Click the image for details At the '2016 New Netrepreneur Summit' hosted by Tianxia Netrepreneur and supported by Alibaba, Jing Jie, Alibaba Group Vice President and Head of Tmall FMCG Business Unit, delivered a speech titled 'New Retail, New FMCG'. Jing Jie stated that the real challenge is not the FMCG industry itself but the inertial operational methods formed over decades of rapid growth, and the future FMCG ecosystem needs restructuring. Speech content is as follows: Dear friends, hello! Just now the host introduced that after Tmall's new structural upgrade, I am in charge of the Tmall FMCG Business Unit. Today I want to report to you: for FMCG, as all practitioners or players in this industry, how will Alibaba work with all partners in 2017 to create a new era of new retail? Change in Operational Logic: How to Acquire and Retain Consumers Since we are talking about FMCG, let's look at the current state of the industry. Three numbers can serve as reference: 10%, 6%, 1%. These numbers are actually released by third-party research firm Nielsen: in 2015, the national FMCG market growth rate was 10%; in 2016, up to Q3, the national FMCG growth rate was 6%; but in the same statistical period, offline FMCG growth was only 1%. After seeing these three numbers, I believe many people will intuitively ask: is FMCG an industry full of hope, or one facing the challenge of winter? At this time, I hope everyone can imagine with me. For FMCG, is the real challenge the industry itself, or is it the inertial operational methods formed over decades of rapid growth? From the earlier sharing by Xiaoyaozi (Daniel Zhang) and the continuous communication and exchange with partners over the past year, we can confidently tell you that perhaps no industry resonates more strongly than FMCG. So-called FMCG: 'consumer goods'—who consumes them? Consumers. In fact, in all successful FMCG companies, there is a consensus: consumers are God, consumers are our bread and butter. Because the entire business model of FMCG is to enable consumers to continue purchasing after the first use, and to allow them to buy in their preferred manner and environment, forming a continuous cycle. In short, any FMCG enterprise has to do two things: how to acquire users and how to retain users. Acquiring users naturally requires marketing, whether through market or channel layout. At the same time, such layout allows the enterprise to maintain profitable growth while acquiring new users. And retaining users relies on what? It relies on continuous insight into consumers, ensuring that consumers can buy the product, and that the product itself keeps pace with the times, maintaining product innovation at the forefront of market and trends. These two things, before the arrival of the new retail era, were concepts that could be understood but not implemented. Today I want to share with you that under new retail, we believe the entire FMCG industry can work together to change: turning these two things—acquiring consumers and retaining consumers—into a sustainable operational model, making it the new operational logic and specific execution means for the entire industry. We have given it a name: 'Alibaba Consumer Operations Model'. Consumer Operations Model: Building Relationships with Consumers through Transactions Why does Alibaba have the confidence to support everyone in reshaping FMCG operations? The reason is simple: over the past many years, Alibaba has continuously laid out a complete ecosystem around the relationship between brands and consumers, with this core logic. This ecosystem is the scenario where consumers interact with brands and products and complete transactions. This scenario continues to expand, from the well-known Taobao and Tmall, to Tmall Global, Retail Link, Rural Taobao, and even overseas. Because only through real transactions can a true brand-consumer relationship be established. But this ecosystem does not stop there. On the periphery of this ecosystem is a broader ecosystem that can reach over 630 million consumers, or online consumers. This ecosystem encompasses Chinese consumers' life scenarios, whether consumption, entertainment, purchase, payment, etc. This means that any brand company can find consumers through this ecosystem and establish a relationship with them. Please think carefully: under such a commercial infrastructure, what is the fundamental difference from the infrastructure that the FMCG industry established in China in the past? The fundamental difference is that today there is no physical obstacle preventing an enterprise from finding its target audience among hundreds of millions of consumers, delivering goods to consumers, and collecting payment, completing such a business relationship while also accumulating consumers. Without this obstacle, all previous assumptions that limited any consumer goods company in thinking about how to do business in China no longer exist. Restructuring the Core of FMCG Enterprises Under this framework and ecosystem, how do we restructure the three most critical and core components for all FMCG enterprises: brand building, channel management, and product innovation. Since we are talking about restructuring, we must start from the most fundamental place: the brand. For a branded product, the core operational logic is to find people. For a long time, everyone knows that the FMCG industry may be the world's largest advertising and marketing budget industry. But historically, in this industry with the largest scale of advertising and brand promotion investment, the entire media system and the sales or retail system were completely separated. Everyone has heard the classic saying: 'I know I waste 50% of my marketing budget, but I can't cut it because I don't know which half.' Why? Because you don't know whether your advertising actually influenced the next step of consumer behavior. In the traditional world, media belongs to media, sales belongs to sales. Even within a company, when would the media department talk to the sales department? Possibly when a crisis occurs, when market share declines, the sales head will definitely tell the boss: 'Why has our advertising