---
title: "Zhao Bo of New Distribution: The Logic and Direction of Channel Transformation in the FMCG Industry"
description: "This article is a foreword written by Zhao Bo, founder of New Distribution, for the book \"The Password to Channel Construction: Digital Development and Practice of Consumer Goods Channels.\" It analyzes the evolution of China's retail and distribution channels, the rise and limitations of deep distribution, and the necessity of digital transformation in the face of changing market dynamics."
author: "赵波"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
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published: "2024-05-20"
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# Zhao Bo of New Distribution: The Logic and Direction of Channel Transformation in the FMCG Industry

> This article is a foreword written by Zhao Bo, founder of New Distribution, for the book "The Password to Channel Construction: Digital Development and Practice of Consumer Goods Channels." It analyzes the evolution of China's retail and distribution channels, the rise and limitations of deep distribution, and the necessity of digital transformation in the face of changing market dynamics.

_**Foreword:**_ _This article is a foreword written by Zhao Bo, founder of New Distribution, at the invitation of Liu Zhao, founder of Qince, for the book "The Password to Channel Construction: Digital Development and Practice of Consumer Goods Channels."_
To deliver a product from the factory to the consumer, multiple steps are involved. These steps consist of two parts: one is the distribution path (通路), and the other is the channel (渠道). How do we understand the relationship between the two? We can think of the distribution path as the pipeline for storage and transportation, while the channel is the place where transactions and deliveries with customers occur. The distribution path is typically composed of multiple roles connected upstream and downstream, completing the circulation of goods through a relay. The channel, on the other hand, is a combination of various retail formats that simultaneously face consumers, meeting consumer needs based on different consumption scenarios.
For a brand manufacturer, to quickly deliver products to consumers in China, it must leverage the capabilities of the distribution path to achieve channel coverage.
Over the past forty years of reform and opening up, roughly every decade, a new generation of retail models has emerged in China's retail channels. To date, China has experienced four generations of retail models:
> First generation (1989-): Mom-and-pop stores, wholesale markets. Second generation (1998-): Chain convenience stores, hypermarkets. Third generation (2007-): Platform e-commerce, vertical e-commerce, private domain e-commerce. Fourth generation (2016-): Front-warehouse e-commerce (community group buying + flash warehouses), discount/membership stores (bulk snacks + hard discount + membership), interest e-commerce (category + KOL + content).
**China's retail market has an evolutionary pattern: from a market with relatively single retail types and a huge number of retail stores, it has gradually evolved into a market with increasingly diverse retail models and increasingly large sales volumes per retail entity.** Behind the four retail models, there are four corresponding distribution supply chain models:
> First generation: Distributor → Sub-distributor → Wholesaler. Second generation: Brand direct operation, distributor. Third generation: Brand direct operation, TP (Tmall Partner) operators, TP sub-distributors. Fourth generation: Brand direct supply, super supply chain, TP operators, distributors.
Looking at the distribution combinations under the four generations of retail models, we see that over time, the complexity of the entire distribution path and channels has increased exponentially. The number of players in the market is increasing, competition is intensifying, and it is becoming more and more involuted!
With the maturity of technology and the improvement of infrastructure, China's consumer goods value chain is continuously shortening, with disintermediation, digitalization, and efficient routing. Digitalization and visualization are the most urgent needs for distribution channels today.
China's first-tier consumer goods brands rose during a relatively simple market environment. Facing a vast market, brand manufacturers must deploy many factories nationwide to produce the same product to reduce production costs; then use centralized media to complete consumer education to improve communication efficiency; and finally find many distribution partners across the country to handle product delivery, and hire tens of thousands of sales representatives to complete distribution to millions of stores, thereby completing product delivery. Behind this is the HBG (How Brands Grow) model of large-scale production, large-scale communication, and large-scale distribution. It is a distribution model built on a single ultra-large-scale demand and a relatively simple retail type market environment.
Here, we must mention a distribution model that has had a huge impact on the Chinese market: **deep distribution (深度分销).**
Teacher Shi Wei, who first proposed and practiced deep distribution in China, described it as follows:
**Deep distribution emphasizes building an integrated manufacturer-dealer relationship, extending operational tentacles through distribution links to retail links, and gaining competitive advantage by establishing partnerships with distributors and retailers.**
Deep distribution was proposed as a solution to China's 1-6 tier multi-level three-dimensional market, the huge mom-and-pop store channel (6.8 million), the lack of large-scale logistics and supply chain systems, and the highly fragmented mom-and-pop retail model, as well as the actual situation of asymmetric capabilities and information asymmetry between manufacturers and dealers (consumers have low autonomous awareness influenced by channel behavior). Its solutions include:
> 1. Refined terminal layout (distribution rate, hierarchical management). 2. Terminal vividness construction (placement of various vivid materials, standardized and standardized use). 3. Terminal activation and interception (using shopping guides and promotions to intercept users). 4. Terminal incentives (sufficient profit space to stimulate channel distribution). 5. Quick sell-through (high turnover rate, rapid capital recovery). 6. Empowering partners (professional skills training for partners). 7. Off-store proactive marketing (breaking retail space limits, conducting activities in areas with dense target traffic).
