The 'Digital New Infrastructure · 2020 (3rd) China FMCG Conference' hosted by New Distribution was grandly held from August 24-26 at Shanghai Fuyue Hotel. The event attracted 3,000 industry professionals including distributors, manufacturers, and internet companies from across the country, with a full house and unprecedented scale. The following is the compiled and published speech from Mr. Ding Jiachuan, Managing Director and Global Partner of Boston Consulting Group (BCG), and Mr. Zhang Yibo, Partner at BCG and core member of BCG's Consumer Products and Alcohol Special Business Group. Thank you very much, New Distribution. Today, I will look at the overall consumption trends after the pandemic from BCG's perspective. At this critical juncture, I would like to discuss brand marketing and specific methodologies. First, I believe many of you have seen this situation. In the past, many Chinese company CEOs often led teams to Europe and the US to learn, including responding to new situations, learning new technologies, and new trends. In many cases, Chinese companies were somewhat behind. But this time, we found that in the face of the pandemic, whether at the consumer or enterprise level, China's response and feedback loop were faster than other countries. Part of the reason is that China's digital new infrastructure had already developed to a very good stage before the pandemic. Our O2O, online channels, etc., are much more advanced than Europe and the US. Second, Chinese companies' response to sudden situations, their reaction to consumers and new trends, often surpasses companies in many other countries. These two points will bring many changes. Today, let's briefly discuss, from a consulting perspective, how to use digitalization for product and brand marketing. The domestic pandemic can be divided into three stages. From late January to mid-February was the outbreak stage. This posed unprecedented challenges to the entire nation. At this time, many companies responded reasonably well. From mid-February to early April was the stabilization stage. We found that not only did consumer sentiment stabilize and people began to adapt to home life, but also a large number of consumer goods companies were brewing post-pandemic strategies during this period. Many experiences from this stage are now being replicated by European and American peers. The third stage is after early April. As the pandemic gradually eased, consumers came out, and many trends and behaviors have solidified, forming a new stable period of digitalization in China, while foreign companies and markets have mostly not reached this stage. Looking at trend changes, after discussions with senior executives of major consumer goods companies, we summarized 8 major trends. 1. We conducted extensive surveys covering all countries globally. Interestingly, compared to European and American countries, Chinese consumers are among the very few who are still willing to increase spending. This is very rare. 2. The importance of home scenarios has increased, and fresh produce has become a 'long-term winner' in categories. In almost every country, fresh produce was a 'long-term winner' during the pandemic. Its traffic and the entire online fresh produce chain have been completed, which is related to the development of digital new infrastructure. 3. The 'polarized' consumption trend is very obvious. Spending on necessities is upgrading, and top luxury goods are also growing. 4. Localization and community orientation are unquestionable. Consumers in lower-tier cities in China have embraced digitalization more deeply. 5. Online interaction replaces a series of offline activities. 6. O2O is developing rapidly. Our research found that forming a habit for Chinese consumers often requires 6 attempts. Taking O2O as an example, a housewife needs to start buying groceries via O2O; 6 attempts can basically solidify the habit. Think about it: during the pandemic, many housewives or non-housewives bought groceries via O2O more than 6 times. 7. Cost-effectiveness and promotions are becoming increasingly important. 8. The positioning of offline stores for many retail institutions is very important. This chart is very interesting. Different colors represent different countries. We selected several major countries, including Europe, the US, and China. You can see one section is reducing consumption, another is increasing consumption. Each point includes a category. China's consumption expenditure far exceeds that of other countries. This is good news for the FMCG industry, and behind this is digital new infrastructure and consumer new infrastructure. We conducted surveys after the stabilization period, revealing many new home-based needs and changing consumption scenarios. Many past restaurant consumption has now moved online, making channel construction crucial. Although everyone is in consumer goods, different categories have different situations. Through research, we look at the top 10 categories for consumption upgrading and the top 10 for consumption downgrading. It is noteworthy that some categories are both in the top 10 for upgrading and downgrading, such as cosmetics, skincare, and perfume. In these categories, consumer polarization is already severe. Therefore, in May, many foreign luxury brands did one thing: they brought European and American inventory to China. Many first-tier luxury brands saw astonishing growth after the pandemic. From the perspective of retail and consumer purchasing, we have always distinguished consumers by purchase mission. It can be seen that after the pandemic, the demand for stockpiling and quick purchases has increased. Entertainment, special needs, and trying new things are gradually decreasing, as consumers cannot keep stockpiling. The following numbers are, in my personal opinion, very interesting and real. Everyone knows that a retailer's total sales is average transaction value multiplied by traffic. This is easy to understand, but interestingly, the average transaction value rose significantly after the pandemic as stockpiling increased. After the pandemic stabilized, the average transaction value decreased, and consumers returned to normal. Additionally, traffic dropped significantly after the pandemic, but at that stage, the average