been cut so much? It's causing our products not to sell.' But in fact, the middle link in the diagram is a link formed by Alibaba through continuous integration based on the entire data ecosystem. This link connects all account systems, helping brand owners for the first time in history know who saw the ad and who came to a consumption scenario a few hours later or the next day. This time and space are truly connected. The second key point is marketing. Many companies have large budgets when making annual plans. The boss will ask: 'Why do you need the same budget to do the same thing next year?' The reason is simple: for most FMCG enterprises, marketing cannot be precipitated into a relationship that can be operated and managed. It should be said that all FMCG marketers know concepts like customer lifetime value and CRM. But ask friends around you: how many FMCG enterprises can truly operate such a system? Because at every step, from a passerby to interested, to purchase, to repeat purchase, everything is unmeasurable and untrackable. But under Alibaba's new ecosystem and new retail environment, it can for the first time become trackable, insightful, and precipitable. Changes in the New Retail Environment: Zero Time Lag, Zero Distance With such a brand-building logic supported by the consumer operations model, what is different from traditional marketing models? First is zero time lag. The so-called zero time lag means that traditionally, after launching a new product or starting a brand campaign, companies would think that after consumers see the ad, they might go to offline stores two weeks later to complete the first interaction with consumers. You must continuously influence consumers to hope that when they go to the store, they see your product stand out among competitors and complete the transaction. In the new retail environment, there is no longer a real time lag between consumer interest, subconscious purchase decision, and even completing the purchase. I believe many people have experienced this in 2016. More importantly, Xiaoyaozi just mentioned Youku. In 2016, Youku made a major change due to the new retail trend: it can work with ecosystem companies like Alimama to ensure that after consumers watch an ad, they enter Alibaba's retail matrix and platform, and receive targeted communications and promotional information. What does this mean? It means that brand owners can for the first time actively manage the entire marketing timeline, rather than passively waiting for consumers to watch ads, go to offline stores to buy, and form habits. More importantly, with the use of many new technologies, including this year's Double 11, the Tmall Double 11 Gala has become the most influential and watched variety show. Under such a powerful IP, brands that use it well can, on the same night, get 13 million consumers to watch their ads, interact through the Tmall and Taobao mobile apps, and be led to their flagship stores, thereby acquiring fans and new customers. This is completely unimaginable in traditional FMCG marketing. And in 2016, all this has happened, and hundreds of FMCG enterprises have taken the lead in trying it from their own perspectives. Second is zero distance. When we talked about whether the FMCG industry is facing a cold winter, there are two angles to consider: one is whether existing products can truly reach all consumers who might accept the brand, whether through communication, dissemination, or the channels we will discuss later. But another key question is consumption upgrade. I don't need to explain it; everyone here can feel it. It is a double-edged sword: on one hand, everyone feels the direct operational pressure facing the industry; on the other hand, the rise of China's middle-class consumer class, and how many products in the global FMCG industry have not yet met consumers—these are all information for the FMCG industry. But why have many upgraded consumer products failed to achieve large-scale sales in previous attempts by enterprises? A very important reason is that the experiential communication and support required by such products cannot be achieved in the traditional e-commerce environment, and offline, enterprises cannot penetrate every corner of China's vast territory to communicate with consumers. Look behind us: the first is BA Online. The so-called BA Online—many friends here, especially female friends, must have received services from beauty consultants at counters in offline department stores. The moment a beauty consultant starts a conversation with you, the possibility of you making a purchase exceeds 50%. But online, people can only see images and text, all flat concepts. But today, whether a consumer is in Turpan, Xinjiang, or Mohe, they can access these counter brands, these truly high-value products that may be complex to use or require more patient and vivid explanations. Consumers will not refuse products they can afford and desire due to lack of experience and service. At the same time, in the middle part, even without the help of such live beauty consultants, if a consumer can try a small product, the possibility of her purchasing and continuing to buy the brand increases dramatically. And current technology can allow consumers, even in the mobile internet environment, to complete product trials that normally require going to stores, department stores, and supermarkets. The last part is that consumers can participate in interactions in new ways in a virtual environment. For example, during Double 11, if you experienced Alibaba's VR shopping app, you can put on a headset and go to leading global retail stores, and you can interact with specific brands, such as different consumer brands under P&G, thus having a brand-new shopping experience. Ready to Add a Zero to Your User Count? In the past year, some enterprises have begun to fully embrace Alibaba's consumer operations model, and most importantly, all this is reflected in this curve. On Alibaba's retail matrix, i.e., Tmall, Taobao, and other retail platforms, there are already over 450 million active purchasing users shopping every month. We often ask FMCG partners a