Source: Teacher Liu's Digital Marketing Author: Liu Chunxiong

In 2020, the pandemic forced a digital transformation. As a result, companies raced ahead in digitalization, accelerating the overall pace by six years. 2021 was a year of seeking direction for transformation, confirming F2B2b2C as the new main battlefield. 2022 will be the year when channel digitalization operations become standardized. Standardization is a prerequisite for large-scale promotion. Starting with this article, a series of over ten articles will propose a channel digitalization operating system: first, the design of a digital operations system, proposing a "Six Doubles" system design; second, a "Five-Step Method" for standardizing frontline digital operations. This series is dictated by Liu Chunxiong and organized by Liu Xinyi.

Channel Digitalization What is channel digitalization? Avoiding strict academic definitions, we offer an explanation that is relatively easy to understand at the operational level. Using digital tools to connect with users (C-end), obtaining real-time user data, and thereby conducting business activities based on data is digitalization. There are two key points here: First, using digital tools to connect with the C-end. This is a crucial step; without connecting with users, all digitalization is impossible. Therefore, in the process of channel digitalization, "reach" and "connection" become high-frequency terms. Second, obtaining real-time user data. "Real-time data" is the keyword, so in the process of channel digitalization, "activation" and "high frequency" become keywords. Digitalization is about reaching users, connecting with users, and operating users. In the early stages of digitalization, reach and connection are key; in later stages, operation is key. Some might say that B2B does not reach the C-end, so is it truly channel digitalization? It should be said that although B2B, as a pioneer in channel digitalization, has played a significant role in promoting the process, B2B still lies between informatization and digitalization. When channel digitalization is achieved by connecting the C-end, B2B will be "internalized" as an internal system tool.

The Main Battlefield of Digitalization: User Base Exceeding 100 Million In 2020, forced by the pandemic, traditional enterprises raced ahead in digitalization, but results were often unsatisfactory. The core issue is that even with small successes, digitalization struggles to change a company's overall fate in terms of "magnitude." For a company with a scale of 10 billion or 100 billion, if it only connects with a C-end user base of one million or even one billion, such digitalization is barely better than nothing. Currently, there are many private domain traffic practices, but unless they can match the scale of traditional channels in magnitude, they can only be considered explorations and cannot be fully promoted and operated. For a company with 10 billion or 100 billion in revenue, online sales of a few hundred million or even one billion cannot change its overall state. Companies must find the main battlefield of digitalization to go all out. Finding the main battlefield is the urgent problem traditional enterprises need to solve in digitalization. Fight big battles and win on your own main battlefield. For traditional FMCG companies, previous e-commerce was not the main battlefield, nor are various private domain traffic methods with limited user scale. China's internet users exceed 900 million, Alibaba's users are around 900 million, and Pinduoduo's users are around 800 million. Therefore, when defining the main battlefield of digitalization, we use the ability to achieve a user base of 100 million as the primary indicator. Of course, not all companies can achieve a user base of 100 million, but can industry leaders? If they cannot, it is not the main battlefield, only a marginal one.

