The FDIC2018 China FMCG Digital Innovation Conference, hosted by New Distribution and co-organized by the FMCG Branch of the China Electronic Commerce Association, was held grandly from August 22 to 24 at the Shanghai Baohua Marriott Hotel Conference Center. The event attracted thousands of industry professionals, including distributors, manufacturers, and internet companies from across the country, filling the venue to capacity.

At 9:00 AM on August 23, the main forum officially began. The following is the speech delivered by Mr. Zhao Bo, founder of New Distribution, which has been compiled for readers.

Today, I will open by sharing with you two levers for innovation in the FMCG industry in the digital era. What levers? These are the logics we have observed over the years as New Distribution has witnessed the operations of various brand owners, channel players, and B2B platforms, and our reflections on these logics.

What has the internet changed? Many people have many answers. For example, besides the convenience store downstairs, where else can you buy a bottle of Coca-Cola? From Tmall, Taobao, Meituan Waimai, vending machines, and countless other places. You will find an interesting reality: until the moment the consumer places an order, you never know where they will actually consume.

This brings us great challenges because through the internet, consumers can purchase products anywhere in the world, and they can buy according to their preferences. Those who like skateboarding or limited-edition sneakers can connect with like-minded people from different fields and places across the country, and even enjoy games like "Chicken Dinner" (PUBG). This means that things we once thought impossible have become reality, and consumers can also express their emotions and opinions—praising you when happy, criticizing you when not.

Consumers are no longer passive recipients of our messages; instead, they respond with "yes, yes, yes" to whatever we say. The power of discourse is no longer in our hands. The ubiquitous screens have reduced the cost of information acquisition to nearly zero. You can no longer influence consumers by being an expert; the way to influence has changed. Consumers are not foolish; they have access to as much information as you do. This means the era of "channel is king" is over.

Do you know who is sitting in front of the TV now? It's the older generation and a bunch of children. Traditional TV advertising has completely lost its effectiveness. Educating users can no longer rely on uniform, high-sounding communication methods. The way, path, and speed of information transmission are becoming fragmented, diverse, and uncontrollable.

Since people entered the mobile internet era, China's consumer goods market has shifted from the "factory sovereignty" era to the "channel sovereignty" era and now to the "consumer sovereignty" era. In this context, we need to conduct consumer insights. In the past, when consumers saw a P&G ad on TV and thought the shampoo was good, they would buy it the next time they went to a hypermarket. The path from seeing the ad to purchasing was about a month, and they had to go to the store to buy it. But now, what is the consumer's first reaction to seeing an ad? If interested, they immediately search, purchase, and share.

For example, in "A Bite of China," do you remember what sold out in the first season? The iron woks from Zhangqiu. After that episode aired, iron woks from Zhangqiu sold out instantly across the internet. In the past, you couldn't imagine that a TV ad could cause a nationwide sell-out of Zhangqiu iron woks within 10 minutes. The core of consumption hasn't changed—the product is genuinely good and emotionally appealing—but the decision-making process, purchase path, and buying behavior are completely different from the channel era.

In this context, looking at channels, they have evolved from traditional offline channels to a structure with "sky net" online, "ground net" in the middle, and "human net" underground, and even the integration of all three. Look at the bottle of water on the table. On the surface, it's just water, but when you open it, you'll find a QR code inside the cap. Scanning it gives you a red packet, which leads you to follow a public account. The account contains content about health, which leads to a mall, and from the mall you can share and trigger secondary viral marketing. Through the M2C model integrating the "sky, ground, and human nets," various business models and purchase paths emerge. For channel players, shouldn't we all consider the impact of these channels?

The emergence of so many business models brings serious problems: offline traffic is being intercepted by various online business models. Originally, offline was "channel is king"—you stocked every terminal, put up price tags and posters, and waited for consumers to come. But a few years later, Tmall and Taobao appeared, and consumers no longer needed to go to supermarkets; they could order from home. A few years later, consumers didn't even need to go to Tmall or Taobao; they could buy directly from their WeChat Moments, watch videos and buy, or buy in community groups. The traffic of traditional small stores has been divided by various online business models, leaving the traditional channels with pitifully little.

Think about it: how long has it been since you last went to a hypermarket? Do you need to go to a hypermarket to buy tissues? Take household tissue as an example: you buy twice a year, on 11.11 and 618, stocking up for half a year. What does that mean for the tissue category in your local supermarket or nearby hypermarket? It's highly shrinking. This is the current state of the industry.

