Original title: "I sell paint in the building materials market (circulation article)", the head picture comes from: Visual China
Origins: A story that begins with selling paint
In the past two or three years, my team and I have been crawling in the home improvement building materials scene, in addition to a large number of desk studies, domestic and foreign case analysis, the team has entered 4 cities of different sizes (Beijing, Tianjin, Wuhan, Shanghai), and has accumulated more than 100 hours of communication time with dozens of building materials industry practitioners in building materials industry with enterprise headquarters, branches, large and small building materials malls, street stores, logistics transfer warehouses. We squatted through the warehouse, followed the big car, drank the kung fu tea of countless Anhui bosses, and began to really go deep into the scene, feeling the ebb and flow of the industry, and the hardships of the practitioners.
In the face of such a large number of vivid scenes, we began to think, what is the most concerned about the enterprise? What kind of positive help can the "digitalization of traditional enterprises" that has been shouted for a long time have for the entire industry, these enterprises, and so many practitioners? Where can the industry make a difference? Does the industry really need an app or a management system?
With these thoughts and preliminary ideas, the team began to carry out transformation pilots with a head national brand, some ideas have been verified and recognized, some ideas have been insulted behind their backs, we have brought new business models and interests to some groups, and some groups have hated them. Over the years, I have become more and more aware that a truly nerve-wracking "digital transformation" is definitely more than an app or a digital system, but more of an internal organizational structure, a deep-rooted culture, a game between vested interests and innovators.
Occasionally I go back to the company to talk to everyone about the story, I think it is very interesting, and often colleagues come to me for some related topics to discuss. After the conversation, there are always people urging me, so many things, you write it down, write it into a series, let's all look at this field systematically.
The delay in writing, of course, is not only because of laziness, but also because I always feel that I have not made an earth-shattering "innovation model", and I have not got a particularly good growth figure, there is really nothing to say. Recently, I suddenly realized that real innovation may be slowly changing and influencing little by little, light and shadow are always accompanied by each other, and it is impossible to move towards a new model one-size-fits-all.
Next, I tried to peel back the story that had been groping for two or three years and was still in progress, and told it to everyone little by little.
The field of circulation may be the focus of enterprise digital transformation
What are the most important concerns for traditional manufacturing companies? If you ask the helmsmen of large and small enterprises with this question, and peel away their cloudy answers, you will find that the answer is actually six words: "Make money!" Money! Money! ”
Yes, doing business is not doing charity, business is most concerned about making money. Where does the proposition of "making money" start from and dismantle it? We try to start from the market model, the so-called market, the simplest understanding is nothing more than "supply" and "demand" two ends, the factory makes things, consumers buy things. When the productive forces were insufficient in the last century, even if the major manufacturers were full of horsepower, they could not meet the people's strong consumer demand, and in that era of material scarcity, selling things was not a problem, as long as they could be produced, they could basically be sold, and even needed to be snapped up with tickets.
How did time turn to now? The word you've heard the most is "overcapacity"? For today's enterprises, "creation" is no longer a problem, the problem is that you have me and everyone has, each market segment is a red sea, as a brand manufacturer, the biggest problem has become: "How can I sell my products better?" ”
In order to give everyone a basic business understanding of "selling goods", let's first understand a few concepts. In the manufacturing enterprise, its cost composition is roughly divided into three parts:
1. Production costs, which are well understood, are the support behind productive behaviors, including employee wages, plant equipment, raw material procurement, etc.;
2. Circulation cost, the so-called circulation, that is, after the production product is off the production line, to the intermediate link before it is delivered to the consumer, the circulation cost includes marketing market expenses, warehousing and logistics costs, agent and distributor profits;
3. Profit, the net profit to be taken away by capital.
What is the proportion of these three parts? There will be differences in different enterprises, but the manufacturing industry will not have a structural gap in general, as shown in the figure below, a head manufacturing brand with good profits, if it has 100 yuan of revenue, capital will take away 20 yuan of profits, production costs account for 40 yuan, circulation costs account for 40 yuan.
