As online traffic becomes increasingly expensive, how can we achieve traffic growth? Mr. Chen Hongwei, co-founder and deputy general manager of marketing at Guangzhou Bingquan Cosmetics Technology Co., Ltd., uses Bingquan Daily Chemicals as a case study, combined with his years of practical experience, to explain how to turn traffic into growth in an era of traffic restructuring. This is an era of traffic restructuring Today's sharing theme is "The Future of Change under Traffic Restructuring," and there is a key word: restructuring. Many people might say that traffic should be the key word. Yes, traffic is a key word. During the three years of the pandemic, many traditional offline consumers flooded into the internet, becoming traffic. What is traffic? It is money and value. Where traffic goes, business goes. Whoever controls traffic controls business opportunities. From this perspective, traffic is a key word. But when everyone is talking about traffic, traffic becomes a "pig" on the wind, priced and marginally priced according to market conditions. Traffic has become a commodity, and it has also fragmented. In the past, people might have had three to five shopping channels, at most six, but now there are more than a dozen. The purchasing power of the entire society has not grown, but the number of channels has dispersed, so the volume in each channel has decreased. The existing business in those channels is hard to do, and only the incremental business in emerging channels is good. So everyone feels that traditional business is getting harder and harder. In addition, traffic has shifted. After the pandemic ended, everyone found that traffic began to shift from online to offline, because online traffic is too expensive and competitive, while offline still has a lot of low-cost natural traffic. Furthermore, traffic is dynamic. Some consumers may buy high-ticket items today, but a week later, they may buy a similar product with extreme cost-effectiveness. The crowd label for such people is a dynamic state, difficult to define. From this perspective, how we restructure traffic to maximize its value is the theme we need to think about. From this perspective, I think restructuring should be the key word. Here are two tables. Just mentioned that traffic has shifted. Why has it shifted? This is the growth rate of China's online retail sales from 2015 to 2022. Starting from 2015, it grew at a double-digit rate every year, until 2022. Starting in 2022, the growth rate dropped to single digits, only about 5%. The right chart shows the online retail penetration rate in China from 2015 to 2021, from 13.53% in 2015, reaching a peak of 30% in 2020, then declining from 2021, and only 27.2% in 2022, indicating that traffic has shifted. It can be said that 2021 and 2022 are a turning point, where online and offline reached a balance, and neither can eat the other. In the past, when chatting with many peers and distributors, everyone was anxious because the internet was developing too fast, and some cosmetics companies even collectively transformed online, such as Proya, with online sales accounting for more than 80%. But looking at this data, we feel gratified that a balance has been reached. In the oral care industry, in 2022, online sales of toothpaste accounted for only 25.6%, and toothbrushes only 15.7%. If we weigh toothpaste at 70% and toothbrushes at 30%, the total online sales are less than 23%. Offline remains the main battlefield for oral care and even the entire daily chemical products. So there is a saying circulating online: In 2022, return to offline; in 2023, return to growth. From now on, let's not say business is hard and not growing. We must abandon all excuses and reasons for not growing, eliminate all channels and products that don't grow, and find growth opportunities for new products and new brands. New traffic structure Look at the composition of the new traffic structure: online, in the past, there were Taobao, JD.com, Pinduoduo, Vipshop, WeChat business, and Xiaohongshu. Especially Taobao, JD.com, and Pinduoduo, in the year of the pandemic, these three channels accounted for 97% of online sales. It can be said that the "troika" monopolized the entire internet retail. But now, traditional e-commerce led by Taobao and JD.com accounted for 57% last year, and social e-commerce led by Pinduoduo accounted for less than 20%, which means it dropped from 97% to 77%. The remaining 20% share was taken by emerging e-commerce mainly on Douyin and Kuaishou, which is the incremental market. Traditional e-commerce and social e-commerce have become traditional markets, while emerging e-commerce has become the incremental market, and the structure has changed. Offline, the main battlefields in the past were hypermarkets, CS channels, circulation channels, and wholesale markets. Who is still talking about hypermarkets now? China's first hypermarket was Carrefour's domestic store opened in Beijing in 1995, which has already closed. Currently, Carrefour has only about 40 stores in China, down from a peak of over 360 stores. Now Walmart is still doing well, with over 300 stores, down from a peak of over 400. But with 360 stores, its sales last year were only over 30 billion yuan. The most popular now are warehouse membership stores. Sam's Club has only 45 stores, but its annual revenue is 100 billion yuan. The hypermarket model is declining. In the past, people enjoyed one-stop shopping, but with the impact of the pandemic, people's consumption habits and awareness have fundamentally changed. They are no longer willing to go to shopping malls, especially hypermarkets. You can notice a characteristic: whether you go this year or next year, the products, displays, images, and promotions are still the same. Look at Sam's Club: 45 stores, 500 front warehouses, actively moving online, offering next-day and day-after delivery. 