---
title: "Bad Environment? The Bigger the Waves, the More Expensive the Fish!"
description: "Success is not about solving problems, but seizing opportunities. This article reviews historical marketing shifts in China and argues that during economic downturns, companies should upgrade products and move closer to consumers rather than cut prices."
author: "刘春雄"
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published: "2023-07-13"
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# Bad Environment? The Bigger the Waves, the More Expensive the Fish!

> Success is not about solving problems, but seizing opportunities. This article reviews historical marketing shifts in China and argues that during economic downturns, companies should upgrade products and move closer to consumers rather than cut prices.

**Introduction**: Success is not about solving problems, but seizing opportunities.

**Author** | Liu Chunxiong
**Proofreader** | Gou Gou
**Layout** | He Wen

Let's talk about the macro environment. Half-year data is coming out. The macro environment is not great. Data is cold, but rich in meaning, and interpretations are contrasting. The macro environment is what it is, but how we describe it matters, because the way we describe it implies a marketing orientation. Let's start with history, because history has patterns. Although some say the lesson of history is that no one ever learns from it.

**Historical Reflection**

After the reform and opening up, the first major marketing environment change was the 1997 Asian financial crisis. Facing sudden events, people react instinctively, without professionalism. "Even those with rigorous professional training do the same." I said this during my first team-building training, and the coach kept quoting it later. The design of such training is to give a sudden task, making professional judgment fail, thus entering a state of instinct. So, reflection after training is very enlightening.

The 1997 Asian financial crisis broke out, and China's economy went from a "shortage economy" to a "surplus economy" without warning. The term "surplus economy" is familiar now, but when it first came, no one could respond professionally. The instinctive reaction was to cut prices. The chain reaction of price cuts was: cutting prices leads to losses, so you reduce quality; then cut prices again, reduce quality again. This vicious cycle killed many companies. To be fair, they deserved it. Many companies successfully navigated the crisis, roughly taking two marketing measures:

**First, lower the market focus.** That is, eliminate provincial distributors and find city second-tier distributors to act as first-tier. When I went to the market in 1998, I saw provincial distributors cursing manufacturers for "burning bridges." The subsequent chain reaction was continuous lowering until a "small regional agency" pattern formed. The county-level small regional agency system started then. What was the result of lowering the market focus? Companies achieved at least 20% growth for three consecutive years. Isn't that more effective than price cuts? But many companies and people prefer price cuts because it's instinctive and requires no professional thought. However, salespeople (then called salesmen) had feelings and didn't want to change wholesalers. What to do? Fire the salespeople. If not, fire the vice president of sales. In short, you must make up your mind. Early adopters included Master Kong, Wahaha, and Xurisheng. After seeing the market, I suggested this to my boss, and he actually listened.

**Second, upgrade and raise prices.** Note, raise prices by upgrading products; it's hard to move old products. In 1998, I entered a company ranked second in its industry, and it was through product upgrades. But upgrading was hard then. In the summer of 1998, a major event happened: the Yangtze and Songhua rivers flooded. Manufacturers began donating, usually donating poor-selling, overstocked items. But we donated our best products for free consumption. Also, because of the flood, rail transport was disrupted, and the market was severely short. Whatever customers ordered, we shipped upgraded products. When the government bought products from distributors, we also gave upgraded products. At first, people thought the upgraded products were expensive and didn't dare buy. Then they tried them for free, found them delicious, and bought even at higher prices. Now I understand: that's user experience, more effective than advertising. Of course, what was high quality then is not high now. Later, price wars broke out, and the company had three tiers of products: low-end to fight price wars and kill competitors; mid-end for volume and profit; high-end for image. In the end, we killed the industry leader.

Now, the 2008 U.S. subprime crisis. Whenever there's a crisis, consumption shrinks. At that time, e-commerce was just rising, with dividends. Some companies transformed in time and seized the dividend. Actually, the bigger impact on FMCG was not 2008 but the "total volume ceiling" in 2013. In 2013, most FMCG companies reached peak sales volume, except for leisure snacks and bottled water. In 2014, we proposed the concept of "mainstream shift and upgrade." Strange, right? Sales declining, yet we push mainstream upgrades. What is mainstream upgrade? Later, I wrote an article "Change the Main Course." In 2016, many companies escaped the ceiling by changing the main course. I remember at the 2016 Spring Sugar Fair, I talked with Zhao Bo, founder of New Distribution, and he said "change the main course" was a good, vivid term. It's not changing side dishes or garnishes, but the big dish, the main course. 2013 to 2015 were the hardest, with no way out. Sales declined, products didn't upgrade, and there was no direction. That was the most confused time. Accustomed to sales growth, suddenly no growth, uncomfortable, always fantasizing that growth would return. After 2016, there was a way out. What was it? Sales volume declined, but sales revenue grew, and profits grew. This solidified the approach of product upgrades. In recent years, good companies have been upgrading products. 2016 was the year of Uni-President's "Tom Yam Noodles" explosion, a result of changing the main course.

