Liu Chunxiong: Six Steps in the Digital Evolution of Traditional Enterprises

On October 10, at the 'bC Integration' parallel forum of the 2023 Fifth China FMCG Conference and the First China FMCG Distributor Conference, Liu Chunxiong, a channel digitalization expert, advocate of new marketing, and dean of the Marketing Digitalization Research Institute, attended as a guest. At the conference, Mr. Liu delivered a speech titled "Six Steps in the Digital Evolution of Traditional Enterprises". To this end, New Distribution has compiled the essence of Mr. Liu's speech (with deletions and modifications) for readers. How should we understand the current macro environment facing China's FMCG marketing? I summarize it in one sentence: The internet revolution is drawing to a close, and the curtain has risen on the supply chain revolution. On the morning of the 10th, there were two sub-forums, one of which was a snack discount store session on the supply chain revolution. The supply chain revolution has four highlights in China: private label, hard discount stores, platform distributors, and the chainization of BC-type stores. The curtain on the supply chain revolution has just risen. Our forum, however, is the tail end of the internet revolution. The last tough nut of the internet revolution is called 'full-chain digitalization' or 'omnichannel digitalization,' which I call 'bC integration.' Since the Spring Festival this year, leading FMCG companies have been vigorously promoting bC integration, and I have followed up with quite a bit of training. However, the results so far have been poor, because the pace and path of implementation are problematic. My talk today, "Six Steps in the Digital Evolution of Traditional Enterprises," addresses this issue. We all know that reading doesn't start with a PhD or master's program; it starts with kindergarten, then elementary school, middle school, and high school, step by step. The six steps of digital evolution follow the same principle. The channel digitalization of traditional enterprises fell into two pitfalls from the start:

The first pitfall is the pit of digital management, namely SFA. Managing employees so tightly that they have no free space is said to be against human nature; managing distributors too strictly leads to resistance. Some distributors even set up a dedicated computer and hire people to fabricate data. Using digitalization for management is like making employees and distributors 'self-incriminate.'

