Click to read the original article for details In China's FMCG industry, the sovereignty of transactions has been constantly changing: from the earliest factory sovereignty, to brand sovereignty, channel sovereignty, and now the just-begun consumer sovereignty era. Many people may wonder: haven't consumers always had the sovereignty to purchase? Why is it said that it is only now beginning? Today, the author will re-examine why the fourth sovereignty era is only now starting, including the logic, relationships, and future development trends. -01- The Era of Factory Sovereignty After China's reform and opening up, for a long time, people's material living conditions were poor. Most Chinese families could only eat white flour every day by the late 1980s, let alone other non-staple foods and consumer goods. Most goods were purchased with ration coupons, and the supply of goods was extremely scarce. People were eager to improve their lives, but their disposable income was very limited. For a family, after being able to eat enough, the first goal to improve life was to purchase essential "big-ticket items" such as bicycles, televisions, washing machines, and other consumer goods. People's demands for products were mainly based on basic indicators such as durability, sturdiness, practicality, warranty, and price. For an enterprise, whoever could produce these daily necessities on a large scale with low cost and high efficiency, as long as the quality and functionality were not too poor, could become a leading enterprise in this era. The well-known story of Zhang Ruimin smashing refrigerators is a landmark event of this era. -02- The Era of Brand Sovereignty With gradual economic development, people's disposable income slowly increased, and the supply of goods in the market began to enrich. When households had purchased all necessary items, people's demand for consumer goods gradually shifted from basic needs to functional needs. Moreover, with the nationwide popularization of televisions in the early 1990s, consumers began to be exposed to TV advertisements. The appeal of TV ads was enormous. The famous Qinchi Ancient Wine, Apollo, Aido VCD, and Subor Learning Machine are still vivid in the author's memory. Consumers began to shift from whether they could afford a product to whether it was a famous brand, whether it had better functions, what features it had, and what differentiated functions it offered—these became the main reasons for purchasing. After the basic supply in the market became saturated, the drawbacks of supply homogenization began to appear. Many enterprises started to discover that even the emperor's daughter would worry about marriage (i.e., even good products were hard to sell). Lu Wenjin, former sales president of Tsingtao Brewery, once told the author that Tsingtao Beer went from being in short supply to, after 1993, finding it hard to sell. They had to find their own way out and set up a sales company to sell beer. Chinese-style marketing, in a sense, also began at this stage. Several professors from Renmin University, including Shi Wei, Peng Jianfeng, and Bao Zheng, proposed a deep marketing theory based on Chinese characteristics, which officially kicked off the vigorous thirty-year development of China's consumer goods industry. It was also during this time that well-known Chinese and foreign theories such as HBG, deep distribution, positioning theory, and 4P marketing began to be practiced in various enterprises and became deeply ingrained. We see many domestic brands, such as Master Kong, Uni-President, Yihai Kerry, Coca-Cola, Tsingtao Beer, Snow Beer, and other nationally renowned brands, all became national brands during this stage through centralized media communication, deep distribution networks, and widespread distribution. This stage started in 1992 and continued until 2013. These twenty years were the happiest twenty years for FMCG brand entrepreneurship. China's economy developed rapidly, and the market size grew by double digits every year. As long as your product was not too bad and had a selling point, you could achieve decent growth. -03- The Third Sovereignty Era: Channel Sovereignty Channel sovereignty means that a certain retail enterprise has the right to allocate and sell traffic. The earliest channel sovereignty model in China was the large supermarket that appeared in 1998, commonly known as the KA channel in the industry. The first hypermarket to enter China was France's Carrefour. They brought advanced management concepts and a shopping environment that was refreshing to Chinese consumers. In the following decade or so, hypermarkets were one of the must-visit commercial attractions for Chinese families on weekends. Hypermarkets, leveraging their huge shopping traffic, squeezed brand owners almost without limits: entry fees, barcode fees, display fees, anniversary fees... Countless forms of exploitation, all for one purpose: to extract the last penny from suppliers' pockets. But brand owners and distributors endured it for the sake of considerable traffic, carefully serving the various buyers and merchandisers of the stores. However, this exploitation was nothing compared to what was to come from the e-commerce giants. E-commerce began to emerge in 2006. The infinite shelves brought a richness of goods that no domestic KA store could match. For example, the hottest product in 2020, Luosifen (river snail rice noodles), when the author casually searched on Tmall, there were as many as 24,424 SKUs. Imagine, which consumer needs so many different brands and selling points of Luosifen? Who can distinguish