Brand expert Li Qian recently wrote in an article "Li Qian: The Golden Age of Emerging High-end Brands" asking, "How did the upgrade that started in 2016 become a downgrade?" Good question! From the history of major environmental changes, I summarize three marketing laws:

**1. When the economic environment changes, instinct is wrong, the public is wrong, and the media is pessimistic.** Don't follow instinct, even professionals react instinctively.

**2. A bad environment is the best time to force change.** After all, who wants surgery when not sick? Who wants change when the road is smooth? The direction of marketing change is to get closer to users. For example, lowering focus, deep distribution, B2C e-commerce, and now bC integrated promotion. The pattern is getting closer to the C-end. Each major environmental change advances a step in channels.

**3. Product upgrade.** During economic booms, low-end products can pass off as good; during downturns, high-end products don't drown. Firmly believe in the good. China's development process won't be interrupted. In 1995, we proposed the idea of "off-season is not off": do marketing in the off-season, do sales in the peak season. When the environment is bad, upgrade; when it gets better, harvest. This involves another macro judgment: **Believe that China's national fortune continues, China is moving forward, and the future is bright.** Don't trust the many pessimistic views from self-proclaimed experts. Economist Galbraith said: "The eternal folly of mankind is to equate inexplicable worries with intellectual superiority." My experience from history is: when the environment is bad, short-term pandering, like price cuts, is like digging a deep pit; when the environment improves, you can't climb out and bury yourself. The worse the environment, the more you need to change and upgrade; when it improves, it's bright and smooth.

**Structured, Fragmented**

Having discussed history, let me talk about personal judgments on the macro environment. The way we describe the macro environment is important; it always has an orientation. Two words come to mind: **structured, fragmented.** These two changes bring discomfort to everyone.

**Fragmentation**

Let's start with fragmentation. Early on, there was only one channel, now called circulation. Around 2000, KA emerged, and it was uncomfortable then. In 1998, I went to Shanghai to see the market. The Shanghai office wasn't doing well; we kept asking them to improve wholesale, first check the wholesale market, and if not good, then go to KA. The Shanghai office said KA had become the mainstream channel, so I quickly studied KA. But at that time, due to price conflicts between KA and circulation, industry leaders didn't do KA. After e-commerce rose, there were three major channels: KA, circulation, and e-commerce. Now there are more. How many? Zhao Bo, founder of New Distribution, recently gave a speech with two charts that comprehensively explain channel fragmentation. Total volume is fixed, and it's diluted by so many new channels, making everyone uncomfortable. That's the discomfort I mean. It's not that you can't do it; it's just uncomfortable. Even in good times, it's still uncomfortable. Another manifestation of discomfort is that all new internet channels change rapidly, especially uncomfortable for big brands. Big brands need stable channels; even if they fall behind temporarily, they can use organizational strength and resources to attack and quickly regain. Too many new channels let entrepreneurs enjoy innovation dividends. That's also fragmentation. In the past, big brands could easily kill small players by blocking channels with resources. Now there are too many channels to block. So small players are back, and big brands are surrounded by them. In the beer industry, the top five acquired all small breweries. Then craft beer emerged, all small players, and big brands have no answer. With China's strong manufacturing, small players use OEM and mobile warfare, which big brands find hard to counter.

**Structured**

The other is structured. You can't make a single conclusion about the Chinese market, like downgrade or upgrade. In the past, China was at the low end, with a clear structure, and so was the mass market. At that time, experts worried about China's industrial structure. I said then that brand and structure issues weren't about not doing it, but the time wasn't right. Again, Galbraith's quote about equating inexplicable worries with intellectual superiority. Now, China's industrial structure has improved. Look at China's export structure. High-tech electromechanical products account for over half, while low-end daily goods seem to be only 17%. Of course, low-end affects more people. One billion T-shirts for one airplane—how many bosses and workers do one billion T-shirts affect? Good or bad? Both sides. High-tech companies usually don't speak in the media; they are silent.

**Another is consumption structure change: low-end stable, mass market volume down, high-end upgrading.** Low-end is rigid demand, so stable. Mass market volume down. This process started in 2013, not just now; it may be compounded now. The chart below illustrates this well.

Even if the market environment improves later, mass market volume will still decline. Why? Because past consumption levels were abnormal. I'm older; the desire for food from hungry times exploded when I had purchasing power, exceeding what the body can digest. Many people got sick from overeating in recent years. In college, a roommate's parents worked at a cold storage, and he ate apples daily. Although apples were 20 cents a catty then, I couldn't afford them. After working, I could afford them and ate a lot; my wife's family's fruit was all eaten by me. Until now, I don't want to eat even the best apples; I overdid it before. The consumption upgrade that started in 2016 is now gradually transitioning to high-end. This process isn't over; it's just beginning.