question: how many people do you want? Can you add a zero to your user count? This sounds exaggerated, but in fact, brands like Mengniu completed the challenge of adding a zero during this year's Double 11. Throughout Double 11, Mengniu's flagship store achieved a perfect exclamation mark with 10 times the transaction volume. This also reminds all friends in the FMCG industry: if you take 450 million as a base, how many consumers belong to you? Are you ready to add a zero to your target audience or user count? Brand building is the core task of all FMCG enterprises, because you need to create demand and create consumer desire for the brand. Once desire exists, where do transactions happen? Do you have to make consumers go to a specific place to transact? Traditionally, people would think either online or offline. But today, we hope everyone rethinks what the concept of channel really is. For consumers, a channel is a scenario where they can buy a specific brand product in the least forced way, in their preferred manner. It could be a convenience store for a small-size product for breakfast, or an offline hypermarket for the family's weekly consumption, or stocking up on Tmall flagship store for their favorite brand. How can these different shopping scenarios be effectively covered? That's the first step. As shown in the figure above, the entire channel continues to expand. Based on Alibaba's mobile internet ecosystem, the channels covered have expanded from the initial Taobao and Tmall to Tmall Global, as well as enterprise procurement and Rural Taobao, which may be less familiar. Everyone knows that 600 million people live there, and another 200 million work in cities. Ten years ago, the entire FMCG industry was already considering how to unleash rural consumption power, but it never succeeded. Why? This is the second issue we are talking about. Besides covering consumption scenarios, can the value chain behind it allow consumers to buy the same quality products at the same price anytime, anywhere? In the mobile internet era, under the new retail environment advocated by Alibaba, this has been achieved for the first time. Whether it's through Retail Link at a street-side shop or through Rural Taobao partners helping local consumers complete purchases, the logic behind it is supported by internet-based, big-data-driven value chain restructuring. In addition to allowing goods to flow to these consumption scenarios, another key point is that in 2017, Alibaba will provide a simpler and more transparent way to help brand owners enter a unified Alibaba supply center. With Cainiao's nationwide logistics system, all front-end channels can be controlled by the brand owner. What does this mean? It means that within a province or city, existing logistics facilities and inventory can be configured more efficiently than ever before, whether 2B to different stores and front-end channels, or 2C directly to nearby consumers, rather than packages flying everywhere. All this means that the traditional channel logic of gradually sinking levels in the FMCG industry needs to be reconstructed here. But in this process, different participants will find their new value positioning, because ultimately, this change is consumer-driven. All participants should have a common goal: how to help the brand products we operate find more consumers and let them complete purchases at truly consistent and reasonable prices, no matter where they are in China. For such comprehensive channel restructuring and optimization practices, many enterprises, especially leading FMCG companies, have begun to try, and Mondelez is one of them. This is not about cramming a batch of goods into every channel. On the contrary, companies need deeper insights into consumer behavior and needs in the scenarios supported by different channels, and only then design reasonable product and marketing plans around those consumer needs. More importantly, the most important value the internet brings to channel management is transparency. When the entire chain becomes transparent and all links are digitized and operable, it means everyone can respond to specific consumer behaviors more timely and quickly, rather than being fragmented layer by layer. Under the new background, any consumption, whether in a small shop, rural area, online, or hypermarket, can be grasped by brand owners in time, allowing the entire supply chain to be optimized and managed more efficiently. How to Make Products Truly Competitive? After discussing brand building and channel restructuring, the last topic may be the most important. Why? Because with excellent marketing and channel layout, brand owners can basically make products reach consumers anytime, anywhere, and make ads, communications, and interactions reach target audiences. But are the products they consume truly up-to-date and competitive, allowing brand owners to achieve profitable growth? Product innovation is easier said than done. In China and globally, over the past few years, anyone in the FMCG industry knows that launching any new product may mean gambling, huge production line investment, national distribution investment, manpower consumption, and potential impact on existing product lines. Every time a new product launches, CEOs and CFOs may sit there hesitating. This is true for global companies and local companies. Let's talk about global companies first. Everyone knows that globally, a large number of new products have not entered China. Why have many brands slowed down the introduction of global brands over the past decade? The reason is simple: the risk of launching products in China is too high. But in fact, we find that the emergence of the Tmall Global platform has unprecedentedly allowed brand owners to use this platform, through their official flagship stores, to let a large number of new brands and products that have never met Chinese consumers test the waters openly. After such testing, with real consumption results and data analysis behind them, brand owners can calmly decide whether to formally introduce such products to China, whether through entering stores or building local factories. This