**It can be said that deep distribution is one of the essential factors for the success of China's FMCG industry!**
However, we must also recognize that traditional deep distribution is a distribution model based on Chinese channel characteristics born under specific time and historical conditions. It also has its unique shortcomings:
> 1. High labor costs and extremely complex management. 2. Integration of internal and external, top and bottom, emphasizing execution, but insufficient adaptability to market changes. 3. Overemphasizing the importance of channels while neglecting consumers and the core demands of retail stores. 4. Insufficient profits for distributors/wholesalers, easily leading to involution. 5. Insufficient tolerance for disruptive new things. 6. Strong in pushing, weak in pulling, emphasizing competition, ignoring demand.
**Undoubtedly, as the market continues to change, although deep distribution has its specific advantages, it urgently needs to adapt to today's market changes through technological and model improvements!**
Several directions for upgrading deep distribution in the current environment:
**1. Improve efficiency:** First, it is clear that whether people are at the manufacturer or distributor is not the core issue; the core is how to make personnel work more efficiently, and through digital means, reduce the time business personnel spend at terminals, improving their operational efficiency.
**2. Reduce costs:** Consider cost reduction by evaluating labor transfer. Joint management by manufacturer and distributor can transfer personnel from the brand to the distributor, thereby reducing part of the enterprise's labor costs, but with the brand bearing part of the personnel costs, achieving a certain degree of cost reduction; another way is through self-employment, the small boss model, activating the enthusiasm of sales representatives, thereby achieving a certain degree of cost reduction.
**3. Standardized operations:** The application of digitalization and SFA (Sales Force Automation) greatly improves the standardization of sales representatives' work, using assembly-line methods to reduce personalization at terminals and lower work difficulty.
**4. Big data support:** Through data analysis collected from SFA and retail, optimize the work routes, processes, and efficiency of business personnel at terminals.
**5. Automated transactions:** Through B2B platforms, achieve automated transactions, establish B2B operation teams at the provincial or regional level, and through online promotional operations, greatly increase the number and frequency of online transactions, reducing the time sales representatives spend in stores for order promotion.
**6. Expand contact surface:** B-end store communities, mini-programs, online POP and Moments distribution applications, through community network operations, expand the frequency and time of information communication between sales representatives and store owners during non-working hours.
**7. Extend transaction depth:** Leverage C-end store owners' communities to reach local community consumers' social network spaces, using coupons and promotions to achieve user acquisition and repurchase.
The above seven aspects can be summarized as digital precision distribution (数字化精分):
From a single-dimensional management system relying on human organization to complete product distribution, it becomes a system that uses digital tools as leverage to free business personnel from complex non-standard transaction links, and with the help of tools, achieve automated, online, digital, BC-integrated, and precise distribution.
In a sense, after digitalization, it is not just about using digital technology to improve efficiency, but more importantly, using digital technology and tools to redesign distribution logic and distribution links.
Several logical issues to note in digital precision distribution:
1. The sell-through logic must be clear. The so-called digital distribution **essentially still revolves around building an irresistible purchase reason in the transaction scenario.** This means that whether it is an online shelf, an in-store shelf, or a Moments shelf, the logic of distribution and sell-through must be connected.
2. Execution, management, process, and business system must form a closed loop within the digital system:
> a. Execution loop: outlets (attributes, SKU, inventory, shelf age), visits (regular visits, frequency, quality, number of stores, communication), display (competitive display), sell-through (consumer communication, display, scenario experience).
>
> b. Management loop: standards (actions, processes), authenticity (data authenticity), inspection (fast and efficient, timely correction), incentives (process incentives, achievement incentives).
>
> c. Process loop: orders (real, accurate), warehousing (standardized, accurate, shelf age, FIFO), accounting (timely, precise), delivery (efficient, timely).
>
> d. Business loop: willingness (attitude), product (differentiation, profit margin, TPO), tools (related digital tools, auxiliary materials), methods (irresistible purchase reasons).
3. In management logic, it is necessary to have methods for achieving performance first, then standards for process management execution, then incentive standards, and only then can it be said that front-line execution, management inspection, feedback into management indicators, and finally aggregated into performance goals.