The high-end process in this chart was proposed by Hou Xiaohai, chairman of China Resources Beer, and I made it into a chart, which I fully endorse. Earlier, I mentioned fragmentation diluting total volume; structure also brings fragmentation and dilution. Years ago, bottled water was mostly 1 yuan; then 2 yuan rose, 3 yuan rose. Now, there are price points from 1 to 10 yuan, and total volume is diluted. **The result is that all price points shrink, causing discomfort.** Marketers miss the days of a single big product dominating, but that's gone. Big products will still exist, but never as big as before. Because total volume is diluted, everyone in every field feels a decline except in innovation. Why do I emphasize high-end? Among the three structures—low-end stable, mass market volume down, high-end upgrading—which is a trap, and which has marketing value? When the environment improves, who will still be there? Look at recent beverage new products; which is priced below Coca-Cola? Baijiu is the industry that started high-end earliest in China. Some companies have seen over 50% growth in recent years. This year, growth slowed slightly, and people say the baijiu industry has problems. Not true. Baijiu sales have fallen over 55% since 2016. In 1998, we used low-end losses and high-end high prices to kill competitors. Later, the opponent (also the industry leader) said, "We were fooled." The "fooled" weren't just one company but a group. Using low prices to respond to a bad environment was "fooled." China's product upgrade is just beginning; there's no large-scale downgrade. But short-term environment does interfere with the upgrade trend; we must admit that. No matter how strong the interference, it can't change the trend. Of course, interference changes the pace. China's consumption problem is low-desire consumption. Lu Xiuqiong from Bain (China) recently said in a public speech, "It's not consumption downgrade, but no consumption desire." I fully agree. Desire issues may involve income, but also where desire comes from. In the past, it came from physiological satisfaction; in the future, it may come from scenarios. For example, coffee: in the right scenario, you have the desire to drink. Physiological satisfaction is limited; desire satisfaction is unlimited, but desire is created. That's why I recently advocate replacing "consumer orientation" with "scenario orientation." Eating a main meal is physiological satisfaction; eating snacks is desire. We need to respond to the structured, fragmented macro environment in China, not simple labels of good or bad.

**"Substitution" in Macro Environment Judgment**

Finally, let's talk about the "substitution" in judging the macro environment. Of course, ignore self-media views; traffic business, views don't matter. A few days ago, I discussed this in the Old Miao group and was rebutted. It may have hurt the self-esteem of those making negative judgments. Facing a phenomenon: some say opportunity, some say problem. There's substitution. Substitution means "I" face the phenomenon and whether I have a way, substituting myself.

Here's a story. Once I went on vacation to Sanya, accompanied by two general managers. I called a former client's boss and said, "You have an office in Hainan; let me hold a meeting for them." The boss was eager and gathered the salespeople. I first asked them to talk about the situation; they all talked about problems and market difficulties. After they finished, I said, "I can't solve any problems. I'll ask three questions, and you answer." First question: What opportunities are in the market? The salespeople answered. Second question: How to seize these opportunities? They answered. Third question: Any more problems? They said no. After the meeting, one general manager slapped the table: "Now I know how to hold meetings." Facing market structure and fragmentation, the resulting volume dilution, and the discomfort, there are problems and opportunities. Futurist Naisbitt said: **Success is not about solving problems, but seizing opportunities.** If you can't find opportunities, you can attribute it to problems, and specifically macro environment problems. Macro environment problems have no solution. Because facing the macro environment, individuals are powerless, so for performance issues, just blame the environment. In 2008, I attended a pesticide industry meeting where some said the financial crisis made the environment bad and companies' days hard. I said, "Do pests have a financial crisis? Pesticides are rigid demand." A few days ago, I had dinner with an agricultural supplies boss who said the industry is stable and unaffected by the pandemic. Actually, many agricultural companies were affected; he wasn't, because he did well, so he concluded that. Those who did poorly will blame the pandemic. In the current macro environment, any conclusion can be justified, and any performance can be justified. The question is: when the environment improves, will you still be there?

(This article is based on a sharing on July 12 in the "bC Integrated Communication Group," with slight additions and deletions.)

Liu Chunxiong, advocate of new marketing, dean of the Marketing Digitalization Research Institute. Currently associate professor at Zhengzhou University, author of the new marketing trilogy: "New Marketing," "New Marketing 2.0: From Deep Distribution to Three-dimensional Connection," and "New Marketing 3.0: bC Integrated Digital Transformation."


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