The 5th FMCG + Internet Conference, hosted by New Distribution, was grandly held from March 15 to March 18 at the Longemont Hotel in Chengdu! This grand event attracted thousands of industry professionals, including distributors, manufacturers, and internet companies from all over the country. The venue was packed, and the scene was unprecedented.
The following is the speech delivered by Mr. Liu Zhao, founder and CEO of Waiqin365, at the main forum on March 16, organized by New Distribution for the benefit of our readers.
Amid the B2B wave, we have been thinking deeply: What exactly is B2B? To start today, I want to borrow a passage that Mr. Zhao Bo posted on his social media as our understanding. This passage is particularly classic: 'Distributors are the salespeople of manufacturers; B2B is the purchasing agent for stores.'
Distributors and B2B are two completely different entities. In the past, we always attributed the two factors of 'serving manufacturers' and 'serving stores' to the single entity of the distributor. They had to serve the manufacturer on one hand and also serve small shops on the other. Now that B2B has developed to this point, it is very clear that these are two completely different functions.
Distributors are the sales force of manufacturers. Manufacturers want distributors to attack the market, occupy shelf space in small shops, and squeeze out competitors. Manufacturers want distributors to promote new products, maintain their price system, and execute their promotional strategies. So distributors are the sales force of manufacturers.
B2B, on the other hand, is not that; it serves small shops and is the purchasing agent for small shops. So what do small shops need? They need long-tail products, which distributors do not handle because the volume is too small. In the future, small shops may need more services, such as financial installment loans and POS renovation services. These may be provided by B2B in the future, not by distributors. The division of labor between these two entities has become very clear today.
Why is B2B so difficult, with so many closures in 2018? It turns out that small shops were not without service; wholesale markets and wholesalers served them. Why didn't they provide door-to-door service? Because small shops have poor payment capability and are price-sensitive. In short, actively serving small shops is not very profitable. B2B replacing wholesalers to serve small shops will definitely have low gross margins, but once scale is achieved, B2B is likely to provide more value-added services to gain revenue. Therefore, scale is definitely a characteristic of B2B; without scale, it's better not to do B2B at all.
Returning to distributors, why do brand owners need distributors? It's simple. We have served many enterprises; FMCG is one of the industries we serve, along with durable consumer goods, pharmaceuticals, agricultural materials, etc. We have never found a successful brand owner that grew into a big brand without its own sales team and sales capability. Many people say that brand owners just need to improve their product strength. However, that's not the case. Apple, with the strongest brand power, still has its own strong distribution channels, retail team, customer service, and even a dedicated channel to serve small and medium-sized enterprises. You may not have seen this, but that's the combination of Apple's product strength and sales strength.
I have never seen a company that says, 'My brand is so good that I don't need sales at all.' That's impossible. Even online brands have not grown well. I can still remember only two good online brands: Handu Yishe, established around 2006, and Three Squirrels, established around 2012. In the five to ten years since, no better online brands have emerged. Why? Taobao serves consumers broadly, not brands. As a brand owner, you cannot build your brand through Taobao alone. You need brand power, a combination of product strength and sales strength, and a self-controlled distribution network. We believe this is the lifeline of a brand owner.
How to cooperate with B2B? If we clarify everyone's responsibilities, brand owners should establish cooperation with B2B, letting their distributors help them open up and attack the market, and letting B2B help them serve small shops. Clarifying responsibilities, even dividing regions and categories, is of immense help to brand owners.
We have found a very interesting thing: the cooperative relationship between brand owners and distributors is a very good game. After observing the industry for so long, we think the best way to describe this game is 'child psychology.' That is, manufacturers treat distributors like children, with two extremes. The first extreme is control. What is control? They want distributors not to sell competitors' products, to maintain their price system, to invest expenses at the terminal well, and not to embezzle money. This is step-by-step control.
The other extreme is empowerment. Brand owners are all doing 'distributor training academies,' specifically training the second generation of distributors on how to run a business. They even want to solve the succession problem of distributors. Isn't this like parents arranging blind dates for their children? Very much so. But many distributors don't buy it, just like children don't buy their parents' ideas. Children think, 'You make me do homework every day and not play games. How can I be happy without playing games?' The game between distributors and brand owners is like that between children and parents, establishing a dynamic balance between control and empowerment.
Speaking of empowerment, we are in the digital age. Why have B2B companies risen so fast? Because digitalization and informatization help them develop rapidly. Distributors often lack experience in digital operations. They have many requirements for their management systems, hoping to manage people, money, and goods, but they lack the capability. Many manufacturers have proposed: 'I'll provide you with a system to help you manage.' But many distributors are unwilling to use it. There are many reasons, but the most fundamental is that when each manufacturer provides a system to distributors, they think: 'As long as this distributor uses this system to sell my goods, don't sell other goods.' But which distributor only operates a single product? Is it wrong for me to sell P&G daily chemicals and also Master Kong instant noodles? If your system can only manage one brand's products, it is simply unusable for distributors.
Additionally, distributors worry: 'If I put my business on your system, and one day you brand owner stops cooperating with me, won't I be in trouble? How will I do business in the future?' This is a big concern. In reality, brand owners often force a system on distributors, and distributors deal with it reluctantly: 'If you want me to fill in data, I'll fill it; if you want me to report an order, I'll report it. Anyway, it's all fake. I'll slowly do my own thing with my own tools.' This is what is called manufacturers trying to empower distributors, but it often goes to a very negative extreme.
So Waiqin365 now provides a relatively perfect solution. We hope to balance both aspects. First, we provide distributors with an independent business management system that they can use themselves, which can manage the distributor's sales process and business operations. This independent system must support multi-brand product management. And manufacturers can connect with their distributors through this internet-based system. Each manufacturer can connect with its distributors, obtain current sales, orders, and inventory data, send promotional policies to distributors, control their store visit behaviors, allow distributors to check and verify promotional activities, claim expenses from manufacturers, and allow terminal stores to place B2B orders directly with distributors.
More importantly, each distributor can connect with multiple brand owners, not just serve one brand owner. Even some large brand enterprises are not a single brand; they have three to five brands under them, each with its own independent sales management line and channel management line. Distributors serve multiple brands simultaneously. How can this be unified? With today's advanced internet technology, it is entirely possible to establish a networked connection between all distributors and all brand owners. Achieving digital transparent management of offline channels through information systems will be key for distributors to improve themselves in the future. For distributors, business analysis management is very important. Many distributors may still be at a relatively primitive stage. Of course, I believe that distributors who can come to this New Distribution conference are idealistic and knowledgeable. We have also visited many distributors and found that their management levels are low, they can't afford software, and those who can afford it can't use it well. This is the pain point of distributors.
We hope that brands can help distributors manage business data well, help them with daily analysis management, truly empower distributors, and provide them with a usable system. After such a system is built, brand owners will have established a self-controlled distribution management system. I believe that for a brand enterprise, having a self-controlled distribution network and a smart army that can strike wherever directed—whether it's a city, a product, or a small shop—is the most important thing for gaining market share.
Waiqin365 will help the entire FMCG brand system establish a digital and transparent network, helping brand owners build self-controlled distribution networks. Thank you all.