4. This system must ensure four aspects: systematic (personnel, standards, processes, incentives); synergy (online and offline linkage, internal and external joint promotion, store and community interaction); continuity (goals, sustainability); effectiveness (methodology, four closed loops).
The prominent problems in current enterprise deep distribution transformation are:
First, organizational rigidity. The processes, systems, and standards developed over the past 20 years are extremely difficult to sort out when facing new digital technologies. It can be said to be repairing the car while driving, and it is repairing a bicycle into a racing car, so the difficulty is imaginable.
Second, interests such as regional market, expenses, sales, and budgets are deeply bound to relevant personnel. Individuals exploiting organizational loopholes for corruption and cashing out expenses are common, and interest groups have formed, making it difficult to break.
Third, the market still has growth, survival pressure is not great, and the boss's understanding of this matter is insufficient, determination is not enough, dare not invest, dare not break interest relationships. Subordinates either have interest relationships or feel that it is better to avoid trouble, so overall momentum is insufficient.
Fourth, lack of overall planning and design, often treating symptoms rather than causes, or focusing on informatization or the boss's views, rather than truly considering the actual combat efficiency of front-line combatants as the guide. This leads to a series of reforms with slogans but no effect.
Channel marketing work, from a past perspective, can be summarized into two aspects: **distribution management and sell-through management.**
When doing offline channel marketing, everyone likes to talk about channels and terminals, rarely mentioning shelves, but if you think carefully, aren't all our marketing activities basically centered around shelves?
Whether it is distribution management or sell-through management, in fact, it is a series of marketing management work implemented on shelves.
To drive sales representatives to complete the entry of goods into stores, and also to complete the vivid display and multi-point display of our products according to consumer traffic lines.
Such work should be familiar to every marketer, but have you ever thought that this is a marketing management model built on the basis of a single retail format with relatively simple types and huge scale?
In other words, this model can adapt to very few types of channel terminals.
For brand manufacturers, planned consumer goods categories only need to focus on modern channels. Immediate consumer goods categories only need to do deep distribution for traditional channels (mom-and-pop stores + catering).
**Today's business logic has changed from goods not moving but people moving, to people not moving but goods moving. The logic of shelves has also shifted from the concept of physical space to the form of transaction scenarios.**
From the perspective of transaction scenarios, channels become three-dimensional from two-dimensional: whether you are at home, school, office, or on a bus, it does not affect your ability to purchase any product in the world; whether it is morning, afternoon, evening, or midnight, it does not affect your ability to buy any product nearby; whether you are in a supermarket, Moments, or an e-mall, you can buy any product you want.
**When delivery becomes simple, transactions become increasingly important.**
Electronic shelves have completely changed the business logic.
Electronic shelves bring not only transaction convenience, but also the entire delivery (supply chain) has undergone earth-shaking changes with the form of transactions.
I summarize this change into three points:
**1. The value chain has significantly shortened. 2. The transaction logic has changed. 3. Scenario has become the first principle of marketing.**
What do these three sentences mean? Let me explain one by one:
**1. The value chain has significantly shortened:**
Today, electronic shelves can achieve one-to-many large-scale transactions, and logistics can also be delivered at low cost, so the same business volume does not require so many distributors.
For example, any new consumer brand can sell over a billion online without finding a distributor.
Platform algorithms and rules make consumers no longer only trust brands, but are more willing to trust algorithms.
Information transparency is increasing, making it difficult to obtain more profit through information asymmetry, which leads many previous information brokers to lose the possibility of making money from information differences. As long as conditions permit, everyone prefers direct transactions.
Central warehouses, logistics (trunk, branch, warehouse, picking, and distribution) functions are complete, one-piece drop shipping, one-click direct delivery logistics network, no need for so many handling times.
Community group buying and discount stores, after aggregating huge traffic, reversely demand lower prices from upstream. If they cannot be satisfied, they directly cooperate with brand manufacturers, no longer cooperating with the traditional distributor + wholesaler distribution system built by brand manufacturers.
The logic of value chain shortening is essentially due to the reduction of information entropy and the improvement of the social supply chain, driving the entire value chain to operate with higher efficiency.
**2. The transaction logic has undergone essential changes:**
The logic of community group buying, influencer live streaming, and Sam's Club is essentially the same: they all help consumers select products.
They may not know who the consumer is, but through huge traffic aggregation, they reversely force the supply chain to provide better quality and cheaper goods.
This kind of shelf does not allow you to be on it just because you are a big brand, but only if they think you are suitable. This suitability is not just low price; low price is one type of consumer demand. Consumers have many other needs: quality needs, symbolic needs, emotional needs, etc.