was almost impossible before. Traditionally, introducing a new brand to China required meeting various professional regulatory requirements, supply chain transformations, and all preparatory work. Compared to the possibilities a brand owner has today, it is completely different. What about local companies? Actually, it's about the process of creating a product from scratch and the time required. Everyone knows that in the process of launching a new product, what takes the most time? It's the continuous testing of new product concepts and prototypes, collecting consumer feedback, analyzing, and deciding. Such research often takes the lion's share of time. That's why many brand owners need 12, 18, or even 24 months to prepare a new product launch. But everyone knows that today's consumer needs change rapidly. Launching may fail, but not launching will definitely fail. All the brand owners in this figure are FMCG companies and brands that have fully cooperated with Alibaba's research team over the past year. Their product development and market research departments, together with Alibaba's research team, have compressed the traditional 12-18 month process to as short as 3 months. This Yili milk product, from consumer insight, concept formation and confirmation, to final official launch, is closely related to the Alibaba ecosystem. Because here, you can gain insights into target audience consumption and trends, quickly confirm concepts and packaging with potential consumers, and use the nationwide consumer data formed after launching on a first-launch platform like Tmall to determine what demographics and regions are the right configuration and arrangement for future national launch plans. All this achieves an important goal: besides speed, it manages the risk of future national launches. Only then can the innovation vitality of all FMCG companies be unleashed. In the figure above, you can see that in 2016, Oreo did something I think is very impressive. It seems like just a marketing activity, but in fact, the entire process is an order formation process and a product design and finalization process. As a consumer, entering Oreo's flagship store, you can customize the product you want. Millions of people can complete this process simultaneously. This is what all FMCG manufacturers have dreamed of but never achieved. Today, it has been realized on Tmall. More importantly, the moment the order is generated, it connects to the supply chain of Oreo under Mondelez. The Mondelez management team produces and manufactures the product based on this order. After production, it is delivered to consumers through the logistics supply chain we just saw. The entire process actually shows consumers how FMCG can be created, designed, and finalized in the future. Today, maybe only the packaging is customized. Next, Mondelez has plans to customize the content inside; the avatar on the biscuit could be the consumer's own. Further, consumers' requirements and expectations for recipes can be reflected in the entire flexible supply chain process. This is a deeper connection for the FMCG industry. After Oreo completed this pioneering move, many brands have followed. The three friends next to it are three brands that have done quite well recently, including Oral-B in oral care, Lay's, and Vichy in beauty. Product innovation, besides increasing speed, reducing risk, and being consumer-driven—all these together—I hope everyone thinks about how the entire product portfolio in the FMCG industry can grow exponentially in the future. This is the truly most valuable and profitable growth source for the FMCG industry. This is completely contrary to what we saw earlier, which I call the illusion of numbers. The so-called illusion of numbers is last year's 10% growth, this year's 6% growth, and offline 1% growth. With such product innovation, accelerating supply-side reform, especially the supply of consumer-favorite products, means the capacity and possibilities of the FMCG industry may be something we couldn't imagine or achieve in the past decade. How Should FMCG Enterprises Embrace Internet Changes? The last part: when we talk about business, all the restructuring—brand building, channel management, product innovation—ultimately depends on people. For FMCG enterprise management, in terms of organizational structure, processes, and capabilities, many enterprises have already had clear directions and concrete actions in 2016. Mengniu made a major organizational adjustment in 2017. What you see is an upgraded e-commerce department at the group level to promote the enterprise's commercial internetization. It is no longer a simple consumption function or a single-channel function, but fully consumer-centric, organizing brand building, channel management, and product innovation based on big data. There are many enterprises like Mengniu that made choices and took actions in 2016, and we know that in 2017, more FMCG enterprises will embrace such changes, because ultimately, it is people who make things happen, not just the way things are done. Finally, let's return to what I said at the beginning: based on Alibaba's previous ecosystem layout, we have confidence and a clear positioning. We can use Alibaba's big data, uni ID, and the consumer operations model to help all brand owners and their partners restructure brand building, channel management, and product innovation. When we work together to restructure these core functions and processes of FMCG enterprises, we can unleash their potential innovation and execution. This will bring unprecedented growth, unprecedented supply, and unprecedented opportunities to the FMCG industry. For everyone in this industry, whether a brand owner or a distributor, retailer, or service provider serving the brand, this is the true new FMCG under new retail. 2017 is just around the corner. We look forward to all partners joining us to truly embrace the new opportunities that new retail brings to the FMCG industry. In 2017, let's set sail together and create a brighter new future for everyone in the FMCG industry. Thank you all. Source: Tianxia Netrepreneur, edited by New Distribution -END-