Where should my products be sold? This is a question every FMCG practitioner thinks about. Although many mature companies already have complete market channel models, channel design is not set in stone. Especially in today's social environment, the market changes rapidly, and the channels for selling goods are becoming more numerous and more segmented. Coupled with China's vast territory and complex retail formats, how to design a good market channel has become the key to the survival and development of FMCG manufacturers. -01- The quality of channel design determines success or failure Let's start with two cases about market channel design. Case 1: Wahaha—Success and failure both due to the joint sales system In the past quite a long period, Wahaha developed rapidly, maintaining a high growth rate of 30%-50% almost every year, with peak sales exceeding 70 billion yuan. At that time, Wahaha's leader, Zong Qinghou, once answered the secret of growth: "Relying on our joint sales system." Here's an explanation: the so-called joint sales system is a close sales alliance between Wahaha and distributors nationwide, characterized by a prepayment system—cash before delivery. It makes the company and wholesalers at all levels a community of shared interests. Wahaha established the joint sales system in the 1990s, which was a pioneering move at the time. It brought Wahaha to the position of a beverage kingdom. However, after more than a decade of development, starting from 2013, Wahaha's revenue began to decline gradually. In 2013, it was 78.3 billion yuan, and the plan was to exceed 100 billion that year. Unexpectedly, from 2013, Wahaha's revenue never recovered. 2014: 72.8 billion; 2015: 67.7 billion; 2016: 52.9 billion; 2017: 45.6 billion. In just five years, it shrank by more than 30 billion. Why the sharp decline? In my view, it's still the fault of the joint sales system. In the 1990s, when the commercial circulation industry was just emerging, establishing close cooperation between distributors and manufacturers helped eliminate purely profit-driven distributors. At the same time, since distributors paid their own money, it also stimulated their sales enthusiasm. At that time, it was entirely a wise move. But there were hidden dangers. First, distributors only consider their own interests, and the manufacturer's management reach only extends to distributors, ultimately resulting in no one serving the terminal outlets. Distributors only sell products that sell well and are profitable, and are unwilling to promote new products. Second, the entire social environment was also changing. Urbanization accelerated, and there are now more than twenty cities with a permanent population of over ten million. Due to the siphon effect, more and more young mainstream groups are flocking to big cities. At this time, the urban retail format also underwent major changes. Mainstream retail became modern channels such as supermarkets, hypermarkets, and convenience stores, rather than just the traditional mom-and-pop stores. In the past, to protect the joint sales system and the interests of traditional channels, many distributors did not operate in modern channels because of various stringent terms, such as payment periods, slotting fees, barcode fees, display fees, etc. With the rise of modern channels and the decline of traditional channels, Wahaha faced challenges. Of course, Wahaha now seems to have realized these problems. With the prevalence of internet e-commerce, it is actively engaging online. It is said that several products are selling well online. This example illustrates the importance of channels to manufacturers. A suitable channel may allow a manufacturer to rise rapidly. But at the same time, channels are not immutable; they must be reformed in a timely manner according to changes in the external environment. Case 2: Coca-Cola—Complex channel design to ensure maximum coverage Coca-Cola's channel design is relatively complex. It does not use Wahaha's joint sales system, nor does it rely entirely on its own strength to cover terminals. Instead, it uses a multi-line combination to ensure maximum outlet coverage. Coca-Cola has more than 30 factories in China, basically covering the east, west, north, and south. Large provinces generally have their own factories, while smaller provinces may share one factory between two provinces. Through local factories, the radius of the supply chain from the back end to the front end is greatly shortened. At the same time, each factory is equipped with a dozen or twenty logistics distribution centers to handle distribution tasks within a reasonable radius. For different downstream outlet customers, Coca-Cola designs different coverage methods. For example, modern channels are directly operated by local branches, directly connecting with convenience stores, chain KA hypermarkets, and specific VIP customers, with distribution completed through distribution centers. For traditional channels, Coca-Cola has set up 101 partners and wholesalers. Among them, 101 partners are only responsible for distribution and payment collection, while service is provided by Coca-Cola's frontline sales representatives who take orders. Wholesalers serve short-distance terminal outlets and special channel outlets. These outlets do not have frontline sales representative service. This seemingly intricate design has the advantage of risk diversification and high flexibility. There are multiple paths—101 distributors and wholesale customers can switch at any time, so it's not just one path that could be blocked. At the same time, channel members can check and balance each other, and each link can obtain reasonable gross profit. Of course, frankly speaking, there are also disadvantages: the initial fixed asset investment (factories and city warehouses) and personnel investment are very large. But the investment also yielded corresponding returns, ensuring Coca-Cola's sustained growth in China. From these two cases, it can be seen that channel design is of vital importance to FMCG manufacturers; it is a matter of life and death, and it is the first step for products to go to market. -02- Three principles for designing a market channel from scratch Undoubtedly, today's channels are far more numerous than in the past. In the past, there was no online, and many people didn't consider it. But now, if you don't pay attention to online, you will basically be eliminated. Although for mass FMCG products, the capacity of online channels is not large, its importance is not low at all. Some companies may only do online, with small volume, only 4-5 million in sales, but net profit can even reach 1-2 million. Besides being related to the category, online channels also shorten many intermediate links. The above is an overview of the current mainstream channel classification. Online channel selection is relatively simple. The platforms or companies behind the channels are not particularly numerous, and manufacturers can consider direct negotiation for cooperation. Offline channels, because retail outlets are wide, numerous, and complex, are relatively cumbersome to design. Offline channel design can basically be divided into four types:
