-01- In the first half of 2021, the process of channel digitalization has become clearer. The process over the past three years is roughly as follows: 2020: A thousand horses galloping, each exploring its own path; 2021: The model takes shape, the route is clear; 2022: Sweeping all before it, digital barriers. The model is initially set. This is an important judgment. Making this judgment requires courage, but more importantly, it is based on extensive visits to successful cases and broad exchanges with enterprises that are ahead in digital application. The initial setting of the model means: channel digitalization has begun its countdown. In 2020, digitalization accelerated by six years overall. But while the direction was clear (digitalization), the route was not (no mainstream digitalization model). So, within enterprises, digitalization was like "a thousand horses galloping," exploring digital paths in many directions. The result of digital exploration in 2020 was: most digital routes were on the edge of new retail, turning into direct e-commerce. For example, short videos, live streaming, IP e-commerce, micro-malls, and seeding, while the traditional channels that account for over 90% of mainstream FMCG share saw no major breakthrough in digitalization, and some even thought that doing digitalization in traditional channels was "adding trouble." Digitalization without the mainstream channel is not successful digitalization. Another view holds that digitalization means being online. So, some companies introduced KPIs for online sales. As a result, they disrupted the pricing system, and online users tended to be low-end. In 2021, based on the digital exploration of traditional mainstream channels by many enterprises, the direction and route of channel digitalization have been basically clarified, and many excellent cases have emerged. It has become clearer which are the mainstream of traditional channel digitalization and which are just small streams. Many industry leaders I have contacted basically agree on one direction and route: The digitalization of traditional mainstream channels is the main direction for traditional enterprises' digitalization. In 2020, digitalization was clarified as the direction; in 2021, the mainstream route of digitalization was clarified. From direction to route, from abstract to concrete. This is a huge step forward. In 2022, digitalization will enter the strategy and operation stage. As long as it enters the strategy stage, it will unleash the power of digitalization and thus form new competitive barriers.

-02- In 2021, the digital model for FMCG channels has basically taken shape. This judgment is very important. Although industries and enterprises differ, Chinese marketing has similarities at each stage, manifested as mainstream marketing systems. For example, deep distribution, three-dimensional connection, etc. The rapid development of an enterprise is certainly due to entering the mainstream marketing system of a certain stage relatively early. The so-called model setting is to find a relatively recognized mainstream operation model at a certain stage through exploration. Based on research of many excellent digital cases and exchanges with some leading FMCG company executives or owners, I propose the basic model for FMCG digitalization: Channel modularization, full-link connection, full-scenario reach, and BC integrated operation. Channel modularization is a long process. But the direction and route are already relatively clear. Full-link connection is the digital transformation of the achievements of deep distribution. Enterprises that have done deep distribution well have an advantage. Full-scenario reach is a completely new task. Leading FMCG companies have already reached "one million terminals" through deep distribution, but digitalization requires "hundreds of millions online," so there must be "tens of millions of touchpoints" to complete hundreds of millions of reaches. As long as users are online, marketing strategies will become two routes: One is pure online operation of the C-end, following the logic of new retail, i.e., the AARRR operation logic; the other is BC integrated operation, i.e., online C-end, offline B-end, combining B-end and C-end. BC integrated operation is a completely new field.