60% to 70% of their sales come from front warehouses. This is change, this is new. If hypermarkets don't change, they will die sooner or later, because families are now smaller, purchasing power is declining, and people don't need one-stop shopping. With the rise of emerging channels, shopping has become simpler. There are also many new trend stores like KKV, as well as standard supermarkets, township supermarkets, convenience stores, and discount stores. Small and medium-sized stores must be the focus of our attention in the future. Recently, I chatted with wholesale market customers who mainly serve small and medium-sized stores and rural stores, and found that their business has returned to the level of 2019. Small and medium-sized stores have a future. New traffic tactics Traffic restructuring drives changes in traffic operations. In the past, traffic tactics online were node promotions, integrated marketing, IP marketing, price marketing, 618, Double 11, back-to-school season, and hitting the bell on time. Now e-commerce is about hit product thinking. Teacher Li said that offline it takes 18 months to make a single product, but online, if you have an existing packaging system, you can launch a new product in 15 days, or 45 days at most. If this product doesn't work, switch to the next one, very fast. If you bet on a product correctly, it could be tens of millions in sales. Can current e-commerce build brands? It's hard, because there is no system, only hit products and single products. Without system support, it's hard to build a brand; you can only make a product. In the past, online business was about product business and goods business. If you got the product, price, and promotion nodes right, you had traffic. Now online relies on influencer promotion, live streaming promotion, content promotion, and private domain promotion, revolving around people. If you get a streamer, you get tens of millions in business. You have to find the platform and the right people to find traffic. In the past, offline relied on main displays, stack displays, end caps, pillar wraps, exchanges, internal purchases, DM, campaigns, manufacturer weeks, and weekend promotions. Now offline emphasizes unmanned promotions, because labor costs are rising, and products need to sell themselves. It is crucial that your product's selling points, brand value communication, packaging, weight, and price meet the channel's requirements. For example, many offline stores previously had promotions like 99 yuan buy one get one free, but now such activities are meaningless because consumers have been spoiled. If you don't discount, consumers won't buy. If you do 99 yuan buy one get one free for three months, you must halve the price afterward. New traffic investment For new traffic investment, offline in the past included entry fees, display fees, promotion fees, and personnel costs. This was a human wave tactic, collectively called channel fees. In the past, all offline supermarkets and hypermarkets made money from channel fees. But now, as long as you can enter the store, it's not a problem. Now, pillar wraps have become a scarce resource, serving both as image display and product sales, making them the best "salesperson." But there are only a few pillar wraps. Including our Bingquan, we have made customized products in many channels to meet consumers' personalized and fashionable needs. One set of products conquering the world no longer works. Online is also the same. In the past, there were display fees, customer acquisition, Xiaohongshu seeding, and off-site traffic diversion. Maybe in the past, off-site traffic diversion had some free traffic, such as Bilibili, forums, and various groups like fitness groups and diet groups. But now it's different. Now it's called traffic investment. If you do live streaming, you must invest in traffic and buy traffic. So now online traffic is getting more expensive, costs are rising, including influencer fees, slot fees, various sales commissions, content production, and cross-border collaboration costs. For example, a very popular and successful cross-border collaboration case this year is Luckin Coffee and Moutai's cross-border launch of Sauce Latte. In the past, Moutai was sold bottle by bottle, but now Moutai can be sold drop by drop. "No matter how sweet the jujube is, it's not as good as watermelon with salt," arousing consumers' desire and interest. Luckin's Sauce Latte sold over 5 million cups on the first day, with sales exceeding 100 million yuan. New traffic innovation For new traffic innovation, we mainly look at the online part. Frankly, offline innovation is not that fast, just like the proportion of water, which is very large and converts very slowly. Online, in the past, there were diamond exhibitions, direct trains, customer operations, Taoke distribution, and node promotions. But now online has become brand self-broadcasting, influencer broadcasting, IP marketing, private domain marketing, and content marketing. For example, in the operation of self-broadcasting, through cooperation with top influencers, brands can quickly break through crowd circles and create buzz; through a massive matrix of influencers, amplify their own influence, expand product exposure/sales channels, and achieve multi-crowd circle breaking and customer acquisition; establish a basic position for brand self-broadcasting, build a self-broadcasting reservoir through good content, ensure daily sales, and achieve brand accumulation. After gaining a certain influence, combine content marketing, IP marketing, platform node marketing, etc., to create new momentum, continuously bring freshness to the brand, and achieve scale explosion. The future of change under traffic operation changes Under the changes in traffic