Editor's Note: The continuous decline in offline foot traffic is an indisputable fact. However, this does not mean that offline channels are no longer important or that attention and investment should be reduced. Compared to embracing the endless stream of new retail formats, holding the line on offline channels is more critical in today's volatile market environment. How to hold the line? Only through meticulous management and professional oversight to increase volume and efficiency. To this end, New Distribution, in collaboration with Mr. Cao Yang, former General Manager of the Key Account Management Group Channel at Coca-Cola China, has launched the "Key Account (KA) Management in Practice" series, aiming to provide frontline channel managers with a complete methodology for managing offline key accounts in a "chaotic market." The series comprises about 20 issues in total; this is the fifteenth issue, as follows. With the rapid development of the internet, China's modern trade channels, including supermarkets, hypermarkets, and convenience stores, have successively launched online businesses, adopting the O2O (Online to Offline) model. The O2O model refers to a business model where consumers are acquired through online channels and then guided to make purchases at offline stores. For brand owners, collaborating with stores such as hypermarkets and supermarkets on online business can bring more sales growth and cultivate more consumers. This article will introduce the elements, steps, and considerations for brand owners to collaborate with modern trade clients on online O2O business. Online O2O brings incremental sales to stores Online O2O business indeed brings new increments to stores, for the following reasons:
- High category overlap between online and offline: We have found that the overlap between key O2O categories and modern trade is extremely high, serving as an online extension of offline scenarios. The category overlap between O2O and offline is high, with the top 10 categories accounting for over 70% of share.
- Complementary consumer bases and scenarios between O2O and offline retailers: Modern trade clients have their own O2O platforms, and offline stores can leverage O2O to resist the low-price erosion of e-commerce promotions.
- From a category perspective, daily necessities (such as hygiene products, laundry detergent, shampoo) show a clear trend of shifting from offline to online consumption. Offline retailers can use O2O to counter online erosion.
- From a consumer perspective, offline store consumers can be encouraged to use O2O, thereby retaining them. The special environment of the three-year pandemic has cultivated and established consumer habits of using O2O. Preparation Phase for O2O Operations Some companies may not have done these preparations but are still doing O2O business with clients. What's the difference? In the preparation phase, we need to address channel and client selection, as well as category, packaging, and pricing policies. Analyzing and determining these aspects helps O2O avoid detours from the start, maximize efficiency, and improve corporate profitability. 1. Select suitable channels and clients We know that 30-60 minute delivery provides consumers with great convenience, and having products available for delivery is crucial. It is essential to ensure sufficient inventory to meet both offline sales and O2O demand. Therefore, hypermarkets and medium-to-large supermarkets are more suitable for O2O. However, convenience stores may not be suitable because they have limited space and inventory. Consumer online orders for convenience stores are highly random in terms of category and product demand. Shipping directly from convenience store inventory makes it difficult to predict stock levels, leading to stockouts. Have you ever experienced this? When ordering from a convenience store on Ele.me, the store often finds items out of stock and calls the customer to discuss substitutions or refunds, which negatively impacts the consumer experience. Of course, if a convenience store client sets up a dedicated front warehouse for O2O, it can solve inventory issues, making such clients suitable for O2O. 2. Select categories and packaging In terms of categories, O2O has high overlap with offline store categories, such as liquid milk, small-pack cooking oil, yogurt/sour milk, packaged rice, hygiene products, beer, beverages, dry snacks, laundry detergent, instant noodles, shampoo, etc. In terms of packaging, consumers typically use O2O for immediate consumption (eat, drink, use) rather than household stocking. Therefore, they generally buy large packs or family packs. Companies should choose small packs or multi-packs as the main packaging for O2O collaboration. In terms of price, it should be above the minimum order for a single delivery, for example, around 20-30 yuan, so consumers can buy without needing to meet a minimum order. In terms of weight, packaging should be convenient for riders to carry, avoiding overly heavy or bulky packaging. Additionally, many companies use O2O as a tool for new product promotion, which is also a good option. Traditional new product promotion involves in-store sampling, tasting, and trials. This method only reaches consumers who visit the store, and as foot traffic shifts online, it poses challenges for in-store new product promotion. Promoting new products on O2O expands the reach to precise consumers, leveraging platform advantages to promote and advertise new products, with good performance in both speed and breadth of consumer reach. 