-03-

In the digital environment, the tipping point for modularization and platformization of FMCG channels is approaching. Before 1998, intermediaries were wholesalers. After that, channels continued to sink, and the era of distributors arrived. Distributors differ from wholesalers in two important characteristics: first, full-channel functions; second, "itinerant merchants." The so-called itinerant merchants mean delivering goods to stores. This is different from wholesalers who are "sedentary merchants." Distributors have many functions, but they can be summarized into four aspects: product promotion, ordering, warehousing and distribution, and financing (stocking). Among them, product promotion contains the most content. For example, customer relations, deep distribution, terminal interception, and in-store promotion. The logical relationship of channel functions is: promotion → ordering → warehousing and distribution. In the process of digitalization, the following new phenomena have emerged: 1. Industry leaders and major distributors have their own ordering systems (F2B2b systems or F2B2b2C systems), realizing order platformization. Since 2014, third-party B2B was once hot, then industry leaders built their own B2B systems (leading FMCG companies have basically completed B2B systems), and now it is the B2B fever of major distributors (one of the hot spots in 2020). So, order platformization is a major trend. It should be noted that order platformization is not just moving offline orders online, but the order process may undergo major changes. For example, in the past, orders were placed level by level according to channel hierarchy, but now cross-level orders may appear, such as retail stores directly ordering from manufacturers. Midea Group calls this "less-than-truckload" (LTL), which better reflects the diverse needs of the market. 2. Warehousing and distribution systems are advancing digitalization and platformization. At present, there are third-party warehousing and distribution systems like Annto Zhilian with hundreds of warehouses nationwide, serving all manufacturers; there are also major distributors building their own digital warehousing and distribution systems (e.g., Dazhang Cloud Warehouse), and some major distributors have achieved rapid development through regional "super 1.5-tier wholesale" cloud warehouse models; some industry leaders are also exploring logistics warehousing platformization models. Warehousing platformization has scale advantages (national unified warehousing), integrated distribution advantages (all manufacturers' products distributed together), and direct-to-user advantages (halving the number of loading and unloading times from factory to terminal). It should also be noted that warehousing platforms are not just outsourcing logistics warehousing to third parties, but the warehousing process changes. For example, direct logistics delivery, bypassing distributors, directly to terminals, or even "delivery and installation integrated" like Midea's Annto Zhilian. In short, the trend of third-party logistics warehousing is inevitable. We predict that the tipping point for third-party warehousing is approaching. 3. Channel financial services. Some seasonal categories have strong seasonal capital needs, but distributors find it difficult to finance. With the platformization of transactions and warehousing, channel financial services will follow. Of the four major functions of distributors, three are likely to be stripped away from distributors. This catches many distributors off guard. Channel modularization inevitably leads to channel platformization. Facing the trend of channel modularization and platformization, distributors have few choices. Roughly the following: 1. Transform from distributor to operator Wholesaler → distributor → operator. This may be the trajectory of intermediary development. With order platformization and warehousing stripped away, what remains is only "user operation." Operator means user operation. User operation requires doing deep distribution well first, then reaching users on that basis, and finally carrying out BC integrated operation (online operation is the strength of brand owners). 2. Become a "local landing operator" for large logistics warehousing platforms China's market is vast. Central cities may have regional warehouses built by large platforms, but remote areas or non-central cities may be entrusted to "local landing operators." As long as you participate in warehousing and distribution operations, financial services become one of the derivative services. Many people worry that FMCG channel modularization and platformization mean de-intermediation. Some manufacturers may even have such ideas. But from practical experience, the current F2B2b2C is the best channel structure (except for a few enterprises that were already optimized, such as Coca-Cola). Although order processes and warehousing processes may be optimized, no level is redundant.

-04-

Full-link connection means that all channel links are online. Currently, traditional FMCG channels include manufacturers (F), distributors (B), retailers (b), and then reach users (C). So, full-link connection is called F2B2b2C. Full-link connection is also called "cloud channel," or the digital twin of traditional channels, i.e., the digital twin brother of traditional channels. For enterprises with a foundation in deep distribution and channel control, completing full-link connection is not difficult, but there will certainly be short-term overt or covert resistance from distributors and sales teams, but it cannot be stopped. So, full-link connection is actually a matter of determination and attitude, not technology. After the B2B fever, the connection of F2B2b is no longer a problem, and the last link b2C is not a technical problem either. Currently, the core issue is the decision-makers' perception of the value of channel digitalization: what is the value of channel digitalization? Is it adding trouble? Current channel digitalization systems are deeply influenced by e-commerce in user operation methods, basically using price war tactics and various promotional policies. The concerns of decision-makers are justified. When I explained the logic and methods of BC integrated operation to some leading enterprises, most changed their views on channel digitalization. Especially the logic of "guiding the B-end, activating the C-end" will change the phenomenon of manufacturers and distributors being helpless in front of terminals in the channel operation system. For a long time, full-link connection was achieved through SFA systems. The disadvantage of this system is that data sources depend on the sales team. SF in SFA (Sales Force) literally means sales team. Coca-Cola's RTM digitalization (deep distribution digitalization) has both sales team data sources and warehousing data sources, making the data sources relatively reliable. The reliability of data sources is the lifeline of digitalization. Swire Coca-Cola's RTM digital intelligence platform (image blurred due to internal data) In categories with high cognitive thresholds and circle-based sales, such as baijiu and tea, the objects of full-link connection may also include KOC. This is an example of "dual-line deep distribution," which includes both channel deep distribution and circle deep distribution. In "New Marketing 2.0: Three-Dimensional Connection," we emphasized "dual-line deep distribution." At the time of naming, there were two options: one was three-dimensional connection, the other was dual-line deep distribution. The link structure of dual-line deep distribution is: Manufacturer (F) → Distributor (B) → Retail store (b) → KOC → User (C) Around dual-line deep distribution, we also proposed a framework: Scenario experience → KOC circle deep distribution → Cloud store Among them, scenario experience solves the "strong cognition" problem, KOC circle deep distribution solves the problem of "strong relationships transmitting strong cognition," and cloud stores solve the problem of convenient order push.