Among the above costs and expenses, after these years of Red Sea competition, the cost of production links has been greatly compressed, under the current productivity conditions, unless there is a breakthrough technological innovation, it is almost impossible to suppress; the cost of circulation depends entirely on the ability of manufacturers to cultivate channels, and it seems that flexibility and potential are the greatest. In summary, there seem to be three ways out for companies to get more profits:
1. Expand market share and sell more goods;
2. Optimize the circulation link and save some money in 40% of the circulation;
3. Control the terminal market, raise the pricing of products, and strive for more space;
Seeing this, as intelligent as you are, you will definitely think, is there a way to kill two birds with one stone? Most enterprises also think so, so now many enterprises' digital transformation will focus on the circulation field, such as a rush to build e-commerce in the past few years, D2C (Direct to Consumer) in the past two years, such as the digital transformation of many enterprises is almost in the hands of dealers, in the circulation of intensive cultivation or breakthrough innovation, will certainly be able to bring great help to the growth of enterprises, which is almost the consensus of all mature enterprises.
Well, the reason is very simple, a listen to it is transparent, that..... Where, exactly, should I start?
Bring down dealers? Is the answer to the transformation of the distribution sector really here?
Before deciding where to start, let's first look at a simplified version of the transaction structure chart of the goods after they come out of the factory floor and before they reach the hands of consumers:
As shown in the transaction structure shown in the figure, each layer of property rights transfer is accompanied by capital occupation (to press the goods), warehousing logistics costs (to be distributed), profit requirements (to make money), all of which will eventually be reflected in the price given to the consumer terminal. Seeing this, do you think that manufacturers sell directly to consumers, ah, now the information age Internet is so developed, the express delivery network is dense enough, let manufacturers directly sell to consumers (Direct to Consumer) is not the optimal solution?
Coincidentally, countless e-commerce platforms shouted out the slogan of "no middlemen to earn the difference, sellers are more profitable, buyers are more profitable"; a large number of e-commerce trumpets and marketing accounts began to post large posters: "Remove layers of middlemen, give you the biggest discount", more and more consumers began to believe that middlemen are the existence of all evils, kill them, you can get the biggest discount.
But is that really the case? When the whole network is shouting "down with dealers and kill middlemen", as the key links in the entire industrial chain, manufacturers, brand owners, dealers, this group of the most shrewd businessmen, what are they thinking and doing? In the past few years, business elites from all walks of life, what have they tried and explored? If it is really simple to "bring down dealers" can simplify circulation transaction costs on a large scale and enhance product profits and market share, why is the main sales volume of mainstream mature major manufacturers still placed on the traditional distribution-distribution network so far?
Well...... Things must not be as simple as it seems, since the first reaction is the dealer revolution, then the first topic in our circulation field starts from the dealer.
What exactly is a dealer?
Before you start, don't be busy shouting "down with the dealer", first ask yourself, what is the dealer? Even if we really want to bring down dealers, we must first understand dealers. If some people say that dealers do not talk about the market, do not talk about upstream and downstream, and catch dealers saying dealers, it is basically playing hooligans. To understand dealers, we must look at the entire market structure and from the most essential elements.
As mentioned above, the so-called market is mainly two core elements, "supply" and "demand", and all activities are just to match supply and demand. There is a natural gap between supply and demand, and the bridge in the middle is dealers, agents, distributors, wholesalers and other service providers. So why is there a natural gap between supply and demand? What value do these dealers offer?
Let's start from scratch, as early as before the birth of the market economy, the handicraft society, "supply" is the producer, "demand" is the consumer side, most of the buying and selling behavior occurs independently in the market, the producer directly trades the goods to the consumer side, a very simple model. Once the commodity appears to be traded across regions and times, it begins to require middlemen to operate. As early as the Spring and Autumn Period and the Warring States Period, there were records of businessmen, such as the famous merchant Fan Li, the doctor who helped the Yue King to destroy Wu, and Lü Buwei, the prime minister of the Qin State who "strange goods can be lived". These earliest "merchants" made a living by buying and selling, that is, the most primitive dealer prototype.
After the industrial revolution, the rapid development of productive forces, the rumbling of factory machines, a large number of goods were manufactured, the needs of the people were ignited, how did a large number of goods in the workshop enter thousands of households, so that everyone lined up to buy at the entrance of the factory? Let the manufacturers themselves face tens of millions of consumers to collect money one by one? Let manufacturers go deep into all parts of the country to sell goods? In the industrial age, before the popularization of informatization and digital means, the above ideas were basically unrealistic.
Due to information asymmetry, supply and demand will always have mismatch, delay and other issues, manufacturers must have their own "buffer pool", between "supply" and "demand" to undertake sales promotion, capital pool, logistics services and other functions, dealers came into being.