3. Select suitable promotional forms Promotions and marketing are important means to boost online sales. Client managers should design promotional activities with stores, such as discounts, spend-and-reduce, and buy-one-get-one, to stimulate consumer interest. Additionally, utilize offline store resources such as advertising spaces and displays for marketing to increase brand exposure and consumer awareness. Use social media, email marketing, and word-of-mouth to expand brand influence and user base. Price is the most important part of promotion. Generally, we do not choose A-category products for online activities because A-category products are price-sensitive and high-volume; low prices on A-category products would impact offline channels. Although it may significantly boost sales for a few modern trade clients, it harms the company's overall market and channel management. Therefore, B and C products are typically used, and promotions for new products are encouraged. Brief Introduction to O2O Promotion Plan Operations 1. First, determine the products for promotion and the goals to achieve For example, do we want to increase sales of a specific packaging? Or promote a new product? If the former, analyze historical data to determine category and brand. Based on monthly and annual targets, select suitable product packaging and SKUs. Finally, calculate expected sales and estimate how much budget can be allocated. 2. Communicate with the client to confirm promotion details
- Understand the client's schedule and activity themes, find alignment between our products and the client's schedule, and achieve mutual goals.
- Discuss promotional forms based on product characteristics, such as coupon, flash sale, or hero product.
- Discuss display positions and design display spaces, similar to offline store displays like floor stacks, shelves, and end caps. For example, Yonghui's resource positions: the first frame on the homepage is the best and most expensive; there are also new-user exclusive, limited-time flash sales, brand discounts, spend-and-reduce, and recommended-for-you. Another example is Wumart's Duodian platform, which offers paid exposure items: 1. First focus: homepage focus; 2. Splash screen ad; 3. Large floating layer; 4. Small floating layer. Choosing the right resource position requires considering product characteristics, budget, and activity goals to comprehensively evaluate and select the most suitable position. 3. Based on the above information, develop a promotion plan and then conduct ROI evaluation. We know clients always ask for more fees and lower prices. Calculating return on investment is essential. If ROI calculation shows poor profitability, recalculate prices and communicate with the client. 4. Apply for approval. If the above steps are executed well, a promotion plan that meets both company requirements and client needs will easily get approved. 5. Prepare marketing materials and promotional items Before collaborating with the client, prepare necessary marketing materials and promotional items, including product introductions, promotional posters, brochures, etc. Ensure these materials accurately convey product features and promotional information. 6. Promotion and publicity Once both parties agree on collaboration details and promotional materials are ready, start promotion and publicity activities. Collaborate with the client to promote through various channels, such as online platforms, social media, and in-store publicity. Ensure advertising content aligns with promotional activities to attract consumer attention and purchase desire. 7. Data analysis and optimization Data analysis and optimization are key to continuous improvement of O2O business. Client managers monitor sales data and user behavior, analyze purchase habits, preferences, and feedback to optimize products and services. Use data analysis tools and metrics such as sales volume, conversion rate, and user retention rate to evaluate online business performance and market results. Based on data analysis, adjust strategies and improve execution promptly to enhance user experience and purchase conversion. 8. Supply chain preparation In online business collaboration, inventory management and logistics delivery are critical. Stockouts mean promotion failure! Client managers should discuss inventory management methods with stores to ensure sufficient supply and timely replenishment. Also, arrange logistics delivery reasonably to ensure products reach consumers on time. Establishing partnerships with logistics companies and optimizing delivery networks can improve delivery efficiency and reduce costs.