transaction value was much higher, so many retailers benefited, at least in terms of sales growth. In contrast, now that we are in a stable period, you can ask any retailer CEO or chairman: the average transaction value has stabilized, but traffic has never returned to pre-pandemic levels. Traffic is 20% to 30% lower than before, with no signs of recovery. This means many retailers' sales will be 15% lower than in the past. This series of phenomena indicates that many consumption behaviors after the pandemic are long-term solidified behaviors, perhaps not as stable as during the pandemic, but indeed long-term solidified. China's e-commerce sales hit a very fast acceleration button during the pandemic. Looking at the accelerated penetration of e-commerce in the first quarter of this year, it changed all at once. This chart is not surprising to us, but for many European and American FMCG executives, it is incredible because they lack digital infrastructure. What is even more interesting is that when many foreign CEOs and chairmen are thinking about how to do e-commerce, China's consumer goods industry has already far surpassed the concept of e-commerce in digitalization and e-commerce. This is reflected in specific GMV numbers in consumer marketing. Now, not only is traditional e-commerce developing rapidly, but O2O, social communities, short video live streaming, and other models almost unseen in Europe and the US are also advancing rapidly. This special market and community population are very Chinese. Currently, digitalization has entered every consumer life scenario, which is an unstoppable trend. China's development in these areas has reached a level that European and American industry leaders find unattainable. Almost every channel's user base exceeds the total population of many countries, and the environment changes very quickly. In this process, consumer purchasing behavior is no longer the past pattern of offline awareness, generating demand, and then purchasing. Now, consumer mindset and purchasing behavior are often integrated, which has a greater impact during the pandemic. Finally, regarding digital infrastructure, I will introduce a brand marketing method we developed with Tmall, which we have also shared with many leading consumer goods companies. China's digital brand marketing is continuously advancing, and now China's marketing and sales have merged. In the past, in the business field, we always thought brand was an art, sales could be quantified, but brand could never be quantified. However, we are proud that China, because of its overall digital ecosystem, has given us tools to quantify brand equity. Subsequently, BCG Partner and digital marketing expert Zhang Yibo introduced this tool. Currently, most FMCG companies encounter several key pain points in marketing: First, it is difficult to balance brand and performance. We often talk about brand-performance integration, which actually leans towards customer acquisition and conversion rates. How to measure and track brand equity is a core issue. Second, how to quickly obtain market feedback. Measuring brand equity typically relies on equipment and offline surveys. How to understand changes in brand equity in real time, know the effect of digital marketing actions on brand equity, and then adjust strategies is a major challenge. Third, it is difficult to measure the ROI of consumer impact. Generally, a brand CEO or CMO finds it hard to say how much output a particular investment can bring. E-commerce traffic is measurable, but quantifying the impact on consumer mindset is very difficult. Fourth, departments find it hard to collaborate. Everyone knows that in marketing or e-commerce, each department's interests and key indicators are different. How to integrate these related KPIs is another pain point. Today, I will introduce a model developed jointly with Tmall that uses digital means to truly quantify brand equity. The overall logic is: A brand's equity can be summarized as the relationship and interaction between all people and the brand. This brand equity is the product of three factors: first, the population; second, the relationship between people and the brand; third, the value of people. Brand population is easy to understand. Consumer value refers to the consumption potential and situation within the brand, and the total consumer category. The second key factor is the relationship and interaction with the brand, which has three levels: Discovery, Exploration, and Love. Discovery is effective reach; Exploration includes consumers' add-to-cart, interaction, comments, and likes; Love includes becoming a brand fan, proactive sharing, proactive searching, and proactive reviews. Finally, there is brand-performance integration, comparing brand equity with overall conversion rates to know how to realize brand equity. We can analyze at three levels: First, total brand equity. This can quantitatively assess brand equity (online). Second, look at structure. The three circles show the overall structure of the brand, whether it is the core consumers or the outermost consumers who are aware of you, and compare such structures. Third, look at the realization of brand equity. These three dimensions are all crucial. We can see that many brands have different emphases in these three aspects. Some brands expand from the inside out, conducting high-profile brand expansion. Brands that focus on deep cultivation often pay more attention to the brand's core and the development and interaction with key consumers. This tool not only allows comparison of total brand assets but also analysis across different dimensions: It can be compared with competitors to know the brand's position in the industry. It can also delve into specific populations to understand brand equity in high-tier vs. low-tier cities, or among small-town youth vs. urban white-collar workers, as well as gender, age, etc., giving a clear positioning of one's brand equity. It can also measure marketing effectiveness, understanding how much a major promotion, event, or live stream has improved brand equity. This tool has good applications in many industries. It is also a good tool for quantifying brands and enhancing brand value after the pandemic. Click the image to jump to view the full report.