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In 2014, the traditional FMCG industry faced unprecedented pressure from the Internet. Everyone is talking about the Internet, and countless enterprises are trying to go online. However, regarding the challenges and inspirations the Internet brings to traditional enterprises, many companies only stay at the stage of 'from nothing to something.' Few dare to truly and boldly embrace the Internet for self-transformation and rebirth. The reasons for this situation, or the deep reasons why innovation remains superficial, are rarely mentioned. In summary, there are four points:
- Facing future uncertainty, enterprises dare not invest on a large scale.
- Resistance from internal vested interests.
- Lack of professional talent.
- The enterprise's own organizational structure is unsuitable for the development of new models.
The traditional Taylorist management thinking, with its core value in centralized hierarchical organization, uses control and management to enable efficient collaboration among all people, bulk purchasing and production, and economies of scale to reduce production costs, thereby enhancing competitiveness. However, products produced by such enterprises are often technologically mature, low-cost, and highly homogeneous, suitable for mass production. Highly homogeneous products typically lead to three types of corporate behavior:
The first behavior: Promoting products through centralized media, reshaping product concepts to create so-called 'differentiated' products that are actually highly homogeneous. This differentiation is usually illusory, not significantly different from the product itself. Product recognition is achieved through high-intensity and high-density advertising bombardment to imprint the brand on consumers' minds. Its essence is communication and marketing aimed at winning hearts and minds.
The second behavior is channel competition. Since too many products can satisfy consumers' limited needs, whoever is closer to consumers and has more advanced terminal management has a greater chance of survival. Since the 1990s, the FMCG industry has pioneered 'deep distribution and intensive channel cultivation' as advanced management tools under intense channel competition.
The third behavior is price wars. In channel competition, strong enterprises often gain competitive advantage by bribing channels and consumers, with common practices such as buy-one-get-one-free, store purchases, displays, special promotions, and bundle offers. Regardless of the form, they use price advantages to attract channel and consumer attention and spending.
Under the above competitive behaviors, large and capital-rich enterprises can achieve lower product prices through persuasive centralized media, larger-scale procurement, and efficient production. Through more standardized management, they make frontline terminal management more standardized and executable, thereby gaining more brand recognition, larger market share, and stronger competitive advantages. Eventually, no more than three industry giants typically emerge, or even one company monopolizes an industry, while small enterprises struggle to survive in the cracks between giants, either being acquired or barely hovering around the breakeven point.
However, with the advent of the Internet, especially the mobile Internet era, consumers' information acquisition, consumption behavior, and consumption habits have undergone fundamental changes.
Let's look at some data:
Chinese mobile phone user habits:
- 80% obtain relevant information via mobile phones
- 32% use mobile search engines to find enterprises
- 31% spend more time on mobile than PC for internet access
Chinese mobile phone user operation habits:
- Check phone 120-150 times per day
- Time with phone during waking hours exceeds 15 hours
- Daily interaction with phone/tablet screens exceeds 83 minutes
- Reading distance from phone screen is 15 cm
Data source: "2014 China Internet Development Statistics Report"
The Internet's impact on consumer behavior is mainly reflected in the following points:
Transformation from product awareness to purchase: Traditional centralized media push information to consumers, and the time from exposure to purchase is about 300 hours. However, with the Internet, especially internet companies using B2C, C2C, and O2O to enter traditional industries, the time for product awareness and consumption has been continuously reduced. In the Internet era, it only takes 3 minutes from first seeing a product to making a purchase—just a few taps on a screen!
Changes in information acquisition difficulty and channels: Consumers' information acquisition has shifted from traditional centralized media (TV, newspapers, magazines) to forums, websites, and social tools. Information asymmetry has greatly reduced, and consumers can obtain product value-for-money information through more channels.
Changes in information interaction and communication: With the emergence of forums and blogs, individual consumers can also voice their opinions through social media. Especially with the popularity of Weibo and WeChat, personal influence in society has reached a new peak.
The results of these consumption behavior changes on traditional enterprise marketing:
- The effectiveness of centralized media is gradually declining.
- Information is becoming increasingly transparent. The opportunity for highly homogeneous products to profit from information asymmetry no longer exists.
- Consumers' demand for personalization is growing louder.
Given these changes, it is easy to see the difficulty for traditional FMCG enterprises to win over future consumers from the 90s and 00s generations using traditional marketing models.
The composition of the Internet: The Internet is composed of 'points' and 'lines.' Points refer to each person on the Internet, and lines are the 'things' or 'products' that connect these people. Here, centralized media also transforms from offline to online, becoming social nodes with distinct characteristics or personalities.
The Internet connects various nodes into a vast social network through various 'things' or 'products.' The connections between people become extremely complex, but in general, the things or products that connect nodes usually have strong social attributes, are highly topical, and are easy to spread. This is the first principle traditional enterprises must understand when transitioning to the Internet.