The second pitfall is using digitalization for existing business. A lot of money is spent, but the gains are minimal. My suggestion is to move quickly into incremental digitalization. What is incremental digitalization? It means digitalizing new brands, new products, and new market development. When increments are generated, people are willing to push forward. The six steps of digitalization are about moving from existing digitalization to incremental digitalization as quickly as possible. The ultimate recognition of the value of digital business is the generation of increments! So, what are the six steps in the evolution of channel digitalization? Step One: Connecting Users Everyone can do the first step; it's simple: scan-code red packets to connect users. However, the scan rate is now too low; some companies report less than 1%, and the difficulty of scan-code red packets has already increased significantly. Scan-code red packets were very effective five years ago. In 2023, due to the widespread participation of liquor companies in digitalization, red packets have been pushed up to tens, hundreds, or even thousands of yuan, so many companies' red packets of a few cents or a few dimes are no longer scanned. A more serious problem than the low scan rate is the difficulty of activating users; a large number of users become 'zombie fans.' Scanning codes connects users, but after one scan, there is no further contact, and mini-programs easily 'sink to the bottom,' making user activation very difficult. Scan-code red packets are easy to popularize, but in our promotion of digitalization, they are no longer the main method of connecting users. However, for enterprises at the initial stage of digitalization, it remains the simplest method to get started and is a necessary first step. Just as kindergarten lessons are simple, they are still necessary for children; this is the need for digitalization 'practice.' Step Two: User Tagging If the first stage's scan-code red packets are universal, with everyone getting a share, then the second step introduces a middle platform. With a middle platform, you can tag consumers, and with tags, you can classify users and guide their behavior. The common feature of the above two stages is that there is no trace of any channel. In the early stages of digitalization, traditional enterprises recruited personnel for e-commerce, and influenced by new retail and private domain traffic, they adopted point-to-point digitalization, such as F2b and F2C. The channel is not a single entity but consists of many operating entities. Even if F2b and F2C are done well, it still looks like 'fragmented digitalization' because there are no channel characteristics. Step Three: Channel Digital Association Digitalization of traditional enterprises must have channel characteristics. What are channel characteristics? It means that the channel has multiple operating entities, and digitalization is used to associate them. I call this 'channel association digitalization.' Currently, there are two commonly used channel associations. One is the association between distributors and retail stores, which I call Bb association. This solves digital distribution from distributors to retail stores, called distribution digitalization; the other is the association between retail stores and users, which is bC association, solving the sell-through problem of retail stores, called sell-through digitalization. Only when at least two channel operating entities are associated can it be called channel digitalization. This is the starting point of full-chain digitalization. Distribution digitalization and sell-through digitalization are routine actions for traditional enterprises, now reflected online through digital means. This is the key step in channel digitalization. The channel has four participating entities: manufacturers, distributors, retail stores, and consumers. Association digitalization involves at least two entities. Distribution digitalization can encourage retail stores to stock more, or encourage them to open boxes and put products on shelves, such as open-box red packets. Sell-through digitalization activates terminals; for example, when consumers receive red packets and redeem them at retail stores, it is equivalent to the manufacturer bringing a sale to the retail store, and that sale is an increment. So, this is called channel association digitalization. Currently, companies that do well have basically reached the third stage, with channel characteristics. Because doing channel digitalization without channel characteristics is pitiful, as it is no different from traditional online methods. Channel association digitalization has several characteristics. The first characteristic is: two-point association. Association brings channel characteristics. The second characteristic is: association centered around the b-end. The core of channel digitalization is the b-end, whether it is Bb association or bC association, both revolve around the b-end. This is also why the highest stage of digitalization is bC integration. The third characteristic is: online actions are not coordinated with offline actions. There is still a strong pure-online characteristic. So, how to achieve association digitalization? Currently, the common method is the 'five-code integration' (stack code, case code, box code, outer cap code, inner cap code), expanded to 'N-code integration,' using one code to connect all channel links, so that the relationships between channels can be seen in the backend. Step Four: Digital Twin The fourth step reveals the true channel characteristics, namely the digital twin. It involves both online digital actions and offline channel actions. It's like warfare: having only the army is not enough, and having only the air force is not enough either. The digital twin means online-offline coordination, army-air force coordination. The two channel systems become one system. For example, offline distribution for new markets, online Bb coordination; offline sell-through, online bC coordination. This is called the digital twin, and it is very effective because it is the coordination of the 'army' and the 'air force,' making the battle easier to fight. Unlike the early days of digitalization, where offline was attacking one hill and online was bombing another, leaving offline frustrated. However, online-offline coordination is difficult, and the difficulty lies in organizational issues, not technical ones. Offline is the sales department, online is the IT department. Sales doesn't understand online, and IT doesn't understand offline. The two organizations have different goals and separate budgets. To solve this problem, the first priority is to solve the organizational issue. Step Five: Incremental Digitalization The fifth step is called 'incremental digitalization,' which is the 'three new' mentioned earlier: either new brands, new products, or new markets. Existing business involves old users, who can be connected via scanning codes. For incremental digitalization, where are the users? Scanning codes is difficult. Precisely because it is difficult, once achieved, the results are surprisingly good. The promotion of 'three new' business is also very difficult in traditional offline channels. With incremental digitalization, the offline difficulty will correspondingly decrease. How to do incremental digitalization? The first step is to clarify what the incremental action is, and it must be coordinated with offline incremental actions, i.e., the digital twin; second, the digital action must be targeted, with LBS characteristics. For example, targeting specific stores, specific users, or specific times. For instance, for liquor entering a new market, red packets can be sent to guests at a specific banquet restaurant. These are all technically feasible. When I do incremental digitalization, the first requirement I raise is whether a specific store can be locked in the system. A dedicated plan is made for it to win that store. Once a new store is developed, there is an increment, and with increments, everyone is willing to cooperate. Distributors are willing, retail stores are willing, and salespeople are willing. Everyone is willing to cooperate. Many companies' employees reject digitalization because the company spends money but sees no increments. Incremental digitalization coordinates offline and online actions to create targeted increments. With a breakthrough at one point, everyone gains confidence. Step Six: bC Integration The final step is bC integration. The channel has four major operating entities, and full-chain digitalization is F2B2b2C. For manufacturers and distributors, as long as bC is connected, both manufacturers and distributors can see the data in the backend, achieving full-chain data sharing, thus realizing full-chain digitalization. The last tough nut of the internet revolution is cracked. bC integration must involve online-offline coordination and full-chain data sharing. How can this be achieved? First, set up dual middle platforms. I suggest manufacturers set up dual middle platforms: one at the headquarters and one for distributors. When doing incremental digitalization, if a special channel digitalization policy is formulated for a specific store, the headquarters cannot cover it; only the distributor's middle platform can. Leading FMCG companies actually have dual marketing departments. The headquarters has a marketing department, and regional distributors also have one. Similarly, the headquarters has a middle platform for digitalization services, and distributors also need a middle platform to coordinate the promotion of bC integration. After promotion, all channels can share data, truly achieving full-chain digitalization. Second, give the b-end dual shelves. The b-end has offline stores (shelves), plus an online shelf. SKUs not available in the store can be sold on the online store, which is dual shelves. Dual shelves will definitely generate dual sales, which is an increment. Third, there must be a digital online profit-sharing system. When digitalization creates increments, how are profits distributed? It is full-chain profit distribution. Once the increment problem and profit-sharing problem are solved, who wouldn't want to do digitalization? As mentioned earlier, the last tough nut of the internet revolution is full-chain digitalization, also known as 'omnichannel digitalization.' Of course, the difficulty varies by category. For example, liquor and craft beer are doing relatively well because they are circle bC; dairy products are also easier because they are community bC; beverages are more difficult because they are near-field bC. Different bC relationships require different technical methods and tactical measures. When you understand the six steps of channel digitalization, you know where to start, and then take one step at a time. This is the normal path of progress, not a leap to the top. The ultimate effect of full-chain digitalization is: Use digitalization to connect all links of the omnichannel (full-chain digitalization), connect online and offline (online-offline coordination), put all products online across all SKUs (dual shelves, online profit-sharing), and break through in 'three new' markets (generating increments). This is a fairly perfect marketing system! But even the most perfect marketing system needs to take its first immature step! PS: Friends interested in the on-site speech content can follow the recent posts on the WeChat official account of New Distribution. We will compile and publish all guests' speeches for readers. Click Read Original to see more of the Fifth China FMCG Conference and the First China FMCG Distributor Conference...