A multinational baby and child brand has difficulties in attracting investment in disadvantaged areas. How to carry out digital transformation of channels in such a regional market?
A palletizer without any channel experience, with little investment in resources, used marketing digital tools to quickly revitalize the disadvantaged regional market.
Inadvertently, this palletizer created a new pattern of digitalization of China’s baby and child product channels.
What this pallet trader does can be summarized in two words: one is integration, and the other is integration.
The so-called integration refers to the integration of existing channel professional platform resources with little investment; the so-called integration refers to the integration of traditional channels and the Internet to gather channel professional platform resources to form a channel digital symbiosis platform.
Digital transformation of channels for top brands
In the tide of digital transformation and upgrading of the infant milk powder industry, first-line brands have begun to digitally transform traditional channels due to the strong brand pull and strong channel push. The general approach is as follows:
1. Build a set of B2B system internally to transform the functions of dealers and connect directly to retailers to realize online transactions between dealers and retailers.
2. Use the previous IT systems and master data systems such as DMS (Dealer Management System) to interface with the dealer’s ERP system to monitor the authenticity of data such as stores and transactions.
3. Equipped with a set of SFA (Sales Capability Automation) system for front-line business personnel and shopping guides, to open up the B2B link and SFA, and provide three-dimensional services to offline stores.
4. Extend the B2B function to B2B2C, bring policy resources and empowerment tools to the store, and help the store to conduct private domain traffic operations.
5. Build or connect the data center of the brand business, output Dashboard (business intelligence dashboard), and provide visual business analysis for the brand business.
The above-mentioned five-step channel digitization is digitization based on the original channel link. It has three characteristics:
First, the channel structure and agent functions have not changed, which will not cause major conflicts of interest.
Second, digital tools have been added to the original link. Great progress has been made in the accuracy of personnel supervision, management, and transaction data.
Third, there is still a pattern in which the weak will remain weak and the strong will remain strong. It will not bring about major changes in the brand and channel structure, and will not bring about a major breakthrough in the market. Conducive to first-line brands, not conducive to emerging brands.
Digital opportunities in the baby category
The digital transformation of baby and child categories has inherent advantages over other industries, which are mainly reflected in the following five aspects:
1. The sales of baby and child categories are more specialized, and offline scenarios are relatively concentrated. Customers usually choose maternal and child stores for transactions. The total number of maternal and child stores nationwide is about 250,000, and brand owners are more accurate in terms of service targets and service scales.
2. The milk powder category accounts for about 50% of the business share of maternal and infant stores, and the profit contribution of the category is high. At the same time, milk powder has a strong relationship with customers. Milk powder also helps stores to attract traffic and promote the conversion of other related products. Therefore, first-line milk powder brands are Have a pivotal right to speak.
3. Maternal and child shop owners are mainly “post-80s” and “post-90s”, generally use smartphones and have online shopping experience. Most of the maternal and child stores adopt membership-based operations, have a strong understanding of store operations, and are more likely to accept brand owners. Digital transformation.
4. The average gross profit margin of the infant milk powder industry is nearly 50%, which is much higher than other dairy products and fast-moving consumer products. The channel policy is mainly based on phased market incentives, and milk powder brands have enough room for channel digital operations.
5. Maternal and child stores are headed and flagship in the first- and second-tier markets. They have a solid foundation for cooperation with first-tier brands. However, the majority of small and medium-sized maternal and child stores are located in the third and fourth-tier markets, and in the past they could not be used by brands. Direct penetration, with the sinking of the market, the popularization of digital infrastructure and the awakening of consumer awareness, the third- and fourth-tier markets have become huge incremental markets.
The survey found that in most industries, brand owners have built their own digital channels, either by adding some digital tools on the basis of the original channels, or by rebuilding digital platforms and transforming traditional channels. Basically it has become a “half project.” The channel digitization of a certain line of the milk powder industry is to complete the overall conversion from offline to online through marketing digitization capabilities. This process does not destroy the original channel level and model, and can become the leader of the value chain through self-built platforms It stands out among the numerous third-party B2B platforms and dealer self-built platforms in the milk powder industry.
The conclusion of the above analysis is that there is a huge opportunity for the digitalization of brands in the baby and child category, especially the reengineering of digital channels, which may be an opportunity to reshape the industry structure.
Why choose to be a pallet trader?
Strong categories, strong distributors, such a market must rely on existing distributors for digital transformation. In the process of digital transformation, we found that traditional distributors have become a bottleneck in channel digitalization. The current status of traditional channels is:
First, there are many levels of channels. Multi-level distribution exists for national agents, provincial agents, prefecture-level agents, county-level agents, etc.