Let me talk about the second change: when you buy things on Douyin, is it really what you need? Or does the algorithm think you need it?
This phenomenon is called **"choice delegation" (选择权让渡)** , meaning that with information overload on the internet, people do not have the time or ability to select products, nor can they distinguish the quality of products they have never seen. People can only delegate their choice to algorithms, letting algorithms make choices for consumers.
If Taobao and Tmall are where you propose a need and they help you choose, then Douyin's e-commerce, regardless of whether you need it, as long as it thinks you need it, it recommends it to you, and the quality is good, the price is cheap, and maybe it makes you happy. Would you buy it or not?
These two changes are very significant features of the fourth generation of retail, because with choice delegation, people irreversibly enter information cocoons. Different cocoons have different consumption needs and transaction logics.
**If we want to sell goods to consumers under the fourth generation retail model, we cannot only consider low prices, but must re-understand the transaction logic of the fourth generation retail model.**
**3. Scenario is becoming increasingly important**
In the first two generations of retail models, most goods were in supermarkets, and consumers went to supermarkets to shop. The shopping place and time were relatively fixed.
Starting from the third generation, there is a very important variable in retail: all shelves have "gone online," not only offline but also online, and some shelves are not offline at all.
On Meituan Waimai, what consumers need most may not be beer and condoms, but mahjong and dice, or quilts and slippers.
In the past, these goods were sold in hypermarkets or wholesale markets.
**When shopping becomes convenient, people no longer care much about specific purchase times, and the demand for stockpiling greatly decreases. The moment of purchase is likely the moment of need.**
So today we need to re-understand the meaning of scenarios. When goods do not move but people move, it becomes people do not move but goods move. This is a revolutionary change, and many enterprises seriously underestimate the importance of this matter:
> a. In the past, the place of transaction was fixed; now it is uncertain. b. In the past, the person in the transaction was likely the buyer; now it is likely the consumer. c. In the past, marketing was brand-driven in transaction scenarios; now it is pain-point-driven in consumption scenarios. d. People do not move but goods move, meaning transactions can happen anytime, and the premise is scenario-based demand, so scenario is channel, channel is transaction. f. Scenario ≈ channel.
**In the past, the people-goods-place (人货场) was two-dimensional, the logic of time and space. Today's people-goods-place is three-dimensional, the logic of time + space + scenario.** The three-dimensional people-goods-place logic is essentially different from the two-dimensional: the two-dimensional is centered on the transaction place, while the three-dimensional is centered on the consumption place.
We must use three-dimensional channel thinking to view today's shelves.
So when you operate a market, you see different types of channels, but from the consumer's perspective, they can buy anywhere.
And the reason for consumer purchase has become 4C: customer, cost, convenience, and communication.
At this time, the logic of pricing and channel tactics in 4P are no longer dominated by you, but should be set according to consumer scenario needs.
And we need to design the sell-through model (eOBPPC) for each shelf based on user needs and behaviors.
**The past deep distribution only had space and time logic, which was two-dimensional. A two-dimensional deep distribution model cannot handle a three-dimensional shelf.**
A three-dimensional city requires a three-dimensional distribution/sell-through model to solve consumer coverage and reach. At this time, it is time to test the enterprise's theoretical level and strategic height. Decision-makers must systematically sort and integrate various scenarios, value chains, and channels, and propose a city solution suitable for their own products.
We must consider the synergy between online and offline, the relationship between cost, efficiency, and experience, and the balance of interests inside and outside the organization.
City managers must also have the ability to fight a three-dimensional battle in a city.
Enterprise organizations must also provide corresponding support and resource coordination when city managers fight city three-dimensional battles.
**In conclusion**
Today's Chinese market is transitioning from a growth market to a mature market. Besides intense competition, distribution path and channel management are becoming increasingly complex.
Enterprise transformation and upgrading cannot simply improve channel issues from the perspective of improvement and refinement, but must start from first principles, insight into needs, deduce consumption logic, abstract marketing models, and do top-level design from a strategic perspective.
**In the past twenty years, whoever did well in digitalization would definitely lead in the same field. In the next twenty years, whoever does not do digitalization will definitely be eliminated by the market.**
Digitalization is a means to optimize and upgrade deep distribution. As an enterprise, it is not only necessary to work on channel power, but also to coordinate product power and brand power. Only then can the entire group's transformation and breakthrough be truly completed, but it must start from the big picture, start small, stand at the level of brand, channel, and product, with a high-level perspective, and use digitalization to complete overall upgrading and optimization. Ultimately, the enterprise's digital transformation can be achieved.
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