-05-

Full-scenario reach. This is a problem we discovered while promoting full-link connection: how to reach hundreds of millions of users. Leading FMCG companies have already reached one million terminals through deep distribution. But the "household penetration rate" of leading companies' users may be 80%-90%, or even more. That is, about 90% of households are their users. Full-link connection, without reaching hundreds of millions of users, is still just a B2B system, not a true full-link connection. Therefore, the last link of the full link is full-scenario reach. How can a platform reach hundreds of millions of users? Currently, only four types of platforms can reach hundreds of millions of users: first, B2C platforms like Alibaba, JD.com, and Pinduoduo, and O2O platforms like Meituan; second, social platforms like Tencent; third, content platforms like Toutiao; fourth, social-commerce integrated platforms. All trading platforms only empower merchants on their platforms, not brand owner systems; social-commerce integrated platforms tend to empower their own transactions; content platforms currently tend to "seed" and have not yet shown the ability to empower transactions. Now it seems that for a system to reach hundreds of millions of users, there are only two ways out: one is to use empowering platforms in the short term, such as the combination of Tencent's Youma and Coca-Cola, using Tencent's ability to guide users to empower Coca-Cola's terminal stores and complete BC integrated operation; the other is for brand owners to build their own reach to hundreds of millions of users. One million terminals → ten million touchpoints → hundreds of millions of users This is the logic of full-scenario reach we propose. Full-scenario reach requires finding "super touchpoints." Currently, there are three known super touchpoints: 1. Objects as touchpoints. For example, one object, one code; 2. People as touchpoints. For example, store owners, store clerks, in-store promoters, KOC, etc.; 3. Stores as touchpoints. For example, stores, counters, freezers, etc. Full-scenario reach has now become the bottleneck of full-link connection. After all, B2B connection is controllable, but C-end reach is not. It can be predicted that deep distribution triggered "terminal interception," and full-scenario reach will trigger "user interception."

-06-

BC integrated operation reveals the power of digitalization. With users online, there are two operation methods: 1. Online operation, i.e., pure online operation, unrelated to offline; 2. Online-offline combination, i.e., BC integrated operation. Online operation already has mature technology. There is now a technology called MarTech (Marketing Technology) that specializes in online operation, including online communication and online transactions. The basic logic of online operation is AARRR, i.e., Acquisition, Activation, Retention, Revenue, and Refer. BC integrated operation is a concept I proposed in May 2019, which has been understood and practiced by some leading enterprises. Although some have questioned this concept, the basic logic has gained relatively consistent recognition. In the short term, reaching hundreds of millions of users is unrealistic. If the proportion of users reached is too low, online operation will find it difficult to influence more non-online users. So, I do not agree with some people's claim that only online operation is digitalization. I more agree with the statement that digitalization is a lever for marketing. The digitalization of a small number of users can leverage a broader market. Many FMCG products have low value and are consumed immediately. Forcing online ordering actually wastes users' time. BC integrated operation includes two entities: one is the online C-end; the other is the offline B-end. The combination of B-end and C-end is BC integration. As long as you reach the C-end, you can guide the C-end, thereby creating increment. Please note that stock is a very important bargaining chip in user operation. As long as there is increment, then the B-end that the increment is directed to has the bargaining chip. Increment activating stock is the logic. Traditional channels have always had only push power, relying on interpersonal relationships to form push. Terminal stores, because they have stock, have bargaining chips to negotiate with manufacturers. The result is that manufacturers have to pay various fees. When the C-end activates the B-end, the channel gains pull power. In the past, only brands had pull power. BC integrated operation generates channel pull, which combined with the sales team's push power, forms a relatively balanced push and pull in the channel. This is an unprecedented phenomenon. Channels generating pull power is what brand owners have dreamed of. Around BC integrated operation, countless marketing strategy systems will emerge. Just as after the channel strategy of deep distribution was set, many strategy systems emerged.

-07- Channel modularization, full-link connection, full-scenario reach, BC integrated operation. The channel digitalization model has basically taken shape. It takes courage to say this. My courage to say this comes from two points: first, I have conducted extensive case research, and these excellent cases have a common orientation; second, when I communicated the basic model with many enterprises (including a large number of leading enterprises), they agreed and hoped to jointly promote this strategy quickly. Let me say a few more words about the progress of the basic digitalization model. Channel modularization and platformization is a major trend. Among them, order platformization may be faster, and warehousing platformization may be slower, but it does not change the major trend. Full-link connection will be completed quickly by leading enterprises and major distributors in the short term. This will be a major test for the channel operation capabilities of small and medium-sized enterprises. Full-scenario reach will take a long time to complete. It is expected that there will be fierce competition in user interception in the future, far exceeding past terminal interception. Therefore, it may be a good choice for leading enterprises to cooperate with Tencent in the near future. BC integrated operation will be the basic skill of channel operation. Future channel strategies will be based on BC integration. Source: Teacher Liu's Digital New Marketing Tips will be paid 400-2000 yuan once the tip is adopted.