FMCG giants, don't cry On August 10, Procter & Gamble, the world's largest advertiser, will stop running targeted ads on Facebook, as the company believes this approach has limited effectiveness. Its Chief Marketing Officer Marc Pritchard said the company will not reduce its overall ad spend on Facebook; it has increased spending on digital and traditional platforms but cut one category of ads—those placed on small websites. In short, P&G's advertising is shifting from targeted and small platforms to large media. The so-called targeted approach in mass marketing has limited effectiveness. Brand development must reach all customers, especially light users—shoppers who buy occasionally. This is starkly different from the traditional marketing view that brands should target and cultivate loyal customers. Even a brand with high penetration like Coca-Cola sees 30% of its user base make zero purchases in a year, which sounds unbelievable. In mass marketing, brand loyalty seems to be a false proposition; shoppers are far less loyal than imagined. Brands should increase broader exposure to gain a larger shopper base—that's what marketers should do. Different brands actually share roughly the same consumer base, meaning competitors share very similar consumers. Competition between brands ultimately comes down to brand salience and purchase convenience; these two factors determine whether a brand grows. Regarding the decline currently faced by FMCG giants (such as P&G and Unilever), first we must recognize that China's economy has entered a period of slow growth after rapid development. The decline in purchasing power caused by the economic downturn is a major factor in the decline of FMCG giants. Only by acknowledging this reality can we continue the following discussion. Additionally, decline does not mean the end is near. Next, we analyze the current situation and reality of FMCG giants from two aspects: market and channel. Let's start with the traditional channel market. Here, "traditional" refers to all market channels except e-commerce. We divide the market into two parts: first- and second-tier cities, and third-, fourth-, and fifth-tier cities and rural areas beyond them. First- and second-tier cities Brand salience The internet is very mature in first- and second-tier cities, and the main consumer force there is young people. Giants' traditional TV ads are increasingly unable to cover and influence the mass audience. Additionally, young people, influenced by internet social platforms and other multimedia marketing, are increasingly detached from traditional FMCG selling stories. The exponential growth of information also gives consumers more choices, making ad investment harder. In terms of TV advertising, FMCG giants have not seized the opportunity of several currently popular TV programs for effective exposure, while domestic brands spare no expense in this regard. Overall, FMCG giants are relatively weak in this area. Purchase convenience FMCG giants still maintain a relatively strong position in traditional channels in first- and second-tier cities, and their long-term stable cooperation with international hypermarkets is hard to shake for now. Although since early 2016, some domestic brands (such as Diao Pai and Liby) have launched aggressive price promotion campaigns (bundles, internal purchases) that have had a significant impact, this is mainly concentrated in the laundry detergent sector. Overall, FMCG giants have not completely lost their advantage. Regarding domestic brands' aggressive price promotions in offline traditional channels, old customers are more sensitive to low prices; price promotions attract old customers rather than new ones, so in the long run, they do little good for brand development. At the same time, the heavy promotions by domestic brands like Liby and Diao Pai are an adaptive response to the economic downturn, with a flavor of proactively resisting the decline. Third-, fourth-, and fifth-tier cities Brand salience In third-, fourth-, and fifth-tier cities, the fever for the internet is relatively lower, and the internet's influence is relatively reduced. This lower influence doesn't refer to network coverage but to the internet's impact on this consumer group—that is, consumers in these cities won't gradually form an internet-based lifestyle like those in first- and second-tier cities. In this arena, mainstream TV channels still have influence, but only the most mainstream can effectively influence consumers. FMCG giants' TV advertising hasn't changed much compared to their previous investment patterns; they can only be described as mediocre. Purchase convenience FMCG giants face significant resistance here. Brands led by P&G and Unilever have attempted channel下沉 (channel expansion to lower-tier cities) several times, but with little success (due to cost control and pricing system constraints). In third-, fourth-, and fifth-tier cities, FMCG giants' main coverage force is still wholesale, and the pricing system is severely disrupted, making it difficult to form a stable closed-loop of inventory management and channel margin levels. Wholesale coverage does little to help the brand, as it's hard to ensure shelf visibility, and thus purchase convenience is hard to achieve. In contrast, domestic brands ensure their channel下沉 advantage through strict channel control and pricing systems. FMCG giants are weak in this arena. E-commerce channels First- and second-tier cities Brand salience Some have pointed out that e-commerce creates a long-tail effect, causing