At the start of the new year, waves of B2B e-commerce are surging, with e-commerce platforms burning cash on subsidies and giants eyeing the market. Traditional distributors and existing e-commerce operators are both excited and hesitant. As a veteran in the FMCG industry and one of the earliest practitioners of B2B e-commerce, I share my view based on my personal experience and the current state of B2B e-commerce: In B2B e-commerce, business logic is more important than capital and network technology.
The Concept and Meaning of Business Logic There are many interpretations of business logic. For ease of understanding, I define it here as the theories, viewpoints, and behavioral methods in business operations. Thus, the business logic of B2B e-commerce includes the following three layers: First layer: The ways B2B e-commerce creates commercial value and generates revenue, which is embodied in the business model (or profit model). Second layer: The paths, processes, and steps to implement the business model, i.e., the operations of B2B e-commerce, including how to acquire, retain, and activate users. Third layer: How to express the paths, processes, and steps of the second layer using mobile internet technology. That is, how to digitize traditional trading behaviors on the front end of B2B e-commerce, and how to digitize operational behaviors on the back end, i.e., the experience for internal employees and external users.
Currently, B2B e-commerce platform companies are roughly the same in the first layer of business logic (business model): they all use internet and big data technology to improve the efficiency of traditional distribution enterprises and reduce costs; increase profits by cutting out middlemen; earn advertising (traffic) revenue through information asymmetry; and use their big data for internet finance. These four items form the basis of their business models.
However, in the second and third layers of business logic, there are vast differences. In the future, the core competitive advantage in B2B e-commerce will not only be capital and technology, but more importantly, the design and implementation of the second and third layers of business logic.
Building Business Logic Matters More Than Capital "In the B2B e-commerce field, burning money is ineffective. You only realize this when you truly start a business in the B2B field." — Wang Dong, CEO of Zhaogang.com Zhaogang.com, which received 1 billion yuan in a single investment in the B2B e-commerce field, is one of the earliest B2B e-commerce platforms in China. Its founder, Wang Dong, gives us two pieces of information in this statement: First, burning money in B2B e-commerce is not viable; second, only those who have truly engaged in B2B e-commerce can understand this.
Take a certain domestic e-commerce platform as an example. After launching in April last year, to achieve rapid growth, it offered subsidies to terminal retailers for purchasing, giving a 100 yuan subsidy for the first download and registration of the procurement platform. The market grew rapidly until October, but once the invested funds were burned out, the platform quickly faded. It had to adjust its strategy this year and make a series of promises to distributors. It burned investors' money, disrupted market order, and failed to achieve its goals.
Some might say: "The problem is still insufficient capital. If you keep burning until competitors are dead, you can dominate. If Alibaba or JD.com did it, the outcome might be different..."
Now, Alibaba and JD.com have announced their entry into B2B e-commerce, turning speculation into reality. From Liu Qiangdong's speech at JD.com's annual meeting on January 16, it is clear that JD.com's B2B e-commerce aims to eliminate all middlemen, achieving a business model from manufacturers directly to retail terminals. Will JD.com succeed?
I believe that money is not omnipotent. In B2B e-commerce, business logic matters more than capital, even for JD.com. This conclusion is based on the following three points:
First, the ultra-large scale built by JD.com with large capital and burning subsidies cannot establish a low-cost advantage in the traditional FMCG industry; instead, it will quickly hit a scale "trap." The current problems in the traditional FMCG industry mainly focus on excessive distribution layers and redundant warehouse and delivery systems. JD.com, with large capital, can indeed quickly build large-scale warehousing and delivery systems through "centralized procurement, unified storage, and unified distribution" and "burning subsidies," but costs will not decrease proportionally with scale; they will quickly hit a bottleneck. The reasons are:
- FMCG products are characterized by speed and volume. When manufacturers deliver products in full truckloads to JD.com's warehouses at the most economical tonnage, the cost is the same as delivering to traditional distributor warehouses, and distributors can easily reach a delivery unit. Similarly, JD.com's delivery vehicles to each terminal have the same cost as distributors' delivery.
- Due to the timeliness of traditional FMCG procurement, requiring short transaction cycles and rapid delivery, if JD.com wants to eliminate middlemen and reach retail terminals directly, it must build a huge number of warehouses nationwide, making management costs incomparable. For example, JD.com employees are hired, working 8 hours a day with social insurance, while many distributors are entrepreneurial, working 16 hours a day without weekends. Just this one factor means one distributor employee is as efficient as three or more JD.com employees.
This sufficiently demonstrates: If traditional distributors use internet tools to build regional B2B e-commerce platforms, also adopting "centralized procurement," "unified storage," and "unified distribution," and implementing a "platform + entrepreneurial boss" operation model, they can achieve lower costs and higher efficiency than JD.com.
Second, JD.com's method of burning subsidies cannot achieve strategic victory; it can only achieve small victories in stages and regional markets. The commercial essence of terminal retailers is to earn profits, not to enjoy high-quality products. Therefore, to capture excess profits, terminal retailers will focus on two aspects:
- Maximize the "purchase-sale price difference" and constantly shift to platforms that offer the largest price difference. Because the biggest characteristic of terminal retailers is that they are "mobile" rather than "fixed," burning money cannot cultivate retailer loyalty; it only trains them in using e-commerce platforms, giving truly value-creating e-commerce platforms the opportunity and space to "take over."