Second, the main functions of dealers are purchase, shipment, warehousing, distribution, advance payment, etc., which are basically “miscellaneous activities” in the distribution link, and have little contribution to brand promotion and sales.
Large distributors have advantages in capital and warehousing capabilities. Medium-sized distributors can form ground teams to assist brand owners in offline promotion and promotion; small distributors have the advantage of being familiar with the local market and having strong store penetration capabilities. . The differences in scale, ability, and willingness of different distributors have brought about the problems of unbalanced regional development, inconsistent implementation standards, and inconsistent service capabilities for brand owners. In addition, distributors have too much participation and role in the channel. It is difficult for brand owners to supervise, reform, and switch.
In 2020, an international first-line milk powder brand reached a third-party platform digital service cooperation with Jiashu Maternal and Infant. It will first carry out digital reengineering in disadvantaged markets, and then promote it to more regions.
Why choose a weak market? Because there are no barriers to transformation in a weak market.
Why choose to be a pallet trader? Because the palletizer is one step in the channel transformation.
For comparative analysis, we use functions and flowcharts to see the differences between traditional dealers and pallet dealers. (See Figure 1 and Figure 2)
Through comparison, we can see the following three major differences:
1. Stakeholders. The dealer has only one interest subject-the dealer; the pallet dealer system has four major interest entities-pallet dealers, capital service providers, warehousing logistics service providers, and operators (service providers).
2. Channel functions. Pallet dealers integrate services for the other three main stakeholders. Fund service providers are professionally responsible for bonus operations (mainly warehouse receipt credit and store credit); warehousing logistics service providers are responsible for logistics; operators (service providers) are responsible for marketing activities, member operations, and customer Complaint handling.
3. The soul of the channel. The soul of traditional channels is the team, the channel chain is the human chain, and customer sentiment is the key. The soul of the pallet dealer system is the digital platform-B2B2C system.
Operational logic of palletizer
The pallet dealer is not a channel operator, but a stakeholder purely for the purpose of integrating professional platform resources to rebuild. The role of pallet vendors is to find professional service platforms in the fields of warehousing, finance, and operations, and then integrate these platforms to form a new channel symbiosis platform system under the operation of the digital platform (B2B2C).
Next, let’s take a look at how the professional service platform operates.
1. Warehousing logistics
Traditional channels: As many levels as there are channels, there are as many levels as logistics. There are many times of loading and unloading of goods and long time in transit.
Warehousing logistics service providers: Goods go through third-party logistics providers, from brand owners (palletizers) to the terminal once. There is no contact in the whole process of the goods channel-logistics is completely separated from the channel. (See Figure 3)
2. Funds (finance)
Traditional channels: buy goods with money or credit transactions (sales on credit, acceptance), etc.
Financial service providers: “position supervision” (three-party contract) for pallet dealers, warehouse receipt credits, and warehousing logistics service providers; credits to retail stores and stores-part of the retailer’s registration information and transaction records are transferred to the financial service provider to obtain The corresponding order financing amount. (See Figure 4)
3. Channel operation
The original distributor transforms into an operator (service provider) and uses the shop patrol management system provided by the brand to carry out offline store development, mobile sales services, and data uploading.
4. Digital platform operation
The digital platform (B2B2C system) connects the four major operating entities of palletizers, warehousing and logistics service providers, capital service providers, and channel operators. All data, orders, funds, and logistics are all completed in digital form on the platform.
Dealer Transformation Operator
The original distributors are all-powerful, no matter how large or small they are, they can do everything. Therefore, we often describe traditional dealers: the boss is “Sun Wukong” (omnipotent), and the employees are “guards” (relatives, friends, family). The “ceiling” of Chinese distributors is too low, which also stems from this.
The more professional, the more scale you can make. The more versatile, the more fragmented.
The four major functions of traditional dealers are that orders are handed over to the digital system platform, warehousing and logistics are handed over to professional warehousing service providers, and funds are handed over to capital service providers. Then, the distributors only have one important function left: channel customer information, promotion , Dynamic sales, service. (See Figure 5)
Engaging in these more professional functional services will transform into an operator (service provider).
Don’t think that if the functions are reduced, the operator is not important. These functions are precisely the most important functions, and they are also functions that cannot be replaced by large professional service providers.
If there is only one most important function to be retained, this function should be retained.
The most important difference between Chinese business and the West is the value of relationships in business. Cognition, transaction, relationship, this is the simplest description of the core elements of Chinese business. Therefore, customer relationship, acquaintances, face-to-face, frequency of visits, eating and drinking, on-site sales, and event promotion are functions that cannot be replaced by professional service providers such as scale and capital.
The transformation of distributors into professional operators that cannot be replaced is determined by the channel structure. Of course, if you have enough advantages in warehousing, logistics, financial services and other fields, you can also become a professional service provider in other fields.