FMCG giants to lose their brand advantage in e-commerce channels. This seems somewhat exaggerated. In fact, FMCG giants have not lagged in cooperation with e-commerce giants. Take Tmall as an example: the top-selling brands still include FMCG giants. In fact, among the top ten single brands, except for the dark horse Cocovel, they are still FMCG giant brands. Although the long-tail effect splits final sales, the salience of FMCG giant brands remains strong; the bigger the brand, the higher the shopper base and purchase frequency. Purchase convenience Undoubtedly, given the development of e-commerce logistics in first- and second-tier cities, this is strong. Third- and fourth-tier cities In terms of brand salience and purchase convenience, the influence of e-commerce logistics in third- and fourth-tier cities is weaker, shoppers' reliance on e-commerce is correspondingly lower, and the internet-based lifestyle hasn't spread. Currently, e-commerce is also doing channel下沉 in third- and fourth-tier cities, with initiatives like JD New Channel and Alibaba Retail Link emerging one after another, aiming to quickly capture this market. Overall, both are relatively weak in third- and fourth-tier cities. Summary From the dimensions of market, channel, and different tiers, the current situation of FMCG giants is as follows: FMCG giants' strongest area has always been first- and second-tier cities. Now they are indeed challenged in this territory, mainly due to the internet's influence, but their advantage in traditional channels remains. How to innovate brand advertising marketing in first- and second-tier cities is a question FMCG giants need to consider in this area. In third-, fourth-, and fifth-tier cities, FMCG giants have never been strong, and years of channel下沉 have failed. This also means that their decline in first- and second-tier cities has no new growth point to replace it. Increasing purchase convenience in third-, fourth-, and fifth-tier cities is the first thing giants need to do. As for e-commerce in this area, more and more platforms (Alibaba 1688, JD New Channel) have begun to get involved, so they can boldly try. Against the backdrop of a sluggish real economy, the decline of FMCG giants should be seen as a normal phenomenon. It's clear they have lost some advantage, but not all, so it cannot be labeled as decline. About the internet and e-commerce Regarding cooperation between e-commerce and brands, China's e-commerce development is at the forefront of the world. Alibaba and JD.com, after basically settling their pieces in several key sectors, have begun to dig deeper into remaining sectors. FMCG is one of the layout points, a so-called blue ocean and new growth point. Therefore, for online malls (Tmall, JD.com), how to quickly capture consumers in this sector has become the primary task, and the simplest way is aggressive low-price promotions. So currently, e-commerce makes suppliers both love and hate it. They love it because they can't afford to lose advantage in this high-growth channel; they hate it because e-commerce is willing to sacrifice gross margins (which many see as incredible and too impactful on brands and offline channels) to win this "business war," i.e., to quickly establish their dominant position in the relevant sector. What needs to be alerted is that FMCG giants currently have major problems in their e-commerce operations. First, they have moved offline promotion methods to online with almost no essential change. Online is just a copy of the hypermarket model, not brand upgrading or innovation, making it hard to attract new customers, especially the younger generation. Second, the giants themselves have done poorly in channel下沉 in third- and fourth-tier markets. The online price impact again disrupts the pricing system of channel下沉 in third- and fourth-tier cities, making them attacked from both sides—and the enemy is themselves. The role of e-commerce is gradually changing; currently, JD.com and Alibaba are both gradually taking on the role of brand B2B. JD New Channel, through JD's asset-heavy model, is expanding on a large scale to fully utilize JD's mature logistics chain and provide value-added services on this chain. This is certainly good for JD.com and, to some extent, helps FMCG giants achieve purchase convenience. Alibaba's 1688 Retail Link maintains Alibaba's ecosystem characteristics, bringing its own logistics, distributor logistics, and services online simultaneously. The market is hard to crack, so Alibaba has had to recruit many city partners to do these trivial tasks, making it seem somewhat similar to JD.com. Whether the long-term impact of this is good or bad remains to be tested by time.

First, for e-commerce itself, running B2C and B2B simultaneously seems to have a hard-to-reconcile contradiction, mainly in pricing and promotions. How should the differences between B-end and C-end be coordinated? Will brand owners ultimately pay for this?

For FMCG giants, the question to consider is: after giving B-end business to e-commerce, will they be drawn into price wars between e-commerce platforms and cause harm to the brand? Especially the impact on offline channels that are already very weak and have severely disrupted pricing systems. Faced with these endless new channels and playstyles, for the brand itself, what marketers need to consider is: besides boosting short-term sales, does it have long-term significance for brand growth? Source: This article was published in the October 2016 issue of "Sales and Marketing" magazine, Channel Edition.