Advertising is ineffective, channel interception is ineffective, and deep distribution is ineffective. Consumers have many choices, demands are increasing, channels are multiplying, and the intermediate links are decreasing. M2C, F2B, and various business models are continuously compressing the middle links. Traditional enterprises still use long-chain distribution forms like traditional marketing, but the chain is too long. A large number of short-chain scenarios have already satisfied consumers' personalized needs, resulting in reduced traffic.

Who is Coca-Cola's competitor? Is it Master Kong or Uni-President? No, the real competitor is the "Answer Tea" mentioned in yesterday's speech. Young women today don't think drinking Coca-Cola is cool; they think drinking Answer Tea fits their style better. They will take a photo with Answer Tea and share it, but would they do the same with Coca-Cola? No.

Small brands lack the capability to build private nationwide distribution channels because without sales of several billion yuan, can a few thousand distributors cover the whole country? No. How can a few thousand distributors survive? How can the sales team be supported? There's no volume. Distributors used to rely on a single big product to sustain their business for three to five years without worry. Can they still do that now? No.

So I propose a new topic: the innovator's dilemma for big brands. The internet's disruption of industries is destructive; it not only empowers but also overturns existing business logic.

In terms of technology choices, there are two types: 1. Sustaining technology; 2. Disruptive technology. Most brand owners prefer sustaining technology, like Nokia, which kept writing and modifying on the Symbian system, until Apple came out with a disruptive technology that directly overturned it. Moreover, big brands face a major problem: they cannot see users, look down on needs, and fail to understand business models. They say their organization is good, but can they learn internally? In the end, they can't keep up with demand and the market. This is a common ailment in the early stages of transformation for many large enterprises.

The reason most brands choose sustaining technology is not that it's more friendly, but because they are held hostage by their own value network. What is a value network? It's the upstream supply chain and downstream distributors. Think about it, brand owners: when cooperating with B2B, what is the most headache-inducing issue? Distributor complaints. Why is it so troublesome? Because they are the core value of the brand owner, bound by the value network. You want to change, but all enterprise changes are transformations of the value network, not just the enterprise's own problem.

What can the digital trend bring us? The core is user behavior capture: Where did they come from? Who are they? What is their browsing trajectory? What did they search for, what did they bookmark? What questions did they ask? What did they put in the shopping cart? What did they take out? What are they comparing? What are they associating?

In the past, you could never capture such user behavior, but now you can capture it in full volume, full process, and full quality, and at low cost and high efficiency. In the past, you used a "machine gun"; now you use a "sniper rifle" to precisely see their behavior.

Brand owners need to adjust according to their own transformation methods. The front end should focus on consumption upgrading, and the back end should focus on full-chain distribution. The front end is brand, product, and marketing, requiring reaching, sensing, and delighting consumers. The back end is channels and supply chain, with the core being consolidation, efficiency, and platformization.

The principles of retail haven't changed; the 3P principles haven't changed: available, affordable, and desirable. But this has evolved from broad distribution to being visible on all networks, all-time online, all traffic, all entrances, and visible on every "screen." Where the product is doesn't matter; what matters is where the brand logo is and how it communicates with consumers. Products have shifted from past prices and obvious "discounts" to exceeding user expectations, making consumers think the product is great at first glance.

Brand marketing and culture can resonate with users, maintain continuous hot content and diverse communication methods, actively interact with users, and implement visible and precise promotional activities. These were impossible in the past but are fully achievable with technology now.

Back end: Different users need different products distributed through different channels. Many brand owners ask me whether to cooperate with B2B. From the perspective of consumer demand, there are mass needs, niche needs, and personalized needs. In the past, only mass needs could be met. What about niche needs? What about personalized needs? China has a population of 1.4 billion, meaning any niche need is not small, and any personalized need is not unique.

In the past, retail small stores used short tails (long chains) to meet mass needs, but now we can use B2B and KA to meet appropriate SKUs, and even use short chains or ultra-short chains like social e-commerce M2C to meet personalized needs. This distribution logic is all traffic, all scenarios, visible on every "screen," reachable at any time, and the backend supply chain must be flexible to meet these demands.

New Distribution has been consistently recommending B2B to the industry. Don't doubt it. If you doubt it, it's because you can't see users. We hope that through communication, we can bring you new ideas, so that when facing the "innovator's dilemma," you won't be lost or confused, and you won't question feasibility or choices, but rather go all in.

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