the good from the bad among so many brands? There is a psychological theory called "decision paralysis." When users face a massive number of products, it is difficult for them to make effective decisions. Therefore, platforms must use rules and algorithms to filter out the most suitable products for consumers. The platform's rules are based on the consumer's perspective, distinguishing brands, sales volume, reviews, diamond exhibitions, direct traffic, and other preferred recommendations to help consumers make the shortest decision path. This is the competitive logic of channel sovereignty: not to give users unlimited choices, but to help users filter out the products they need through algorithms and customers' advertising budgets. The live-streaming e-commerce that is particularly hot this year also follows this logic. Viya and Li Jiaqi essentially stand on the consumer's side, helping users find the best cost-performance product among a sea of goods, helping users bargain, and then using huge traffic to force manufacturers to comply. Some friends might say: my product quality is good, the brand is big, I won't do direct traffic or diamond exhibitions, and I won't find Viya or Li Jiaqi. Can't I just sell by my own ability? That's possible. Take Luosifen as an example again. Among the 24,424 SKUs, currently only the top 13 SKUs have monthly sales exceeding 100,000 orders, and only 110 SKUs have monthly sales exceeding 10,000 orders. That is to say, when the channel stands on the consumer side and controls the distribution of traffic, you not only need a brand and excellent quality, but also lower prices, better experience, higher appearance, and better reputation to possibly get algorithm recommendations. Problems faced by brand owners in the era of channel sovereignty: In the past, in stores, consumers mainly made planned purchases. Shopping was purposeful, looking for products. Stores aggregated traffic and brands, and hypermarkets earned channel fees for traffic. But now the problem is that with infinite shelves and redundant supply, each single product has tens of thousands of SKUs. Users cannot find suitable products among so many SKUs, so algorithm recommendations or KOL recommendations are necessary. On the surface, it is platform recommendation and user choice, but in essence, it is the redistribution of traffic. All e-commerce earns traffic distribution fees. The platform will squeeze the last drop of profit from suppliers. If you don't offer low prices, good products, sufficient quantity, good reviews, and a brand, traffic will not be given to you. This has nothing to do with the platform's morality; it is because the mechanism of infinite shelves determines that you must empty your pockets of the last coin. What does this mean? It means that in future business, whether it is Tmall, Taobao, Pinduoduo, community group buying, short video, or live streaming, as long as it is an online business of cognition + transaction, brand owners do not have the right to redistribute traffic. To gain the right to redistribute traffic, as a brand owner, you must transform your marketing logic from selling supply to selling scarcity. Therefore, the fourth consumer sovereignty era has arrived. The so-called selling scarcity does not mean that the material is truly scarce, but that consumers feel it is very valuable and meaningful. The transition of the first three sovereignty eras was not achieved overnight, and the boundaries were not so clear. Moreover, in many industries, multiple sovereignties coexist in a sense. The logic behind this is, on the one hand, that China is a super-large market with obvious income gaps and different consumption structures; on the other hand, the internet allows people to live and entertain in tribes within the same network structure. This leads us to face a super-complex market environment. The author's analysis of the first three sovereignty eras is based on structural changes: from a buyer's market caused by supply shortage, to supply surplus, the emergence of television, product branding and differentiation, and then the popularization of the internet, especially mobile internet, which further intensified the concentration of traffic. Each transition is a change in a different dimension. But this complexity is not without a handle. The underlying handle is Maslow's hierarchy of needs from the supply perspective. Different people, with different cognition and consumption abilities, will likely stay at the corresponding Maslow level. Very few people can cross levels. From the perspective of intergenerational differences: People born in the 1950s and 1960s experienced famine. Their typical consumption characteristics are thrift, liking cheap goods, and hoarding things, which essentially stems from a lack of security. People born in the 1970s and 1980s: some have become rich, but most grew up in an environment of material scarcity. The strong contrast between rich and poor created the typical consumption characteristic of this generation: liking international brands, which essentially stems from a lack of social confidence. -04- The Fourth Sovereignty Era: Consumer Sovereignty In fact, the previous article has already explained the logic behind consumer sovereignty. Interested friends can click the link above to read it. The post-95s generation is the first generation of consumers who have never experienced scarcity. Their material environment is very affluent. As soon as they can remember, they live in the internet world. The country is thriving, incomes are rising, life is improving, and national confidence