The Three Main Battlefields of Digitalization Various platforms are valued because they were the first to reach a user scale of 100 million. Their digitalization method is B2C, also known as digital channels. This includes e-commerce platforms, social platforms, and content platforms. E-commerce platforms like Alibaba, JD.com, Pinduoduo, Meituan, and Didi all have user bases in the hundreds of millions. Social platforms like Tencent and DingTalk are also in the hundreds of millions. Content platforms like ByteDance have user bases in the hundreds of millions. Although platform users have reached the 100 million scale and the number of merchants on platforms has reached the tens of millions, some FMCG single brands have reached tens of millions of users across the entire network, but no company on the platform has a user base of 100 million. Therefore, platform e-commerce is the first main battlefield of digitalization. The protagonists are the platforms, not the merchants. What is the second main battlefield? We believe it is channel digitalization. Specifically, it is the F2B2b2C model. Can F2B2b2C connect with a user base of 100 million? From current pilot projects of single brands, it has already achieved "tens of millions" of active users in a single province. If extended nationwide, connecting with 100 million users is not a problem. Leading FMCG companies have scales of 10 billion or 100 billion, and household penetration is in the hundreds of millions. To connect with a user base of 100 million, only an "organized and systematic" model can achieve this. The F2B2b2C model of channel digitalization is based on the channel organizations established by traditional enterprises through deep distribution, connecting with the C-end "in an organized and systematic manner," reaching a user scale of 100 million. The protagonists of the second main battlefield are industry-leading companies. Only they can connect with hundreds of millions of users in an organized and systematic way. Where is the third main battlefield? In fact, once F2B2b2C connects with 100 million users, it means almost all terminal retailers (b) are connected to the C-end. When b2C reaches the 100 million scale, the "New Retail" proposed by Jack Ma can match "New Manufacturing." "New Manufacturing" then creates the "new supply chain" for the retail industry. The plight of traditional retail stems not only from the loss of customers but also from the impact of platform e-commerce systems on traditional pricing systems. b2C may form a new traffic system, but the pricing system at the retail end can only be changed through a new supply chain. Therefore, the protagonists of the third main battlefield are retail giants. At this point, we can conclude: the three main battlefields of digitalization, their operating models, and protagonists are as follows: First Main Battlefield: Protagonist is the platform operator, operating model is B2C. Second Main Battlefield: Protagonist is the industry-leading company, operating model is F2B2b2C. Third Main Battlefield: Protagonist is the retail giant, operating model is C2F.

First Main Battlefield: A Decade of Incremental Growth E-commerce has become the main incremental market over the past decade. We can see this through the "growth rate" of e-commerce and the "deceleration" of traditional channels. 2012 was a crucial year. It was in this year that sales volumes (not values) of most FMCG categories in China "peaked." Industries such as baijiu, beer, and instant noodles entered a period of declining volume. Only a few industries, like bottled water and snack foods, continued to grow in volume for several more years. It was also in this year that China's internet usage surpassed that of the United States, leading the world from then on. From then on, traditional Chinese enterprises faced dual pressure: first, the decline in total industry volume (not value); second, the squeeze from new e-commerce channels. The incremental environment that traditional enterprises had enjoyed since the reform and opening-up no longer existed. I once proposed two "conjectures" to experts in a community: Since 2012, no well-known FMCG brand has succeeded through mass media advertising; since 2012, no well-known FMCG brand has succeeded through deep distribution. I asked for "counterexamples" from the group. Although a few were proposed, they were highly controversial. These two "conjectures" indicate that traditional marketing models have failed. Traditional marketing models are the HBG model (mass production, mass communication, mass distribution), which in China manifests as brand-driven (mass communication) and channel-driven (deep distribution). While traditional channels were "decelerating," e-commerce became the main incremental market over the decade. In 2011, online retail accounted for less than 5% of total social retail sales, but by 2020 it had reached 30%. This is a challenge that no company, no matter how strong offline, can ignore. This article introduces two keywords: main battlefield and protagonist. The protagonist of the first main battlefield is the platform, with all merchants as supporting roles, regardless of their size, including industry leaders. When I proposed the above two "conjectures," I also proposed another: FMCG brands that succeed on e-commerce platforms are mostly niche and small-market brands, rarely mass-market brands. I also sought "counterexamples" from the group. I further proposed that e-commerce platforms are a "paradise for entrepreneurs and fertile ground for niche brands." Industry leaders became leaders by dominating the largest mass-market categories. Business thinking has its positions. From the platform's perspective, the platform becoming the protagonist is its success. From the brand's perspective, if the industry leader becomes an insignificant supporting role on the platform, it is a failure for the industry leader. In the era when "either-or" models prevailed, industry leaders were also forced to choose one. This phenomenon is related to the characteristics of e-commerce. E-commerce is a long-tail market, a concept popularized in the book "The Long Tail" over a decade ago, meaning e-commerce offers unlimited shelf space. As long as there is unlimited shelf space, there will be unlimited SKUs; with unlimited SKUs, there will be unlimited merchants; with unlimited merchants, market share will be infinitely fragmented. As long as share is infinitely fragmented, the share of industry leaders is suppressed.

