---
title: "Consumers Are the Starting Point and Endpoint of Digital Transformation for FMCG Companies"
description: "Digital transformation is a hot topic among executives at major FMCG companies, with many making it a key project for 2021. The three unavoidable questions are: where to start, where to end, and how to measure success. Consumer behavior is the starting point, consumer value is the endpoint, and the total cost to consumers is the ultimate measure of success."
author: "吴建荣"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2021-05-06"
language: "en"
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# Consumers Are the Starting Point and Endpoint of Digital Transformation for FMCG Companies

> Digital transformation is a hot topic among executives at major FMCG companies, with many making it a key project for 2021. The three unavoidable questions are: where to start, where to end, and how to measure success. Consumer behavior is the starting point, consumer value is the endpoint, and the total cost to consumers is the ultimate measure of success.

Digital transformation is a hot topic among executives at major FMCG companies, with many making it a key project for 2021. As a project, the three unavoidable questions are: where does digital transformation start? Where is the endpoint? And how do we measure its effectiveness?
**1. Consumer behavior is the starting point of digital transformation.**
Especially in China, the real driver of digital transformation is the evolution of consumer digital behavior. After nearly a decade of booming e-commerce, online sales now account for over 30% of FMCG sales, and WeChat has become the primary communication tool between consumers and between consumers and merchants.
**Consumers' information acquisition, purchase decisions, and purchasing behavior have been digitized, gradually forcing retailers and brand suppliers to digitize their operations.** Therefore, the starting point of digital transformation is understanding the digital behavior and preferences of your target consumer group, ensuring that products and services after transformation can seamlessly connect with their digital behavior.
**2. Consumer value is also the endpoint of digital transformation.**
As management guru Peter Drucker said, **"The purpose of a business is to create customers."** Providing suitable products to meet more customer needs is the sole driver of continuous growth. Whether FMCG companies sell directly or through agents, distributors, or stores, they ultimately serve the vast consumer base using their products.
If we understand basic economics, we know that the final price consumers pay is: **Total Consumer Cost = Product Cost + Delivery Cost + Company Profit.** Product cost is determined by raw materials and manufacturing processes, leaving little room for compression.
Delivery cost includes marketing expenses, logistics, distributor and retailer costs, and even promotional and discount costs. This involves more links and offers greater room for improvement, making it the main battlefield for digital transformation.
**3. The significance of digital transformation.**
Through digital transformation, FMCG companies can continuously reduce product delivery costs, optimize profits while keeping total consumer costs relatively stable, and gradually enhance brand competitiveness.
A great example is Coca-Cola: despite rising labor and material costs over the past decade, a 330ml can of Coke still retails at roughly the same price today as it did ten years ago.
Therefore, we believe the purpose of digital transformation for any company, especially FMCG, is: **to continuously reduce total product delivery costs through digital processes and IT tools, enhancing consumer value and corporate profitability.**
From another perspective, this also answers the third question: **Total consumer cost is the highest standard for measuring the success of digital transformation.**
**-01-**
**Why can digital transformation (digital operations) reduce product delivery costs?**
After discussing the starting point and endpoint, the next step is understanding how to drive digital transformation in FMCG companies, especially how to reduce delivery costs through sales digitalization.
Answering this requires studying China's FMCG distribution model: **China is the most complex and fastest-growing FMCG distribution market globally.**
China has not only vast direct-operated supermarket retail channels and the world's fastest-growing e-commerce and new e-commerce models, but also over 6 million traditional retail stores covered through wholesale markets and agents.
Regardless of the distribution type, there is room to reduce delivery costs and enhance consumer value. Taking traditional channels as an example, major delivery cost wastes include:
**1. Store coverage costs:**
Inefficient sales rep visit routes, duplicate coverage, and missed coverage increase operating costs for brands or distributors.
**2. Ineffective or inefficient execution costs:**
In FMCG marketing, there is significant waste from unscientific decision-making and poor execution.
**3. Information communication costs:**
The more complex the system, the higher the communication costs. Some salespeople spend 2-3 hours daily filling out reports and submitting inspection materials just to meet internal control requirements.
