The FDIC 2018 China FMCG Digital Innovation Conference, hosted by New Distribution and co-organized by the FMCG Branch of China Electronic Commerce Association, was grandly held from August 22 to 24 at the Shanghai Baohua Marriott Hotel Conference Center. The event attracted over a thousand industry professionals including distributors, manufacturers, and internet companies from across the country, filling the venue to capacity.

The following is the keynote speech "Transformation of Distributors" delivered by Xu Zhaohui, General Manager of Zhongshan Wanrong Marketing Co., Ltd., at the conference, organized by New Distribution for readers.

Zhongshan Wanrong has been a distributor for over 20 years. Now with the advent of B2B, especially in the Pearl River Delta region of South China, in addition to JD and Alibaba, there are many strong regional B2B platforms such as 1 Life and Palm Sales. Facing the invasion of B2B platforms, how should distributors transform to break through difficulties? What has Zhongshan Wanrong done?

I. What exactly is the business model of distributors?

Every enterprise needs a clear business model; only by creating commercial value can it survive. Distributors are no exception. What is the business model of distributors?

Frankly speaking, the commercial value of many distributors is not created by themselves but allocated by brand owners. If the brand owner says you earn 6 points, you earn 6 points. How are these 6 points defined? Unknown. We use an inappropriate metaphor: the commercial value of a distributor is essentially exchanging resources for market.

Resource-for-market means that your commercial value is actually your resource value. What resources do distributors have?

The role of distributors: 1. Serve downstream customers for brand owners; 2. Connect downstream customers with brand owners' products.

For brand owners, the resources of distributors are three points: capital, logistics, and customers. For downstream customers, the resources of distributors are capital, logistics, and products.

From the composition of resources, logistics and capital are the distributor's own resources, which we define as "supply efficiency," reflecting supply efficiency, while customers and products are actually external resources integrated by the distributor, reflecting marketing efficiency. Based on this starting point, let's explore what changes have occurred in the market.

First, let's look at the capital and logistics of distributors. Everyone is clear about what changes have occurred in the current environment?

First, scale consolidation. Whether it's large distributors, logistics companies, or e-commerce giants, they have all entered this industry, staking claims and rapidly forming scale.

Second, technological innovation. The application of technology in the entire supply chain has made information more transparent, not only supply but also prices.

Third, capital intervention. Not only industry capital, but also financial capital and numerous venture capital investments.

The value generated by distributors' traditional supply efficiency is declining in competitiveness in the current market competition environment. This means these values are depreciating.

Distributors' external resources: customers and products.

Customers and products—all distributors (dealers) have traditionally believed that customers and products are monopoly resources because only they have them. But in fact, many distributors lack their own capabilities, and in the current environment, unit output is declining. Not only single-store output, but also single-product output is declining.

In the past, the simplest approach for distributors was to invest more capital to regain market share, but now, such investment efficiency is not as good as before, further leading to profit decline.

What changes have occurred in the dimensions of customers and products? All places that can sell products are customers for brand owners. But now customers are more diversified, not just the traditional small shops and KA supermarkets of traditional channels.

Now there are multiple formats, even internet-famous formats. Multi-format has given rise to multi-channel. Besides traditional channels, there are online channels, offline channels, and multimedia channels, such as Douyin and Toutiao, which are all selling goods.

Consumers appear at various traffic entrances, and transactions occur in various transaction scenarios. So at this time, brand owners expect distributors to have omnichannel operational capabilities.

What changes have occurred in products?

1. Product richness has increased, and product updates are very fast. With past promotion methods, including the fragmentation of consumer choices, we see that the influence of both brands and products is declining.

2. Product communication methods. In the past, brand owners would tell us the basic principles of products, and we did well, but we find that when reaching consumers, the response is getting less and less.

So we believe that the future marketing of distributors should be consumer-based marketing, not based on the two dimensions of products and customers.

II. Transformation of distributors: value recreation

How to solve the above problems? Zhongshan Wanrong considers from two aspects:

1. Supply efficiency. As a regional distributor, supply efficiency is definitely not our advantage, nor the core competitiveness we will build in the future. So we believe that supply efficiency should reach the industry average or slightly above the industry average; this is our goal.

Based on this goal, we achieve matching between supply and demand. Low efficiency and high cost do not mean we cannot work or do not work well; mainly, resource efficiency is too low. Even if we have a large warehouse, it is not full. Vehicles deliver goods every day, but the full load rate is only 70%. My supply is sufficient, but my demand is insufficient.

So Zhongshan Wanrong did resource integration. Integrating supply and demand resources, we united with more than 40 other distributors' products to complete delivery tasks together, fully utilizing our existing logistics resources.

We spun off all resources, personnel, and assets of the logistics department into a third-party logistics company, charging according to market standard rates, and using more professional systems to support logistics operations, ultimately bringing the entire supply efficiency to the market average level.

The original logistics business was a cost center; now it has become a profit center. This is our thinking on supply efficiency, because we believe that in supply efficiency, we cannot compete with giants, as ultimately high efficiency relies on scale, capital, and technology.

What have we done in marketing efficiency? In the past, distributors' marketing mainly focused on the two dimensions of customers and products. We believe that the new marketing dimensions should focus on three dimensions: entrance, scenario, and product.

1. Entrance. All places that can reach consumers are traffic entrances. We hope to make omnichannel marketing plans for all traffic entrances to reach consumers more broadly.

2. Scenario. In these entrances, combine themes, content, and focal points of different scenarios to design different marketing scenarios, giving consumers a better shopping experience.

3. Product. Connect products and consumers in appropriate consumption scenarios, ultimately transforming them into products.

For example, the customers we cover now include not only traditional offline customers but also some online customers. We have laid out regional e-commerce platforms, regional public accounts, regional micro-shops, and cooperation with financial systems such as ICBC and Bank of Communications points platforms. We also cooperate with Ctrip, iQiyi, property management platforms of real estate developers, community service station platforms, etc.

In addition, there are offline educational institutions, training institutions, hospitals, gyms, cinemas, film companies, university clubs, etc. We believe that all places with local traffic entrances can be marketing venues.

Zhongshan Wanrong jointly holds various marketing activities with these regional formats. We can do mutual traffic diversion online and offline for different fields and industries, and after each promotion, our resources become richer.

We even cooperate with supermarkets; we held a street dance competition for them and a square dance competition for communities. Everything Zhongshan Wanrong does is to have more opportunities to contact consumers and let them better understand our products. Because daily chemical products are functional products, not like cola, which is about sentiment and everyone remembers its taste forever. This is our idea for new marketing.

We hope to connect various life scenarios and life entrance links, allowing consumers to better access and understand products. Whether it's B2B platforms or online, many times people solve the problem of where consumers buy things. We hope to solve the problem of what consumers buy and what products consumers should choose.

To achieve this, we did three things:

1) Concept transformation: from trade-oriented distributors to all-round service-oriented distribution, from management mode to operation mode.

2) Organizational construction transformation: improve the organizational structure.

3) Adopt a more professional ERP system, combined with omnichannel operation platform and BI system support, to support our new marketing work.

The above is Zhongshan Wanrong's approach to distribution transformation. We believe that distributors can achieve their own value by focusing on improving marketing efficiency and providing all-round service capabilities, and there is room for the future.

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