First Main Battlefield: Whose Battlefield? The online share varies greatly across industries and categories. Industries with relatively high online shares include:

  1. High-value single items, such as appliances, 3C, and home furnishings.
  2. High value-added categories, such as cosmetics and clothing.
  3. Low-concentration long-tail industries, such as snack foods and sports/entertainment. For FMCG, although authoritative data is lacking, the characteristics of the industry determine that the online share is not high. First, FMCG consumption is relatively high-frequency; "FMCG" implies high frequency. Second, FMCG purchases often involve immediate comparison and unplanned buying. Third, most FMCG products are already "ubiquitous and readily available" through deep distribution, making them more convenient than e-commerce. Fourth, FMCG products have low unit value and low margins, leaving little room for price flexibility even when sold online. During the rapid growth of e-commerce, leading FMCG companies found themselves in an awkward position; even with heavy investment, returns were limited. Therefore, we can say that in the FMCG industry, e-commerce can quickly elevate a niche brand but struggles to support a mass-market brand; it can quickly elevate a startup but cannot support the rise of a giant. Hence, we say platforms are a paradise for entrepreneurs and fertile ground for niche brands. This article has consistently emphasized a concept: magnitude. Ten, hundred, thousand, ten thousand, hundred thousand, million, ten million, hundred million—these are all concepts of magnitude. A difference of one magnitude is a tenfold difference. The difference between niche, small-market, and mass-market is a matter of magnitude. The difference could be one magnitude or even several. A difference of one magnitude is a tenfold gap, two magnitudes is a hundredfold gap, and three magnitudes is a thousandfold gap. Similarly, when discussing the number of C-end users, we often use the concept of the 100 million scale. Platform e-commerce has already opened the first main battlefield at the 100 million scale. The second main battlefield should be at the same magnitude, also in the hundreds of millions. The platform's own user base is in the hundreds of millions, but the share diverted to merchants is at most in the tens of millions, with most not even reaching millions. Can traditional enterprises with sales in the tens of millions or hundreds of millions achieve this through hundreds of thousands or millions of users? No! Leading FMCG companies cannot achieve scales of 10 billion or 100 billion through the first main battlefield, so they must seek the second main battlefield of digitalization.

First Main Battlefield Enters Stock Market E-commerce is now a stock market. This statement comes from Wei Zhe, former CEO of Alibaba. Looking at indicators such as internet population, Alibaba's user numbers, and e-commerce's share of social retail goods, e-commerce has entered a mature phase. A mature market is a stock market. We can see this from the following indicators: 1. Internet user scale and penetration rate As shown in the figure below, internet user scale and penetration have entered a highly mature phase, with slow growth expected in the future. 2. User growth of major platforms User growth for major platforms like Tencent, Alibaba, and Pinduoduo has entered a period of slow growth. 3. User segmentation and penetration Alibaba and JD.com were the first to complete penetration among young people and core urban consumers, Pinduoduo completed penetration "outside the Fifth Ring Road," and Pinduoduo and Kuaishou completed penetration in rural markets. 4. B2C's share of social retail goods In 2020, online retail sales of physical goods accounted for 24.9% of total social retail goods, but in the first three quarters of 2021, it was only 23.6%. E-commerce entering the stock market is due to two factors: first, the limitations of e-commerce sales scenarios—not all categories are suitable for e-commerce; second, the diversification of paths to reach and connect with the C-end. The internet has given any business entity the technical capability to connect with the C-end. Originally, a limited number of platforms were competing for offline share; now, numerous business entities are using digitalization to win back e-commerce share. Compared to the B2C model of e-commerce, the F2C model of brand owners is more efficient and convenient. If traditional enterprises faced difficulties in transformation during the decade of rapid e-commerce growth, then when entering the era of online-offline integration, online enterprises may face even greater difficulties in transitioning offline. Digitalization must involve online-offline "integration," meaning there is no boundary between online and offline. One must understand both the internet and traditional methods. Now, with a university education background, computer science has become a "public major" for all students. However, it is quite challenging for those with a computer science background to understand traditional channels.

