The contract system: a grave-digger for FMCG companies. In 2015, Nice introduced the contract system. That year, both performance and employee wages soared, prompting Nice's boss Zhuang Qichuan to propose the slogan "Build another Nice." However, over the past three years, the adverse effects of the contract system have erupted at Nice. Now, with widespread employee resignations, Nice in the post-Zhuang Qichuan era is beginning to fall from its pedestal... Nice's decline should have been the best opportunity for its old rival Liby. But Liby has always been a company known for "clever tricks." Whether it was the early "briefcase company" or "Liby that doesn't hurt hands," or renaming laundry liquid to "Good Dad" and exploiting public ignorance with the fear-inducing "fluorescent agent-free" claim, we can see that Liby is rich in tactics but lacking in strategy. It has petty wisdom but lacks great wisdom. So, when Nice's sales rose in 2015 due to the contract system, Liby, unwilling to be outdone, launched its own contract system in the second half of 2016. From then on, Liby planted a time bomb. Employee Resignations Those in sales have all seen toxic motivational quotes like "Performance is forced out," "If you are kind to your subordinates, performance will be cruel to you," "The market can yield results if you push hard; you just haven't found the method." But after drinking too much of this chicken soup, managers begin to believe that product sales are far from the ceiling, and company performance can still rise. They think that as long as they push goods down the channel, consumers will naturally buy. Thus, companies become increasingly adept at "forcing" employees and "pressing" for performance, but their attention to consumers and grasp of market laws remain stagnant for over a decade. The contract system is such a "good" policy for "forcing" employees. It sounds very much like the "household contract responsibility system" of the past, seemingly designed to inspire employees' "ownership" spirit and build the company "faster, better, and more economically." But the result severely violates market laws. Products are merely pressed into distributors' warehouses and terminal channels, but not into consumers' hands. The first year, the numbers look good; by the second year, the backlash becomes evident. But seeing Nice's soaring performance and its own declining market share, even if the contract system were poison, Liby would drink it to catch up with Nice's momentum. Liby's contract system had two phases: the first from July 2016 to December 31, 2017; the second in the 2018 calendar year. Frontline employees react faster than headquarters executives. When Liby launched the contract system, Nice employees already felt the difficulty in pushing market performance. Most frontline employees share information; they know the contract system is both a piece of fat and a tumor. Fat, because it can quickly boost wages in the short term, but at the expense of the market—you compress two to three years of future volume into one year. Tumor, because this year's market data looks great, but what about next year? The year after? The future? Uncontrollable. Wei Yingzhou, boss of Master Kong, said when acquiring Pepsi, "I don't believe anyone would give up a job for money." Liby is also willing to bet: salespeople see this year's wages and continue next year, balancing out so they don't earn much more, but the company gains short-term growth. With this gambling mentality, the result of Liby's first year of the contract system was that 2017 sales grew at least 20% over 2016. That year, employees under the contract system received decent salaries. For example, Xiao Zhao, responsible for KA, received a post-tax bonus of 300,000 yuan at year-end. Xiao Zhao said he resigned just one month before completing a full year under the contract system because he passed the civil service exam. At Liby, there are many employees like Xiao Zhao who resigned. The end of 2017 saw the largest wave of resignations at Liby. Of course, everyone had their reasons. Liby honored the contract bonuses as promised. But Xiao Zhao and others felt the bonuses were somewhat less than they calculated, though at least they were paid. What puzzled Xiao Zhao and others was that the contract deposit they were promised was not returned. Liby's HR explained that the deposit was an investment fee, and since employees had already received investment returns, the deposit could not be refunded. But Xiao Zhao and others searched the contract and found no wording that turned the deposit into an investment fee. Additionally, although they did not participate in the 2018 contract system, 10% of their bonuses were deducted as the 2018 contract deposit. Part of their 2017 bonuses was also reserved for their successors. Legally, Xiao Zhao and others are in the right. After all, the contract clearly states it is a contract deposit, but upon resignation, the deposit becomes an investment; the bonus earned through hard work becomes investment returns—this is not honoring the contract. But Old Na believes: It is hard to discern how many of Xiao Zhao's reasons for resignation are genuine. It is hard to guarantee that some employees, when implementing the contract system, had already decided to leave after one year, leaving the market mess for successors. While we condemn the company for lacking morality and not honoring the contract, have we considered the losses our own behavior has caused the company? Although the relationship between employees and company is one of employment, not gratitude, should employees also consider whether today's outcome is the