Article | Liu Chunxiong / Teacher Liu's Forum (ID: liuchunxiong1964)
The transformation of distributors involves not only changes in business models but also in product mix strategies.
Traditional product mixes generally fall into three categories:
First: All well-known brands. Because well-known brands bring both sales volume and profit.
Second: Well-known brands + second- and third-tier brands. Well-known brands provide sales volume but little profit, so they are used to drive sales of lesser-known brands, creating a combination of volume and profit.
Third: Primarily lesser-known brands. This approach rarely scales unless the distributor is exceptionally skilled at turning lesser-known brands into regional successes.
Now, these three classic product mix strategies may be challenged.
1. Giants Struggle, Long Tail Gains Power
New influencing factors have emerged, requiring a re-evaluation of traditional product mix strategies.
The first factor is that major brands are all struggling, making it difficult to achieve sales growth by relying on them.
The second factor is the high transparency of prices for major brands. The emergence of B2B, in particular, has damaged pricing structures more severely than past cross-regional selling. Relying on well-known brands for profit has become harder.
The third factor is "bottom-line safety." Consumers are more accepting of lesser-known brands, and sales are no longer concentrated among well-known brands. As long as the product is good, lesser-known brands can sell well.
The fourth factor is "category integration." Some categories have low industry concentration and high product substitutability, such as snacks, condiments, food ingredients, stationery, and office supplies. In these categories, only category integration can create influence over retail terminals.
The fifth factor is increased product innovation. Extended price bands, category innovation, more shelf space, and smaller sizes for big single products all favor small and medium enterprises.
The direct consequence of these five factors is: giants struggle, long tail gains power. This landscape is changing distributors' product mix strategies, and traditional approaches are no longer effective.
2. New Product Mix
The direction for distributors' product mix should be platform-based. Simply put, it involves three product mix strategies: [Agency Brands] + [Private Labels] + [Category Integration].
- Agency Brands
Agency brands include both well-known and lesser-known brands. Well-known brands still have a significant driving effect, though not as strong as before.
- Private Labels
"Bottom-line safety" is the biggest shift in consumer perception, and the biggest beneficiaries are lesser-known brands. Recently, many small and medium enterprises have seen sales growth due to this trend. This is also a prerequisite for distributors to create their own brands. Of course, which categories are suitable for creating private labels requires careful consideration. Generally, the lower the industry concentration, the more suitable for creating private brands.
- Category Integration
The number of distributors will decrease in the future. The remaining distributors will tend to integrate categories, meaning they will achieve "category trusteeship" over retail terminals, supplying all products in a certain category.
With "category trusteeship," distributors shift from studying individual products to studying categories. Once category trusteeship is achieved, they must ensure both sales growth and profit growth.
Category trusteeship is a new trend. B2B platforms are doing this, and many distributors are also adopting this approach.
3. Focus on Core Functions
Some say distributors will be replaced by B2B, but I disagree.
However, non-core functions of distributors will be outsourced, such as logistics and distribution, which will shift from distributor delivery to "centralized warehousing and distribution."
Outsourcing non-core functions is a positive development, as developed countries have long adopted this practice.
Once non-core functions are outsourced, distributors must focus on core functions and strengthen them to the point of being irreplaceable.
What are the core functions of distributors? I believe it is promotion based on product integration. Here, there are two key points.
One key point is that the product mix must be stronger than before. Instead of studying individual products, distributors should study products based on categories.
The other key point is that the promotion function must be more professional and efficient.
Achieving these two points makes distributors difficult to replace.
The 3rd (CFIC) China FMCG + Internet Conference will be held in Chongqing in November 2017. The conference will closely focus on the theme "New Forces, New Ecology," inviting over 1,000 distributors, 500 brand owners, founders of 200+ B2B platforms, and 100+ investment and financing institutions to jointly explore new chapters of cross-industry integration!
Core topics of this conference:
- How can the FMCG industry leverage B2B to achieve new growth opportunities?
- How should the new supply chain behind new retail be built?
- How can intra-city logistics help B2B achieve leapfrog development?
Highlights of this conference:
- The industry's first "2017 China FMCG B2B Industry Competitiveness White Paper"
- Case studies of excellent distributors in transformation and upgrading
- Upgraded conference + exhibition, with Hall 6 Internet Technology Exhibition enhancing networking
- Leaders from well-known enterprises such as Alibaba Retail Link, GL Capital, Eternal Asia Supply Chain, Best Store Plus, 91JiuPi, and Hd123 will deliver speeches and share pioneering insights.
November 8-9, 2017
Xinyue Hall, Chongqing Yuelai International Convention Center
Registration is now open. Long-press the QR code below or click "Read Original" to register.
Add as friend and note "Conference Registration".
Click the links below to review the highlights of the 1st and 2nd FMCG + Internet Conferences:
2016 "FMCG + Internet" Summit Forum
-END-