How to Treat O2O Correctly
In the first part, we mentioned that the rise of O2O business supplements offline store sales, providing new growth points amid declining foot traffic. Here, we focus on the immature aspects of O2O that need further improvement. 1. The O2O model is still developing and needs refinement First, O2O business has not been around long and is not fully mature. In the early stages, price wars are inevitable, just like the low-price strategies used when hypermarkets emerged 30 years ago. Low prices have always been the weapon to attract consumers, and it has never failed! For example, a product priced at 30 yuan offline might have a shocking online price below 30 yuan! Not only is the price discounted, but online also offers 30-60 minute delivery. We know that fast delivery increases costs, and in the early stages of O2O, consumers won't pay for it; this is the typical cash-burning model. Over time, this cash-burning model cannot last. This creates a situation: who pays for low prices and delivery fees? The platform? The brand? The retailer? As a result, all participants seem not to make money, but they have to do it. Because offline foot traffic is indeed severely declining, and to find increments in the existing market, if you don't do this today, whether you are a brand or a retailer, sales will definitely decline. Objectively, the underlying logic of O2O is to directly connect consumers with discounts and services, which is the advantage of To C, bypassing intermediaries to gain consumers, making O2O popular. But these discounts come at a cost; how should platforms and companies share it? In fact, platforms are large, companies are small, and companies have no say, especially 90% of companies have no voice at all. In simple terms, platforms (public and client-owned) on one hand attract consumers with low prices, and on the other hand ask companies for fees, placing double pressure on companies. If this problem is not solved, O2O will struggle to develop healthily. 2. Issues with client-owned online platforms Companies have cooperated with retailers for years, establishing annual agreement models, including clients providing display space, companies offering appropriate prices, purchasing displays, conducting consumer promotions, and paying sales commissions. It must be noted that due to the lack of professionalism in many companies' key account teams, the cost of investing in stores is high, which is common in many companies. Business owners face the awkward situation of "no investment, no sales; investment leads to losses." The already unreasonable offline costs have not been reduced, and now new online costs have arrived. If companies want to calculate more precisely, they need separate online and offline sales data, but some clients are unwilling to provide it, claiming they cannot distinguish between online and offline sales. Imagine, a company that is not professional in KA management thus carries two heavy burdens, and some companies suspect they are investing repeatedly online and offline! Is this situation beneficial to clients and platforms? Certainly not! Although companies have no say, they are not stupid; their money can change investment direction. Twenty years ago, they invested in offline stores; ten years ago, in e-commerce; now, in O2O; next, short-video platforms. If companies stop investing, without low prices and free delivery, they cannot attract consumers, and that will be the end of store O2O. 3. How should companies respond? 1. Assess profitability: Analyze input-output, evaluate online and offline costs together for client investment, and determine if current investment is acceptable. Will online business expand losses? Check if it meets the company's profit targets! 2. Determine the proportion of online business: Through calculations, understand what proportion of online business the company can accept and what proportion it cannot. After all, O2O is a supplement to offline stores; whether it can fully replace offline remains to be seen. If a client's online business exceeds 70% of offline, we must be very cautious, as offline display fees are a significant expense! 3. Control prices and promotions: Classify O2O products into ABC categories, strictly avoid low-price promotions on A-category products, only do B and C products, and encourage new product promotions. 4. Improve KA team's ability to manage costs: For example, establish an input-output analysis mechanism, adjust annual agreement terms accordingly, and adjust displays for loss-making stores. Final Thoughts Regarding the operation of online O2O for modern trade stores, the third part is not difficult to understand and execute, and you know you can follow the client's requirements. The truly critical parts are the second and fourth parts. How to choose suitable channels and clients, and how to select categories, packaging, and SKUs are very important in O2O operations, directly affecting company profits and the balance across channels. Seeing through O2O's characteristics is another important aspect. Store O2O business helps with sales growth. It can be used, but not abused! On one hand, many offline hypermarkets and supermarkets are joining O2O; with reasonable investment, O2O can bring sales, even considerable sales. On the other hand, companies should continuously improve the professional capabilities of their KA teams, calculate the input-output account clearly, and avoid the situation where more investment leads to greater losses. If you have related questions, you can scan the QR code to add our enterprise WeChat, note "KA" to join the group, and we can discuss, help each other, and improve together! __Author Bio: Cao Yang, expert in key account and modern trade management, has worked from frontline to headquarters in a world-renowned Fortune 500 company, holding positions such as Regional Manager, Key Account Manager, Group Key Account Director, and National Key Account Channel General Manager. He localizes world-class marketing experience and explores industry transformation paths.