is soaring. The consumption logic of this generation is completely different from previous generations. First, material goods bring less and less happiness to this generation. The material rewards that we think are obtained through hard work are taken for granted by them. Their sense of happiness and value is completely different from those born before the 1990s. Therefore, people born before the 1990s should never measure their cognitive logic with our value coordinates. Instead, we should look at their consumption logic from their perspective. Consumer sovereignty is not just giving them more choices, nor is it choosing better products for them. They don't need any of that. The problem they need to solve is: Even if you are good, what does it have to do with me? The previous article already gave the answer: Either make me feel you are awesome, or make me feel I am awesome. For an enterprise, establishing contact with users is no longer difficult. The difficulty lies in how to establish a "relationship" with users. Relationships must be built on value and meaning. This value and meaning go beyond the functional attributes of the product. Making a good product and a differentiated product is only a prerequisite. More importantly, it is about bringing more spiritual rewards to users, providing social currency for users, and your products and services can bring more meaning to users and co-create a beautiful experience with them. I call the marketing in the consumer sovereignty era "Lego-style marketing." We need to provide consumers with products and services that allow them to have a better experience. We need to accompany consumers to complete a work that belongs to them. What we need to do is truly make friends with users, be brothers, lead them to grow, guide them to success, and help them find the missing piece of meaning in life. In fact, this is the top need of Maslow: self-actualization. User-centric: Recently I read a book that mentioned a viewpoint: "User-centric" means that it is not that I think users need something and I provide it, but rather what the user's motivation is, and I directly satisfy the user's motivation. I forgot the name of the book. If there is any infringement, please contact the author. Several viewpoints in the book: If you are product-oriented, you analyze user profiles. Find the crowd, segment it, find pain points, and position. If you are user-oriented, you analyze the user's role, find scenarios and situations, and explore emotional needs. The logic of the entire chain changes from business process to user journey. You focus on the user's role, behavior, and feelings. For today's consumers, they don't care whether the enterprise is strong. They only care about who can serve them well. They only care about where I am today, with whom, what I am doing, what kind of scene it is, and what experience I can get. Me * Scene * Experience is the correct way to open. Summary: In 2020, entrepreneurship in the FMCG industry was particularly hot. We saw many entrepreneurs start businesses with enthusiasm: upstream OEM, downstream Tmall, and in the middle, packaging a brand, and they could raise a lot of money. To be honest, I don't quite understand this. Teacher Li Qian analyzed this problem clearly in one of her articles: Most consumer projects do not have the ability to handle production and supply chain, or their own sales channels. Upstream relies on OEM factories and shared supply chain systems, downstream relies on parasitic platforms to reduce prices for volume. In the middle, they just integrate, and it is impossible to make a difference. After all, the information gap in consumer goods is not that large. Anyone can find the OEM factory by following the product label. What I see is that these entrepreneurs are basically obtaining some market opportunities in the era of channel sovereignty through overcapacity + infinite shelves + low-cost communication + segmented audiences. But these innovative brands are innovating at a very low level in terms of topics, and they haven't touched the substantive issue. The substantive issue is: how can you make money doing business under the channel sovereignty platform ecosystem? Even if you build a brand and go offline, do you really think you can squeeze into the shelves of small stores and supermarkets? To be honest, today, trying to open a store on Tmall or Taobao, plant grass on Douyin or Xiaohongshu, and harvest offline channels is no longer an opportunity. Looking back at the four consumer sovereignty eras, relying on factories, brands, or channels is unreliable. Only relying on consumer recognition and co-creation with consumers is the broad blue ocean for future innovative brand entrepreneurship. | Founder of New Distribution, expert in FMCG industry channels, author of over 400,000 words of original research articles on the FMCG industry. For communication, you can add WeChat by long-pressing. When adding, please indicate your company, position, and name. Important Conference Announcement! January 19-20, Jiangsu Wuxi New Distribution will join hands with 500+ FMCG distributors from five provinces in East China to gather in Wuxi, Jiangsu, to provide brand owners and distributors with a conference aimed at product selection, cooperation, and exchange. Plan before the New Year, start after the New Year! Don't wait until after the Spring Festival to plan! Interested brand owners or distributors are welcome to contact us. Please scan the WeChat QR code below to register for the conference or exhibition. Exhibition Contact: Tips will be paid 400-2000 yuan once adopted.