1) Manufacturer → Terminal (hypermarkets/supermarkets, convenience stores, some special channels, etc.); 2) Manufacturer → Distributor → Terminal (distributor functions: logistics, capital, sales); 3) Manufacturer → Delivery Partner → Terminal (delivery partner functions: logistics, capital; manufacturer sales reps responsible for sales); 4) Manufacturer → Consumer (manufacturer directly opens retail stores). For the above four channel designs, three principles must be grasped: 1. Time priority principle Except for daily chemical products, most FMCG products have a shelf life, and the trend is that shelf life is getting shorter and shorter. For example, beer has already appeared with a 6-month shelf life, which places very high demands on the channel. Multi-level, long-level channels are not feasible. Of course, under the time priority principle combined with cost factors, FMCG products are fast in and fast out, and the unit value is relatively low, so you cannot directly open direct-operated stores just for time priority. Therefore, under cost factors, design the channel combination that is optimal in time. 2. Interest balance principle In the FMCG industry, no FMCG company can completely use its own resources to sell goods to consumers. Even companies like Zhou Hei Ya, which open offline stores, are completed by agents. FMCG companies cannot directly reach every consumer. They can only leverage social resources, using social wholesalers, and through their social networks and relationships, distribute goods to terminals. This involves the issue of profit distribution: how should the interests of distributors at each level be divided, and how much? How should the interests of new products and best-selling products be matched? All need to be reasonably calculated. For companies that also lay out online and offline, the key is to balance the price conflict between the two. Of course, from the current point of view, every company is not doing very well. Some FMCG B2B platforms often are not to earn gross profit, but to increase volume, data, and transaction value. Currently, some simple methods are to separate SKUs, typically by adjusting packaging specifications and capacity, and at the same time, prohibit regular offline best-sellers from being given to online platforms. Some companies, such as Red Bull, have only two products and directly refuse to cooperate with online platforms. 3. Service priority principle Now the offline FMCG market competition is very fierce, especially in the beverage category. Almost all beverage categories can be said to be competitors. No consumer will buy two bottles of beverages at the same time and drink them simultaneously. Based on this consideration, we can see that FMCG manufacturers invest a large amount of market expenses into the display shelves of terminal outlets in the "last mile of consumption." Finally, according to the characteristics of the category and outlets, they design the channel model. Therefore, in the process of designing the market channel, priority should be given to considering in what way to serve the terminal market, and then work backwards to select the corresponding market channel. Instead of designing the channel first and then considering serving the market. Take a local Walmart as an example. For such terminal outlets, obviously, distributors do not have the ability to provide service; only the company can operate directly. Along this line of thinking, design how to match the channel model for modern channels represented by Walmart. -03- For a new product, should it be online or offline? Many people ask me: If I am a new company launching a new product, how should I design the market channel? Reviewing the current mainstream brand owners' channel design, its core purpose is to maximize outlet coverage and pursue the density of outlets. Some new products may be confused: should they also pursue outlet density? In fact, simply pursuing density is meaningless for new products. Products launched by manufacturers in the past have developed into mass products. It can be said that there is no specific user profile; from children to middle-aged consumer groups are target groups. But now new products, especially those just launched, cannot expect everyone to like them or everyone to consume them. Increasingly segmented consumption scenarios and specific consumer groups require targeted solutions. Sell where users appear, and sell where users consume. Starting from consumer needs, redesign the channel model. When launching a new product, whether to go online or offline may be a dilemma for every FMCG company. Frankly speaking, in the past, choosing online channels was definitely better than offline, but now it's not necessarily so. Although it seems there is no fixed investment and the online link is shorter, today's online operating costs are increasingly approaching offline. Therefore, whether to choose online or offline should be viewed rationally. The difference between online and offline, simply understood, is that offline can develop multiple SKUs, while online is about single-product breakthrough, not multiple products. For example, doing business on Taobao, putting 200 SKUs and 20 SKUs is the same; maybe 200 SKUs is worse. In the end, only 2-3 SKUs can sell well. This is related to the mobile page display. But offline, a Walmart store's beverage area may have 500 SKUs. 500 SKUs on a phone screen would require flipping through n screens, and consumers wouldn't have that much patience to browse. But when consumers walk into Walmart, they can stroll around, and 500 SKUs is fine because they are already in the store. Therefore, the logic of online and offline operations is different. If your product has characteristics, personality, and differentiation, consider going online. But if the product's characteristics are not obvious and it has strong immediacy, it is recommended to go offline. Because offline, the possibility of being randomly selected is greater. Of course, for a startup company, going online is relatively more suitable. Startup companies often have a single product, which fits the online best-seller approach. At the same time, online channel inventory is more controllable. **If you want to go offline, before you actually start selling, you need to prepare 50,000 cases of product and distribute them to stores; otherwise, you won't even have the chance to reach consumers. Online, it doesn't matter if you have zero inventory; you only need pictures, and you can pre-sell, or you don't need to prepare much inventory; you can produce after orders come in. Conclusion: Finally, returning to the enterprise itself, the design of the market channel must be determined based on the company's strategy. What kind of business does the enterprise want to do, what resources to allocate, and then implement the design of what kind of channel. Coca-Cola's strategy is to expand coverage, but to achieve maximum coverage, we cannot invest unlimited personnel. So what sales managers need to do is, under Coca-Cola's established strategy, how to achieve maximum coverage with limited personnel investment, and that requires designing your market channel. About the author: Pan Lihua, Sales Operations Manager at Swire Coca-Cola, student of Dedao University's 0th cohort. Over 15 years of Coca-Cola sales management experience, familiar with FMCG market layout, strategy formulation, and team management. Good at market insight and team motivation. Tips will be paid 400-2000 yuan once adopted.