- The second way for terminal outlets to earn profits is to maximize sales volume, i.e., under the premise of "selling more," they can also choose "small profits." Terminal retailers achieve sales volume either by selling the most products or by selling them the fastest. Therefore, the second characteristic of terminal retailers is "shared use."
Thus, if JD.com cannot burn money forever on all items, the final result is only temporary victory. Once the burning stops, competitors will revive, like grass growing again after a fire.
Third, the distribution pattern and industry characteristics formed over 30 years in the traditional FMCG industry cannot be quickly overturned. First, after 30 years of development, the traditional FMCG industry has formed a relatively stable regional and hierarchical distribution model among first-tier brands. In this model, most distributors rely on brand manufacturers, so manufacturers adopt a prepayment system with distributors. If JD.com does not change the existing payment method, how much capital will JD.com have to tie up? If it changes the payment method, how many manufacturers' cash flows will dry up? And how many first-tier brand manufacturers will sacrifice their interests to support JD.com?
Second, relevant data shows that only about 8% of commercial activities are currently e-commerce-based, while over 50% of C-end is e-commerce-based. This means that over 90% of traditional FMCG sales are completed through traditional distributors. In the B2B field, if JD.com starts burning subsidies upon launch, disrupting the existing distribution regional pattern and price system, it may invite a crackdown from first-tier brand manufacturers. Eventually, like some current B2B e-commerce platforms, it may degenerate into a "parallel import platform" or have no goods to sell.
Based on the analysis of the above three points, in terms of the second layer of B2B e-commerce business logic, logic is more important than capital. If you cannot design paths, processes, and steps that conform to business logic, even with large amounts of capital, you may not achieve final victory.
Building Business Logic Matters More Than Technology In internet companies, we often see scenes like this: "Every day we deny existing requirements and propose new ones. Requirements keep changing and are always uncertain. How can we, as technicians, do our work?" — Technicians complain "You think this feature is simple, but the logic is complex. This feature cannot be launched quickly!" — Product managers and operations managers argue "The logic is clear, but why can't it be implemented?" — Product managers question technical leads In e-commerce, the most common phenomenon is that operations managers wish they were product managers, and product managers wish they were technical engineers.
The above situations appear to be technical problems, but in essence, they may be business logic problems. In business logic construction, problems in business logic mainly manifest as:
First, failing to identify users' real needs and pain points, failing to find appropriate ways and timing to enter, and failing to systematically and comprehensively conceive business logic, causing constantly changing requirements and leaving technology at a loss. In 2015, there were two real cases around me. One was "Fresh某网," a cold fresh product company. The investor was a well-known enterprise in the seafood industry with annual revenue of several billion yuan. It invested in this mobile internet project, starting team building and program development in early 2015. The official website initially announced launch on October 1, then changed to December 1, and later postponed to January 1... It has been delayed repeatedly and has not launched to this day. Another is an automotive supplies company, invested by a Shanghai enterprise, which set up operations and development teams in Zhengzhou. However, nearly two years have passed, and the company's development team of dozens of people has upgraded the APP from 1.0 to 6.0, but it still has not officially launched.
These two cases are typical of unclear business logic construction, with requirements changing constantly and programs being upgraded repeatedly, but never meeting the boss's requirements.
Second, most current B2B e-commerce practitioners come from traditional FMCG or traditional C-end e-commerce. The former understand FMCG operational characteristics but do not understand e-commerce or internet thinking; the latter understand e-commerce logic and thinking but do not understand the traditional FMCG industry or B2B e-commerce business logic. Therefore, they cannot present it clearly, specifically, and orderly to technology. For example: The following is a promotional matrix for a traditional FMCG product. If B2B e-commerce wants to digitize terminal retailers' purchasing behavior and provide a good customer experience, it must "digitize offline promotional activities." How can this be done?
First, we need to analyze the types of traditional FMCG channel promotional activities:
- By initiator: A. Promotions initiated by manufacturers or suppliers; B. Promotions initiated by platform operators; C. Promotions initiated by manufacturers or suppliers through platform operators to retailers.
- By purpose: A. Expand customer base (first order reward); B. Increase repeat purchase rate (cumulative bonus); C. Increase sales; D. Absorb funds (one-time payment, phased delivery); E. Occupy warehouse space (one-time delivery, phased payment or credit); F. Obtain display resources (rewarded display).
- By validity period: A. Immediate use; B. Future use.
- By form: A. Buy and give (gift with product, gift without product, tiered gifts); B. Special price; C. Red envelope; D. Coupon; E. Voucher (conditional or unconditional)...
The total types of promotional activities for retailers = 3 × 6 × 2 × 8 = 288 types (these are only common promotional activities). After classification, we must also describe the process, steps, and tool tables for each type...
This case tells us: Without good business logic, the difficulties technicians encounter in program development can be astronomical. Therefore, for B2B e-commerce, it is essential to first understand business logic before starting technical development. In this sense, building business logic is more important than technology.
Wang Huanzhi, CEO of Huatang e-Shang (China Advertising Materials Procurement Network), COO of Piduoduo (China Small and Medium Supermarket Ordering Platform). "Piduoduo" recently received a ten-million-yuan angel investment, and "Huatang e-Shang" is currently the largest mobile e-commerce platform in the domestic advertising materials industry.
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