operations, I believe that adhering to brand value, supporting product matrix, and manufacturer-distributor cooperation and division of labor are the short-to-medium-term future, while building private domain traffic, omni-channel integration, and organizational alignment support are the medium-to-long-term future. Adhere to brand value On January 1, 2021, after the new cosmetics management regulations were issued, the entire cosmetics industry officially entered the brand era. In the past, everyone talked about product first and channel first, but after January 1, 2021, it began to be brand first, because under the strictest new regulations in 30 years, many false claims, exaggerated claims, and scare marketing can no longer be made, such as mites and Helicobacter pylori that treats stomach diseases. The biggest characteristic of the brand-first era is severe product homogenization, because innovation is difficult unless you have strong R&D capabilities or first-mover advantages. Small and medium-sized brands will find it hard to survive; they must find their own brand value in brand innovation, and make their own characteristics and differentiation. Supporting product matrix In the past, one set of products conquered the world, but in the future, one set cannot. You need at least three sets: one for e-commerce, one for standard supermarkets, and one for circulation, otherwise prices will be chaotic. Once prices are chaotic, your distributors will have no profit, and they won't do your business, and you won't be able to continue. Manufacturer-distributor cooperation and division of labor Manufacturers do their own things, focusing on brand building and product development; distributors do their own things, focusing on channel operation and channel management. Now many distributors like to do their own OEM products, but frankly, few succeed. Manufacturers directly controlling terminals also have few successes; it's a waste of money and energy. So manufacturers and distributors must divide labor: manufacturers do what they are professional at, and distributors do what they are professional at. Cooperation is the most effective way. Build private domain traffic In the future, you must do private domain traffic. Some say that without public domain, you can't grow big. But without private domain, you definitely won't last long. Private domain is your Douyin, your live streaming, your WeChat, your video account. Many influencers have 10 million or 20 million followers behind them, but those are not your followers; they are the platform's followers. If the platform bans your account, you have nothing. But in the WeChat ecosystem, those followers are your own. So whether you are a distributor or a brand, you must build your own private domain traffic in the future. Omni-channel integration In the future, the final competition among enterprises will be supply chain competition and efficiency competition. What kind of product is most efficient? One batch of goods, one price, supplied to all channels. This actually conflicts with the supporting product matrix, but at different stages, we do different things. In the future, we must have one batch of goods nationwide at one price, so your product cost can be the lowest and efficiency the highest. Currently, many clothing and home textile industries do this, and some daily chemical brands also do it. For example, a certain skincare brand offers a 299 yuan set, with the same price online and offline, and it sells very well. This will be a future trend. Organizational alignment support This can be placed in strategy. 80% of people are choosing what to do and what not to do; 15% know that strategy is resource integration; the remaining 5% don't know. Strategy must lead the construction of organizational capabilities. Whatever business you want to do, you must have the right talent. Your organizational building is very critical. So in the future, all distributor bosses must make your organizational capabilities align with the trends of this era. New consumption, new trends. We must change around new consumption changes; we cannot stay unchanged. We must lay out around new trend changes. If we can't be foresighted, we can be hindsight, but we must never be unaware. Finally, I'll give you three sentences: New consumption, new future. As long as the road is right, don't fear the distance; as long as you choose the right direction, dive in and do it, and you will see flowers bloom as you walk; work seriously and plan with heart. The original says: Only with heart can you do well, and only with seriousness can you do right. The sentence about working seriously is for your team. The execution layer must work seriously according to standards, systems, and processes. But as a distributor boss, you must plan with heart, thinking about how the enterprise will develop in the future and how to adjust the organizational structure. In fact, many bosses do the opposite: they handle every detail seriously themselves because they are afraid employees won't do well. As a result, you work seriously, and your team plans with heart—by looking for other jobs. What changes will occur in channels, traffic, and markets in the future? Frankly, there is no answer. In this era of uncertainty, only by maintaining continuous progress, learning, and growth can we avoid being eliminated by this era. [This is the content of Mr. Chen Hongwei's speech at the 5th China FMCG Innovation Conference, specially organized into an article for readers (partially edited)]. PS: Friends interested in the on-site speech content can follow the recent push of the "New Distribution" WeChat official account. We will organize and publish all guests' speeches for readers. Click Read Original to see more of the 5th China FMCG Conference and the 1st China FMCG Distributor Conference...