Click the image for details Text by Liu Chunxiong / Teacher Liu's Forum (ID: liuchunxiong1964) Retail has now formed a four-sector landscape. One is KA, one is platform-based B2C, one is horizontally integrated retail (such as chain convenience stores), and the last is small stores. From the manufacturer's perspective, the game between manufacturers and retail is surrendering sector by sector. What makes manufacturers surrender is the right to allocate traffic. Retail profits mainly come from traffic allocation rights.

  1. Traffic Allocation Rights For KA, there has long been a saying: not doing KA is waiting to die, doing KA is seeking death. KA has traffic, so KA obtains traffic allocation rights. Pay money and you get a good position; with a good position, as long as you do promotions, you can sell well. KA's strength forces distributors to be unwilling to do it. But manufacturers have no choice but to do it, so manufacturers directly supplying KA is also a last resort. KA has 1 million+ SKUs and can survive without anyone. Every brand has a competitor waiting to take its place, so KA is not afraid. Now KA is being marginalized. Many people say in their hearts: if I had known this would happen, why did I do it in the first place? Traffic exhaustion has led to KA's marginalization. For B2C, there is a similar saying: not doing B2C is waiting to die, doing B2C is seeking death. Large manufacturers doing B2C are also forced. B2C has 10 million+ SKUs. Because there is a steady stream of traffic, traffic redistribution becomes the main source of B2C revenue. In a closed bidding system, the sum of profits of all bidders is zero. This can be proven mathematically. If you do not bring your own traffic and traffic comes entirely from platform bidding, then entering KA and B2C is unprofitable. The platform recently has been touting the word "empowerment." Why empower? Because only through empowerment can some manufacturers survive. The dilemma for manufacturers in KA and B2C is like this; it is determined by structure. Unless B2C opens its search system, manufacturers can obtain other low-cost traffic sources. Opening the search system—wouldn't that be asking for the platform's life?
  2. B2B: The Life-and-Death Struggle for Manufacturers We have already discussed KA and B2C. Horizontally integrated retail generally allows direct manufacturer-retailer cooperation, with a relatively relaxed environment for big brands, but it is difficult for small brands to enter. Now, we should analyze B2B. As mentioned earlier, the largest sectors in the retail landscape are four. KA and B2C are a deadlock for manufacturers, currently unsolvable. If B2B remains a deadlock, then manufacturers have no way out. B2B targets small stores. In the past, small stores were small and scattered, and although their sales share declined, they were the main source of profit for manufacturers. Hence, there is a saying: KA for sales and image, small stores for profit. B2B practices, whether it is franchising small stores to turn them into a closed B2B system, or eliminating distributors to gain channel monopoly, are disasters for manufacturers. Strong manufacturers have always controlled the distribution channel and through it, the terminals. Although the costs are not low, they are controllable. Once B2B becomes the only source of traffic, then B2B will have the same outcome for manufacturers as KA and B2C.
  3. The Way Out for Manufacturers in the B2B Environment B2B will definitely succeed; there are only two questions: First, who will succeed? Whoever succeeds, it is B2B's success. Second, what model will succeed? Different models have huge impacts on manufacturers. If a closed B2B platform like B2C succeeds, then the success of one platform is a disaster for all manufacturers. By closed platform, I mean closed traffic, where the platform obtains traffic allocation rights. You should know that B2B is much larger in scale than KA and B2C. KA and B2C only account for a proportion of retail; some predict B2C will account for no more than 20% of retail share. B2B's share is not calculated based on retail; its scale far exceeds B2C. A KA has SKUs in the order of 1 million+, a B2C platform has SKUs in the order of 10 million+, and B2B's SKUs will only be larger. In front of B2B's SKUs, KA and B2C's SKUs can be ignored. KA and B2C are already a deadlock for manufacturers. If B2B is also a deadlock, manufacturers have no way out. If a society's commercial system has no way out for manufacturers in all major outlets, then such a commercial system should not exist. Therefore, there must be a B2B system different from the B2C form.
  4. There Will Always Be a Way Out A B2C platform actually consists of two collaborative systems: one is the traffic and order system; the other is the logistics and delivery system. For JD.com, the above two systems are combined into one. For Alibaba, the two systems are separate; logistics and delivery are third-party, although not completely independent third parties. I predict B2B will have three systems: [order system], [delivery system], and [promotion system]. Whether the delivery system is an independent third party is not important; it is just an efficiency system, and whoever is efficient gets it. It is also a tough system that people accustomed to the internet are unwilling to do. The remaining question is whether B2B will, like B2C, integrate the traffic and order systems into one. Such a system I call a closed system.
  5. Traffic System: Manufacturers Must Not Let Go Why is B2C limited in scale? Because the products it suits are generally low-frequency, high-value or high-price, non-immediate consumption products with relatively low repurchase rates. B2B products are often the opposite: high-frequency, low-value, immediate consumption, with very high repurchase rates. Products with very high repurchase rates also have particularly long promotion cycles. With long promotion cycles, B2B platforms are not very qualified "promoters." Platforms are more suitable for one-time promotions. The promotion cycle for FMCG products can last several years, which is difficult for platform promotion to complete; only strategic channel partners are willing to do it. Therefore, based on my judgment, B2B platforms will be open traffic systems, meaning the traffic system and order system can be separated. Of course, as long as it is a platform, it will have traffic allocation functions, but the question is which one dominates. Current B2B platforms have copied B2C thinking. Current manufacturers also think about B2B using the B2C template. This is problematic. Having said that, the answer is already there. However, I should still formally respond to the theme. For manufacturers, delivery can be handed over to the platform, and the order system can also be handed over to the platform, but the promotion system (i.e., the traffic system) must not be let go. When choosing a B2B platform for cooperation, you must choose a suitable platform. For closed platform systems, no matter who the claimed background is or how much money they can burn, things that do not conform to logic cannot be burned out with money. For distributors, of course, they should gradually transform, but they must choose a transformation that conforms to the future. No matter how they transform, the core function of distributors (promotion function) cannot be lost. Click the image for details The 3rd (CFIC) China FMCG + Internet Conference will be held in Chongqing in October 2017. The conference will closely focus on the theme "New Forces, New Ecology," inviting domestic 1000+ distributors, 500+ brand owners, 200+ B2B platform founders, and 100+ investment and financing institutions to jointly explore a new chapter of cross-border integration! Core topics of this conference:

  • How can the FMCG industry achieve new growth opportunities through B2B?

  • 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"

  • Sharing of excellent cases of distributors' transformation and upgrading

  • Conference + exhibition upgrade, with Hall 6 Internet Technology Exhibition strengthening connections

  • Leaders from well-known enterprises in various fields, including Alibaba Retail Link, GL Capital, Eternal Asia Supply Chain, Best Store Plus, Yijiupi, Unilever, Hisense Technology, and Yunmei Shares, will give speeches and express pioneering views.

October 17-18, 2017 Chongqing International Expo Center Registration is now open. Long press the QR code below or click "Read Original" to register. Early bird tickets before September 15 enjoy a 30% discount! Add friend and note "Conference Registration" Click the links below to review the highlights of the first and second FMCG + Internet conferences: 2016 "FMCG + Internet" Summit Forum 2017 (2nd) China FMCG + Internet Conference Click the links below to review the highlights of the first and second FMCG + Internet conferences: 2016 "FMCG + Internet" Summit Forum -END-