"If you're afraid of death, drink Wang Laoji." Behind this melodramatic plot, what kind of farce is it? And what marketing dilemma in the FMCG industry does it reflect?

FMCG market downturn: caused by multiple factors such as channels and new products Bain recently released its "Double-Speed Growth in China's FMCG Market - 2017 China Shopper Report," which shows the opportunities and challenges facing FMCG. This is the third consecutive year that CBN Weekly's "Report" column has analyzed the FMCG industry, with the previous two years' keywords being "slowdown" and "differentiation."

From the overall industry environment, the situation has not improved. In 2016, the sales growth rate of China's FMCG market was only 3%, a decrease of 0.6 percentage points compared to last year, and far from the 11.8% growth rate in 2012. The culprit is the sluggish growth in FMCG sales volume, which grew only 0.6% compared to last year. Average selling prices also showed weakness, with price growth falling from 4.4% in 2015 to 2.4% in 2016, slightly above the inflation rate.

Beverages are the most impacted category. In the past year, annual sales growth was only 2.0%, down from 5.5% in 2015. In the three years prior, this category maintained annual sales growth of 9% or higher. The cliff-like decline is mainly due to stagnant average selling prices, which grew only about 1.2%, down from 6.1% the previous year. More seriously, the lower average selling price did not stimulate consumer purchases, with annual sales volume growth of only 0.8%.

In the domestic beverage market, the past was brand competition > category competition and product competition, but now it is category competition and product competition > brand competition, somewhat like "a random punch beating an old master." In the light beverage segment alone, strong products have crowded in, including Coca-Cola's Schweppes +C and Aquarius, Suntory's沁×水, Uni-President's Sea Words, and Mizone's "Fiber Series" and light fruit-flavored water drink Suiyue.

On the other hand, domestic consumers' tastes change too quickly. Foreign beverage markets, especially in Europe and the US, are not enthusiastic about new products, and categories are few. Often a single product can maintain a golden period for ten or even twenty years. Take Coca-Cola, for example: one product, one flavor, selling well for a century.

Chinese tastes change too quickly, but industry competition has entered a category war, creating a dilemma: launching new products is risky, but not launching them is also risky. Launching new products is like a gamble; if you win, the entire product or brand can turn around, but if you lose, you hope for a chance next year. Driven by gambler's psychology, most new beverage products are short-lived, with a survival rate of only 5%.

The low survival rate of new products is due not only to rapid taste changes and gambler's psychology, but also because China is in a period of rapid informatization and industrialization, and the rise of the new generation of consumers has led to a mismatch in product innovation. The overall beverage product R&D capability is very lacking.

Changes in sales channels cast another shadow over FMCG Looking back at the development history of China's FMCG, the most representative is the history of FMCG marketing channels. In less than forty years, countless people have grown from novices in the FMCG industry to elites, from starting from scratch to becoming wealthy, growing alongside FMCG channels. They adhere to the principle of "having a position to make a difference," fully implementing "winning at the terminal" and "the terminal is king."

However, in the past two years, they suddenly discovered that the world they knew is no longer what it used to be. The former winning strategies—channel refinement, terminal interception, human wave tactics, and promotional push-pull—are still effective, but with the same cost-benefit ratio, the output is not satisfactory.

Behind the continuously rising sales volume is more intense competition and harder work: more personnel, longer leverage, more capital investment, higher risks, but profits are declining.

In supermarkets, a promotional event used to yield several times the return, but in recent years, special displays and promotions have become more like a conspiracy: spending thousands of yuan, but the gross profit is not enough. If you don't do it, fixed costs are there, and the hard indicator of market share is also there. If sales are poor, the product becomes increasingly marginalized until it eventually disappears.

Manufacturers and distributors have to rely on supermarkets, but conversely, if they don't exploit suppliers, supermarkets can't survive. The market has turned supermarkets from institutions that profit from operations into platform institutions.

In the circulation channel, the same problem exists. Manufacturers cannot deliver products to consumers themselves; distributors at all levels take on the distribution function and naturally take a portion of the profits. Terminal refinement also requires costs, and various activities require substantial investment. Terminals can only pass the burden up level by level, and ultimately, everyone on this long chain bears the cost, and no one makes money, becoming brothers in adversity in the supply chain.