Characteristics of the Internet: The Internet is decentralized, breaking hierarchical relationships, making everyone an independent node. Each person seems insignificant and unconscious, but through Internet connections, unconsciousness becomes collective consciousness. The collective significance lies in bringing together people with common interests, voluntarily and spontaneously doing something that seems impossible and incredible. This is the unique charm of the Internet. 'Being controlled' versus 'being proactive' may clearly describe the difference. Traditional industry and the Internet are not evolution but disruption.
The impact of the Internet on traditional industries:
- Product: The biggest impact of the Internet on traditional industries comes from changes in information interaction methods. Users' access to products and their requirements for products have fundamentally changed. With the emergence of the first Internet-native generation (90s and 00s), their awareness of 'self' has risen to an unprecedented level. They are self-centered and pursue personalization. Traditional products are no longer what they want most. They prefer products that match their personality traits, have unique connotations, high quality, and a certain opinion-leader style. Such products may not be big brands, but they are definitely products endorsed by friends with common interests within their community. These products are niche, personalized, geeky, and offer excellent user experience.
Such products contradict traditional industrial concepts and are high-cost, low-replicability products that traditional enterprises find hard to produce.
Price: Traditional enterprises deliver products to consumers through lengthy channel chains. Product price = cost (production cost + channel cost + promotion cost) + profit (enterprise profit + channel profit). Traditional enterprises:
Compress costs as much as possible to ensure price advantage, so they can only meet the minimum experience standards of all customers, not personalized needs. Then they use centralized media for trust endorsement to increase brand premium.
With unequal and opaque information, manufacturers can achieve advantages or monopolies in certain regions or categories, profiting from local monopolies.
But the Internet exposes traditional enterprises. If you sell the same product at a higher price, someone online will sell it cheaper. If you sell it expensive, I can buy it online. Essentially, the biggest impact of the Internet on traditional enterprises is the elimination of information asymmetry between manufacturers and consumers, meaning traditional enterprises can no longer rely on old methods to achieve high profits.
For manufacturers, to achieve product premium, in the future, brand can only serve as a trust endorsement, but it will no longer be the core factor for consumers to choose you. What makes consumers willing to pay a high premium is a product that makes them scream, an experience that makes them scream. If you can't achieve that, then make a price that makes them scream.
In fact, this is the process of removing the false and retaining the true in Internet-era marketing. Enterprises only need to make products to the extreme and provide users with beyond-expected experiences, and users will automatically spread word-of-mouth. Costs that do not improve user experience should not be compressed but completely eliminated!
The product price becomes:
- Negative profit model = production cost + scale profit
- Free model = free + personalized service premium
Companies like Xiaomi and 360 have very low single-product profits, usually acquiring a large user base through cost-price or free models, and then profiting from personalized services through massive traffic.
Product premium comes from unique products and experiences, and product functions that are inimitable and irreplaceable.
The basic source of profit: massive users:
Although most people don't spend money, a small number will spend a lot—Luojisiwei
Relying on value-added services for revenue can still form a considerable economic scale—Xiaomi, LeTV
Personalized brand personality premium—Smartisan
Consumer demand coverage—Huang Taiji
Channel: Traditional channels' lengthy chain is the only way for products to reach consumers. Its characteristics are numerous nodes, high transaction costs, and huge costs for enterprises to enter and maintain channels, which are ultimately reflected in product prices for consumers.
Internet enterprises, by directly communicating with users, cut off all intermediate channel links to reduce channel costs. It can even be said that Internet enterprises have no channel problems.
- Brand and promotion: Traditional enterprises: high-density advertising bombardment on national or local centralized media plus ubiquitous brand presence on the ground. In short, it relies on fooling people. But in the Internet era, there are no barriers to information transmission, and information acquisition between enterprises and consumers is equal. This means that using traditional advertising to hide shortcomings, beautify products, show temptation, and fool the next party is no longer possible, because everyone is a node in social media. If they are dissatisfied, they will speak out, and the breadth and depth of dissemination are unbearable for enterprises.
In the Internet era, products are based on trust. What is trust? It is experience and word-of-mouth. The product experience itself is advertising.
In the Internet era, the Internet has exposed advertising for what it is.
Internet enterprises: topic ignition, community aggregation, user participation, and word-of-mouth dissemination.
For traditional enterprises, difficulties have always existed, but the competitive environment hasn't changed, and many enterprises even thrive in such an environment. However, the emergence of the Internet and mobile Internet has changed everything, blurring industry boundaries. The one who disrupts you may not be the competitor you see, but the new Internet upstarts that suddenly appear from nowhere. What's more terrifying are the capital giants behind these upstarts, holding large amounts of cash. As long as the direction is right and the team is good, the cash will be turned into shells and fired at your doorstep without hesitation.
And you, what are you waiting for?
Source: Daononghui
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