Second Main Battlefield: Traditional Enterprises as Protagonists A reality: As of the end of 2020, e-commerce share for leading FMCG companies generally did not exceed 10%. This means traditional channels account for about 90%. E-commerce is destined not to be the main battlefield for traditional leaders. People do not consider a market with only 10% share as the main battlefield. As emphasized earlier, becoming the main battlefield of digitalization requires a C-end user base of 100 million. This raises two questions: First, what method can connect with 100 million users? Second, where are the touchpoints to connect with users at the 100 million scale? Private domain traffic is currently a hot topic, with its core being the F2C model of digitalization. In private domain traffic courses, a key term is emphasized: fission. But we also see a reality: even private domain traffic with good fission only reaches about a million active users. Reaching a user scale of 100 million is "harder than climbing to the sky." There are two reasons why private domain traffic emphasizes fission: First, the number of users reached at one time is limited, so fission is needed to connect with more users. Second, the product categories that can fission are more often niche and small-market, allowing users to fission. However, the characteristics of niche and small-market categories mean that even with fission, the user scale remains small. Unlike organized and systematic development of private domain traffic, most private domain traffic is obtained through "guerrilla warfare." Because private domain traffic lacks offline density, it is difficult to integrate with offline, leaving only the F2C model. The F2C model of private domain traffic is destined to be small in scale, difficult to activate, and low in stickiness, making it difficult to become the mainstream of digitalization. My biggest criticism of private domain traffic is that the F2C model has "moral flaws" in business. For example, diverting traffic from public to private domains, turning others' private domains into one's own in one go. Such practices might work on a small scale, but achieving a 100 million scale is absolutely impossible. I emphasize that the protagonist of the second main battlefield is traditional industry enterprises because traditional deep distribution is already F2B2b, having penetrated the interface between terminals and users. Just one step forward is F2B2b2C. Even without user fission, one-time reach is on a massive scale. The number of terminals in China—retail stores—is commonly cited as over 6 million, while the number of restaurants varies widely, from 4 million to 9 million. What penetration rate can leading FMCG companies achieve? 4 to 5 million is possible. Therefore, leading companies, through deep distribution and organized, systematic mobilization, can fully form a pattern of "a million terminals, ten million touchpoints, and a hundred million users." Of course, there are still two magnitudes of difference between a million terminals and a hundred million users. So, I particularly emphasize "ten million touchpoints." In private domain user operations, finding the "first touchpoint" is crucial. If the first touchpoints are too few, the need for "fission" is strong. If there are many first touchpoints, fission becomes "nice to have, but not necessary." User fission is particularly difficult, requiring many prerequisites, and even goes against human nature. Thus, from the perspective of a 100 million C-end user scale, the protagonist of the second battlefield is the traditional leading enterprise. Of course, this does not mean traditional leaders are naturally protagonists, but once they connect F2B2bC, they become protagonists. Currently, only traditional enterprises are likely to connect with a user base of 100 million. As mentioned earlier, traditional deep distribution has already formed F2B2b. Reaching 100 million users requires "ten million touchpoints." Therefore, designing these ten million touchpoints becomes key. Once the design of ten million touchpoints is solved, leveraging the channel mobilization power of traditional deep distribution, achieving 100 million users is not difficult. From my observation of leading FMCG companies, any leader must have excellent channel organization, control, and mobilization. It is not just about having good products and brands; channels do not naturally form. Products and brands are just weapons in market competition. To win the market, you also need thousands of channel personnel with frontline organization, control, and mobilization.

Third Main Battlefield: Retail Giants as Protagonists The first main battlefield solves the digitalization problem for platforms and startups, the second for traditional enterprises, and the third for retail giants. Retail faces two major problems: loss of customers and lack of profitability due to no pricing power. Customer loss is "not a fault of war" for retail. E-commerce has created new sales scenarios, making customer diversion inevitable, beyond the control of offline retail. When traditional enterprises connect with the C-end through the F2B2b2C path, large stores will certainly have the capability to achieve b2C, and small stores can also achieve b2C with the help of other tools, such as community group buying, which actually helps small stores achieve B2b2C. When the retail end uses digital tools to connect with the C-end, it achieves a "dual scenario" for terminals: both offline and online scenarios, plus O2O scenarios combining online and offline. The problem of customer loss may be alleviated. The lack of profitability due to no pricing power is a major drawback of China's retail industry. For a long time, this drawback was masked by high growth in retail. Once growth stops, it becomes a "cancer" for the industry. China's retail "back-end profit" model, which involves collecting various "entry fees," is an industry "cancer." While collecting fees, it also cedes various store resources to the supply chain. It is not the retail store that dominates store sales, but the supplier. For example, shopping guides interfere with consumer behavior, harming store interests. Perhaps soon, China's retail end will be like Europe and America, without the interference of shopping guides. When retail achieves b2C, it can establish a digital new supply chain, C2F. The requirements of the new supply chain are: direct access to the source and exclusive good products. Direct access to the source means de-intermediation in the new supply chain. Exclusive good products mean the retail end holds pricing power. Because it is exclusive, it has pricing power; because the products are good, users accept the pricing power. Currently, retail companies doing well in the new supply chain include Pangdonglai and Miniso. Pangdonglai adopted a "direct procurement" model early on, forming the "Four-Party Joint Procurement" with four regional retailers in Henan. According to former executives and media reports, "direct procurement" is very high, far exceeding most people's understanding. "Direct procurement" offers gross margins 10%-15% higher than traditional supplier supply, possibly even higher. Because of the high gross margins from direct procurement, Pangdonglai can support high employee salaries—double the industry average. Because of high employee salaries, Pangdonglai's corporate culture of "extreme" service is supported.