When competition in traditional channels has become white-hot, we naturally turn our attention to e-commerce. Liangpin Shop, Three Squirrels, Baicaowei, Zhou Hei Ya... These internet miracles seem to point the way forward. However, the snack food e-commerce represented by Three Squirrels and Liangpin Shop share common characteristics: focusing on popular categories like nuts for low-price battles, buying traffic at high costs for promotion, in exchange for sales "great leaps" of over 100 million yuan, but behind this are bleak profit margins, even falling into the situation of "working for the platform."

From this, we can see that Wang Laoji's choice of a suicidal marketing approach is essentially due to the downturn in the FMCG market, especially beverages. They try to take things out of context, even distorting facts, to enhance Wang Laoji's unique functional value and maintain its throne as the leader in herbal tea. Unfortunately, Wang Laoji overestimated its marketing capabilities and seriously underestimated netizens' intelligence.

FMCG marketing myths no longer: repeatedly surpassed by internet brands The FMCG marketing department was once the jewel in the crown of marketing, but now it has been overshadowed by internet industry marketing departments. Once upon a time, the ads everyone saw were almost all from FMCG brands, from Rejoice to Pantene to Head & Shoulders, from Lux to Dove to Clear. FMCG marketers were also considered the best, and brand managers at P&G and Unilever were in high demand.

Now, more than half of the ads we encounter daily are from internet brands, and we talk with relish about which app's hot event has gone viral. When a rare FMCG case appears, the praise is: "Wow, the traditional industry actually has internet thinking!"

Wang Laoji's idiotic marketing farce is a microcosm of the decline of FMCG marketing. Why has this former marketing stronghold been surpassed by internet company marketing?

In Zhigang's view, the main reasons are as follows:

First, companies with different business models have different attitudes toward traffic. For internet companies, profits mainly come from advertising, games, and value-added services. Game companies account for a small proportion, and advertising revenue is the main source of income for most companies. As we know, Alibaba, Baidu, JD.com, Toutiao, etc., have core revenue from advertising, and an important dimension for judging advertising value is user volume and platform traffic index, for reasons that need no elaboration.

For internet companies, marketing accounts for a high proportion, essentially due to a thirst for traffic. Traffic is related to the company's lifeline. Internet companies do marketing to obtain traffic, which is essentially the same as traditional companies, such as a knife manufacturer buying steel or Wang Laoji buying herbs; it is part of production materials.

For traditional companies, even if they are TO C FMCG, marketing is only to increase sales, not raw materials for production. Like a tiger chasing prey, for the tiger, the prey is just a lunch, but for the prey, it's its life. With different strategic significance, the effort will naturally be different.

In addition, physical product concepts like Wang Laoji, unlike internet virtual products, require actual purchase. Internet companies have higher marketing conversion rates because users can use the product directly without purchasing. From the perspective of marketing conversion rate, internet company marketing is also more efficient than traditional companies like Wang Laoji.

Therefore, although FMCG is a TO C product with a high marketing proportion, compared with internet companies, it inevitably falls short. Different attitudes toward traffic among companies with different business models are an important reason for the decline in marketing quality and proportion in FMCG in recent years.

Second, different industry profits lead to talent drain in FMCG marketing The FMCG industry is a typical traditional industry. In recent years, traditional industries have been declining, with intense competition, no network effects, and high marginal costs, making it difficult to expand rapidly like internet companies. Ten years for an internet company equals a hundred years of development for a traditional industry. Many companies established just a few years have gone public with valuations of over ten billion.

Different profit development speeds lead to different employee incomes. In terms of year-end bonuses, traditional companies are not as good as internet companies. Therefore, many marketing experts in FMCG have moved to internet companies. For fresh graduates, under the wave of internet+ in recent years, most prefer to enter internet companies, and traditional industries cannot replenish talent in time. Therefore, the decline in FMCG marketing level is the result of changes in the entire industry structure.

But we can also see new phenomena: more and more big brands, especially profit-oriented foreign brands, are taking the lead in cooperating with internet e-commerce, embracing the internet and new retail with practical actions. I believe more FMCG brands should know what to do, but those like Wang Laoji are clearly overdoing it.

Source: Pintu Business Review -END-