a service provider for Alipay, Pinduoduo, JD.com, etc., for their phone recharge centers. The foray into FMCG new retail was an accidental discovery: many brand owners and retail platforms approached Happy Fruit to purchase airtime and data cards as gifts for points redemption. In this process, Happy Fruit gradually came into contact with new retail and realized that new retail had huge opportunities in the future. So, in 2018, Happy Fruit incubated a new business specifically for new retail. At the start, it served as a service provider for Alipay Koubei, handling online supermarket coupon business. As the Alipay Koubei team was merged into Taoxianda, Happy Fruit became an operator for Taoxianda. From that point, Happy Fruit officially entered the O2O space. Xuan Kun told New Distribution that at the time they didn't know how O2O would evolve, but they were sure that the O2O model was what consumers needed. Especially in first-tier cities, consumers have a strong demand for convenience and timeliness, and O2O's one-stop shopping and fast delivery within half an hour or an hour align with the trend of consumption upgrading. In the early days, Xuan Kun had a clear feeling that no brand had figured out how to do O2O; they only did it when the platform ran a big promotion with traffic and subsidies. Moreover, most attempts were by foreign companies like P&G, Unilever, Mars, etc. The turning point for O2O was actually the 2020 pandemic, which catalyzed very fast market growth for O2O. At this time, many brands suddenly realized that consumer behavior habits were changing, and O2O's convenience and timeliness were being accepted by a large number of consumers, gradually turning it into a traffic aggregation point and a new important channel. This is directly reflected in the number of brand clients Happy Fruit serves: from 2019 to 2020, Happy Fruit's client count grew 5-6 times. It is precisely through this one or two years of rapid development that many brand owners have gained a relatively complete understanding of O2O, with clear organizational structures and strategic plans, but some brand owners are still in the early stages, unclear about O2O's development prospects. Based on past service experience, Happy Fruit divides brand owners' O2O efforts into three stages. Stage One: O2O performance accounts for 3% of total sales Characteristics: Seeing competitors doing it, they think they can't fall behind, so they do it. Personnel, budget, and resources are insufficient, and the company itself doesn't pay much attention; they might assign a customer manager to handle it, with expenses squeezed from other projects. Stage Two: O2O performance accounts for 5% of total sales Characteristics: Company management starts to pay attention to O2O, temporarily forming a team and setting a certain budget. The problem at this stage is that the company's organizational changes can't keep up with O2O's rapid development; the person doing O2O might also be handling offline KA, and KPI settings, expense attribution, and team ownership are not well-defined. Stage Three: O2O performance accounts for 10% of total sales Characteristics: O2O's importance rises to a strategic level; the company establishes a dedicated new retail team with a dedicated executive in charge, and budgets are sufficient, with even each region, sales center, and marketing department allocating some budget to the new retail team. Currently, most brand owners doing O2O are mainly in the transition from stage two to stage three, not yet treating O2O as a strategic matter, or not yet matching sufficient organizational capabilities. Three Challenges Brand Owners Currently Face in O2O Before discussing this issue, we must first understand: What is the essence of O2O? O2O is not about subverting the retail industry, but using internet technology to reconstruct people, goods, and scenes, and empower retail. From traditional physical stores to traditional e-commerce to now near-field e-commerce, the essence is that transaction scenarios change. O2O, through internet + digitalization + scenarios, allows brand owners to get closer to consumer groups and provide a better consumption experience. Of course, in the process of promoting new models, new challenges inevitably arise: First, the O2O market is currently immature. This leads both brand owners and platforms to inevitably adopt price wars in the early development stage. For example, a product is 30 yuan offline and 30 yuan online, but online provides more convenient and faster service, with delivery to home in half an hour or an hour. Originally, a 5-yuan fulfillment fee should be charged for this service, but due to market immaturity, this fee is not passed on to consumers. This leads to a situation: who pays for this fee—platform, brand, or retailer? As a result, all participants seem not to make money, but they have to do it. Because offline traffic is indeed seriously declining, and to find growth in the existing market, if you don't do this today, whether you are a brand owner or retailer, sales will definitely decline. Second, brand owners lack a clear understanding in organization and strategy. Is O2O a new channel, or a supplementary channel derived from the original modern trade? Goods are offline, while traffic, scenarios, and transaction behavior are online. Whose sales does this count as? How to balance KPIs? There is no unified standard; each brand owner has its own choice. Some brand owners are at the forefront, making adjustments in assessment, such as gradually adding penetration rate, market share, average order value, new customer acquisition, etc., to the single sales indicator. Third, the industry's infrastructure is insufficient. Traditional e-commerce has developed for over a decade, with relatively complete infrastructure, clear data openness, consumer tags, and transaction monitoring, while O2O is still in its infancy and vague. The biggest problem for brand owners is not knowing how to measure effectiveness. If they spend time and effort on this, is it proportional to the final output? Is it worth it? This issue needs to be further addressed by platforms; platforms must provide convincing data to tell brand owners the effect of their investment. For example, if you invest 1 million and the final sales are only 1 million, but it brings higher exposure, reaches more precise audiences, and brings more new consumers, then the investment is worthwhile. How Brand Owners Can Do O2O Well O2O is a certain trend, and there is no doubt that brand owners must do it. But how to do it is not something that can be done well by just assigning a customer manager with two or three people. From a results-oriented perspective, O2O's impact mainly has two aspects: one is to promote sales, and the other is to increase brand voice and communication. These two impacts correspond to two core departments: sales and marketing. Sales can be further divided into offline KA, CVS, online e-commerce, or new retail departments. This special nature determines that doing O2O well is not a simple task. So, first, O2O must be a top-priority project, able to link the sales and marketing departments, with multi-department collaboration. Second, clarify who manages O2O—whether it's directly managed by a department or by regions. Each brand owner's internal organizational structure is different; for example, some are divided by retail system (RT-Mart, Yonghui, etc.), while others are divided by regions. With a clear organizational structure, the next core is what to do. O2O has two core actions: one is coverage and distribution—whether the product is listed offline, and after offline listing, whether it is uploaded online. This requires close cooperation between online and offline teams, timely listing and uploading. The second is price control—product selection and pricing should be viewed as a whole. Combine offline sales with online sales to decide what products to select and what promotions and discounts to run. Third, combine promotion with sales, and brand owners should allocate expenses well. Suppose a company's marketing department has an annual budget of 100 million, with parts for e-commerce, traditional channels, modern trade, etc. Can a portion be allocated to O2O? Some brands have already done this, such as reducing temporary promotion expenses from 5 points to 3%, and transferring the extra 2 points online, still for promotions. Fourth, choose platforms based on category. Not every category is suitable for all platforms. When doing O2O, brands should select targeted platforms based on their category, such as Meituan for good sales of beverages and snacks, and JD Daojia and Taoxianda for good sales of grain, oil, and noodles. In conclusion: In the past year, O2O's rapid growth has led more and more brand owners to start laying out O2O, but currently, most are still on the path of trial and exploration. However, this does not prevent O2O from becoming a strategic focus for channels in the future. Consumer mindsets and behavioral habits have been subtly influenced, and brand owners must keep up in time to find more growth in the existing market. -END-**** Are you "watching" me?