**4. Return and exchange costs:**
In food and other FMCG sectors, returns and exchanges for expired, near-expiry, or damaged products average 15-20% in some regions.
**-02-**
**The key to digital transformation is building an F2B2b2C management closed loop**
There is a misconception in digital transformation: trying to move all business processes onto phones and computers, calling it business online-ization. Online-ization is a means, not an end. Blind online-ization brings two challenges:
**1. Increased digital costs.**
Not all processes are suitable for online execution, such as face-to-face coaching and partner communication.
**2. Resistance at the execution level.**
Overemphasizing online-ization adds unnecessary repetitive work for frontline staff, leading to passive resistance. Another situation is with external partners of brands; they often collaborate with multiple brands, and many brand-led online projects do not bring actual operational improvements, just added repetitive work.
In management, there is an effective and simple tool called the PDCA cycle: Plan, Do, Check, Adjust. PDCA can be applied at all management levels, including guiding digital transformation practices.
PDCA has a basic prerequisite: obtaining timely and accurate data to support planning, checking results, and judging adjustments. Traditional sales management faces challenges because data collection relies heavily on individual quality and capability; a few inefficient or even fraudulent executions can undermine data credibility.
The F2B2b2C management closed loop builds a complete digital management chain from Factory (brand) to Business (distributor) to business (store) to Consumer:
Brands can see each distributor's inventory and forecast weekly purchases; distributors can track store distribution and stockouts in real time; stores connect digitally with consumers, enabling online ordering and payment. From the brand's perspective, they can also run private domain operations to better understand consumer preferences and needs.
Through this FBbC digital collaboration chain, every participant in product circulation is both a data provider and user. **Product circulation evolves from a traditional pyramid of strong control to a network model of empowerment and collaboration.**
Of course, in modern retail or e-commerce channels, the basic collaboration model is similar, though some intermediate steps can be omitted.
The biggest benefit of a digital collaboration system built on the F2B2b2C closed loop is that all participants benefit, improving the entire value chain's collaboration efficiency. In FMCG, there are four key business closed loops: terminal coverage, order process, activity execution, and consumer connection.
Companies can decide which closed loop to build first based on their operations, then gradually expand.
**-03-**
**Sales digital closed-loop tools**
Retail execution systems, distributor collaboration systems, store ordering systems, sales guide management systems, etc. With these tools, brands can quickly build an FBbC management closed loop, achieving visible key data, credible business metrics, and manageable operational results in sales management digitalization.
Big data and AI-enabled tools help brands achieve closed-loop management of key business processes:
Using a terminal store database covering prefecture-level cities nationwide, including supermarkets, hypermarkets, wholesale markets, department stores, grocery stores, pharmacies, schools, sports venues, and beauty salons, brands can assess current store coverage, adjust distributor density, and identify uncovered stores in time. Combined with the brand's sales system, it can push lists of uncovered stores based on set conditions.
The fullness and aesthetics of product displays directly affect consumer purchase intent, so every major FMCG brand sets display standards. A key task for brand sales reps visiting stores is display inspection and improvement.
With image recognition tools, reps can simply take a photo in front of the shelf to quickly diagnose display improvement opportunities and suggestions.
Consumer insight tools help chain stores or brands improve private domain e-commerce operations. Using natural language processing (NLP), they intelligently analyze activity levels, effective topics, consumer preferences, complaints, or common issues in each private WeChat group, and can also output consumer tags to enrich the brand's CRM or CDP database. This is especially useful for categories highly related to e-commerce and private domain operations.
Digital transformation is an endless journey of exploration. We look forward to advancing more digital transformation practices with industry partners and brand friends to elevate the digital operations level of China's FMCG industry.
Wu Jianrong, Chief Growth Officer and President of China at eBest Mobile (Shanghai Yiying Information Technology Co., Ltd.). He previously served as digital marketing head at P&G China and Health and Happiness Group, with 20 years of experience in FMCG digital transformation management, and unique insights and rich practical experience in sales channel management digitalization, precision marketing, and blockchain business applications.
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