Know Your Identity, Recognize the Battlefield, Understand Boundaries In the future, all business entities must achieve digitalization. This is beyond doubt. However, different business entities have different main battlefields and different scales. Marketing expert Mr. Fang Gang summarized it as: Know your identity, recognize the battlefield, understand boundaries. First Main Battlefield: The platform is the protagonist, main participants are entrepreneurs and niche/small-market players, with boundaries in the tens of millions, hundreds of millions, and billions. Hence, it is a "paradise for entrepreneurs and fertile ground for niche brands." The business boundary, i.e., the maximum scale and ceiling, for entrepreneurs in FMCG can easily reach tens of millions, and niche brands can reach hundreds of millions or even billions. That is the boundary. Why is the platform a paradise for entrepreneurs? Because the platform is public infrastructure. The existence of public infrastructure can reduce upfront investment for entrepreneurs and help them quickly reach a certain scale. But the problem is also clear: the scale may forever remain at the startup stage. Why is the platform fertile ground for niche brands? In China's marketing circles, market segmentation has long been advocated, but few have achieved commercial success. Because the "last-place elimination" at channel terminals does not lower the threshold for niche players. Thus, mass channels naturally tend to exclude niche and small-market players, while e-commerce is a long tail, making it relatively easy for niche and small-market players to gather. Second Main Battlefield: The protagonist is the FMCG industry leader, with boundaries in the tens of billions and hundreds of billions. Platforms can reach scales of tens of millions or even trillions, but this is divided among all merchants. However, a single brand of a leading company might reach 100 billion. Leading companies must have digitalization they can dominate. A scale of 10 billion or 100 billion means the number of connected users must be in the hundreds of millions. Besides platforms with total users in the hundreds of millions, the only entities capable of connecting with 100 million users are FMCG leaders and retail giants. Third Main Battlefield: The protagonist is the retail giant, with boundaries in the tens of billions and hundreds of billions. It is not difficult for retail giants to reach 100 billion, nor to connect with tens of millions or hundreds of millions of C-end users. But achieving a new supply chain through connecting with the C-end is very difficult.

Traditional Enterprises, Move to the Main Battlefield Any innovation is "creative destruction," with some rejoicing and others worrying. With the rise of the first main battlefield, the media's darlings shifted from brand entrepreneurs to platform founders. During the rise of platforms, the long tail grew longer, and leaders roughly maintained their market share. Active entrepreneurs, niche players, and suppressed traditional enterprises formed a stark contrast. For traditional enterprises, the first battlefield is not the main battlefield; it can only be seen as a marginal or secondary battlefield. A marginal battlefield does not mean it should be ignored. With the rise of the second main battlefield, traditional brand owners will once again become protagonists. The industry landscape will be: leaders become bigger, and the long tail becomes longer. Mid-sized enterprises may find themselves in a difficult position. This will be a process of online-offline integration, even an offline counterattack on online. The protagonist of the third main battlefield is the retail giant. But the formation of a new supply chain will be a major shock to traditional brand owners and channel distributors. Because "direct access to the source" is itself another form of de-intermediation. In the past decade, the first battlefield was the main battlefield. In the coming years, the second battlefield will be the main battlefield. In the near future, the third battlefield will be the main battlefield.

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