result of seeds they planted? When the company treats you unfairly, you curse; when the company gives you meat, do you feel grateful? You say you are grateful because you worked hard. Yes, you worked hard, but you also buried the company's future. Old Na once heard a story: A beverage company, to complete its Spring Festival task, implemented a commission system for all sales staff, linking performance to wages. After three months of the Spring Festival battle, salespeople could earn a year's salary. Yet even with such incentives, employees failed to complete the task, but the market was crushed. Finally, the company couldn't pay wages, and employees complained, "This company is really something," but they forgot the joy of earning a year's salary in three months. Settling Scores After the Harvest Old Na is not trying to blacken Liby. If Liby is wrong, I will criticize; but if Liby is not wrong, I won't find reasons to criticize. Now, Xiao Zhao and others are still demanding their deposits, but those who stayed are also having a hard time. The 2018 performance is definitely unattainable, so the 10% deposit from 2017 is naturally lost. That's not the worst. Now Liby is settling scores after the harvest. The contract system merely shifted future sales to 2017; it did not mean consumers actually bought that much. When performance doesn't break through, management's only idea is to reduce employee bonuses, even reclaiming money already paid out. The audit has already begun. Heilongjiang Province is one such province being audited and penalized. Liby accused the provincial head of falsely reporting distribution sales and inventory under the contract system, and reclaimed all contract bonuses paid to sales staff in Heilongjiang. Many frontline employees are very dissatisfied. After all, they were not the ones who falsified data. Based on their sales figures, the company should pay some bonuses, but now it's a one-size-fits-all approach, leaving many people's year of effort in vain and deeply disheartened. Employees have no say in the rules set by the company. Distributor Flight Besides employees suffering, Liby's distributors are also struggling. Rising performance means rising payments. Especially since Liby, to tie distributors down, requires them to exclusively distribute Liby's brand and no other products. Such a domineering stance is something even Mengniu, Yili, or international giants like Coca-Cola and Nestlé cannot achieve, but Liby has. "If you know it's detergent, you'd think it's drugs," Liby's distributors joke. But with profits from a single brand, how can distributors support the entire trading company's operations? Especially now that FMCG companies are fighting price wars, Liby's prices are becoming more transparent, and distributor profits are shrinking. From the jokes of Liby's distributors, it's clear that Liby leaves more of an impression as a detergent brand among distributors and secondary wholesalers. This also shows that despite countless advertisements, what remains in consumers' minds is still the most basic, low-end detergent. Can this be called successful product upgrading? Those in FMCG know that distributor products usually have "stars" and "cash cows." Star products typically don't make money; they help agents get truly profitable products into channels. Real profits come from non-star, second- and third-tier products. But the domineering Liby cuts off distributors' options. Some distributors secretly use relatives' names to distribute other brands, constantly fearing discovery. Others, under immense performance pressure, choose to scam and run. For example, Shengxin Supermarket, Liby's distributor in Sheqi County, Nanyang City, used the pretext of paying Liby to engage in high-interest private lending, involving up to 10 million yuan in supplier payments in Nanyang city and Sheqi County, then fled. Interestingly, the boss of Shengxin returned to Sheqi after fleeing, but doesn't answer calls or meet people—are runaway distributors now so mentally tough? And those seeking debts don't know how to protect their rights. A Letter to FMCG Companies The contract system has been around for three years. Nice's reputation is ruined, and Liby isn't much better. Yet companies still jump into this pit, like Blue Moon, which is also starting to adopt the contract system. For such short-term performance bursts, are companies really ignoring the future market? Nice has proven the contract system cannot continue; it only pushes products to terminals and cannot solve the problem of end-consumer purchases. Famous marketing expert Liu Chunxiong said that future new marketing is "connect users → users online → user privatization"; Tao Shiquan said Jiangxiaobai's success came from introducing one-code-one-thing in 2016. After selling products to consumers, Jiangxiaobai interacts with them. In the future, Jiangxiaobai will build a consumer interaction platform, ensuring user privatization and interaction. That is new marketing. But what about our FMCG companies? This is an era that especially needs to connect users, get them online, and then interact with them. But they are only obsessed with old routines: today you smear me, tomorrow I copy you, the day after we all engage in price wars. Can lower prices be cheaper than Pinduoduo's products? If you can't privatize users, truly, there is only a dead end. Although Laocunzhang now outsells Jiangxiaobai by billions, and although Liby and Nice each have tens of billions in sales, your marketing methods are no longer suitable for this era. The market is not pressed out, but it will definitely be pressed to death... Source: FMCG (ID: fbc180) -END-