As shown in the figure above, in the entire circulation link, dealers become the sales representatives of manufacturers in various places, obtain the exclusive operating rights of manufacturers in a certain place, obtain special prices, and specific categories of products; in return, they need to undertake the sales growth targets of manufacturers in the region, and promise to give manufacturers at least how much sales volume per year, as far as we know, basically all dealers will have back indicator numbers, there will be rebate rewards after reaching the standard, and serious failure to meet the standards may be cancelled as agents.
In addition, dealers and distribution channels also need to provide warehousing, logistics, after-sales and other services to their next level, responsible for introducing new products downwards and opening up the new product market (but this depends on the manufacturer, and some manufacturers will let their own sales to do regional intensive cultivation).
What money does the dealer make? On the surface, there are two large blocks, the profit difference and the manufacturer rebate. The profit difference is well understood, and the difference between the purchase price of the manufacturer and the distribution channel sold by oneself is different. Rebates refer to the rewards given by manufacturers after dealers complete their tasks, and some manufacturers will also give ladder rebates, such as the basic target of 1kw, 2 points after reaching the standard, 1 additional point more than 1.3kw, more than 1.5kw to 5 points and so on.
Here, an interesting phenomenon is that the larger the brand's bestseller, the more difficult it is to earn a profit margin. Why? In the words of the regional sales director of a brand, "the hot sales of mass goods are too easy to be 'sold through the bottom'". The first time I heard her say this, I was a little confused, and when I went deep into the scene, I gradually realized what was going on.
Taking the national product Nongfu Spring as an example, Nongfu Spring has the highest national name of 500ml drinking water, almost all over the streets and alleys of every large and small supermarket, all Nongfu Spring dealers, distributors know that its purchase price is a few cents, who sells a few cents more expensive, such products, in full market competition, it is difficult to have a good single product profit. For example, everyone is 8 cents to buy, 1 yuan to ship, but who wants to make more profit difference, sell a few cents more, because this sku has no particularity, everyone in the market has, so this agent will almost immediately lose a part of the customer, the agent does not want to starve to death can only pull back the price, after several times, the final agent This layer of the shipment price will be maintained in a price increase can not be sold, the price reduction will lose money on the dynamic balance point. This is the law that many dealers are clamoring for mass goods not to make money.
What's more interesting is that since mass goods don't make money, dealers don't do this? If you mention it to the dealer like this, they will definitely twist and pinch and use various words to prevaricate, why is this? First of all, the circulation of mass goods is not unprofitable, it is difficult to make a profit difference. It is generally cost-effective, high national recognition, very good volume, so even if it does not make money, relying on the rebates given by manufacturers, it is also profitable.
Secondly, the mass circulation goods will pave the way for other SKUs, which is a very good stepping stone, as long as there are these highly recognized circulation goods, you can spread the noodles, and it will be easier to sell other profitable goods after spreading. Finally, the circulation of goods is also a symbol of the strength of the dealer, you do Nongfu Spring does not have 500ml of drinking water, do Master Kang does not have the old altar sauerkraut beef noodles, do Nippon does not have five-in-one, that will make people wonder whether you are a genuine authorized dealer.
In addition, I just mentioned that the profits "on the surface" must be asked by readers, "under the table"? Let me sell it first, and in the next chapter, slowly give everyone a message.
It's a bit far, let's take it back, come, summarize it, what is the dealer?
It is the "tentacles" and "network" of manufacturers in various places, facing a wide variety of local market environments and consumption habits, manufacturers are difficult to use a set of ideas to do global business, it needs dealers who are familiar with the local market situation to assume the following responsibilities:
1. Most importantly, open up local sales channels. The vernacular is that selling goods locally, the more you sell, the better;
2. Collect accounts and make a buffer pool of funds. As we all know, no matter what kind of scale of business, the most important lifeline is the capital chain, manufacturers in order to ensure the health of their capital chain, eager to all transactions can be cashed out (of course, this is not realistic), but the more powerful brand manufacturers, the more the account period has to be discussed, and the more strict the reconciliation.
For example, Wahaha out of a new product, to enter a prefecture-level city, it is impossible to a supermarket small shop to collect and supply, if these small shops owe money and then go to collection, its simplest idea is to find a large agent in the local area, directly with this agent after authorization, as for whether this agent has the ability to pay back in time, will it be a bad debt, Wahaha is not in charge.
3. Do a good job in product service. Different products have different definitions of services, such as OPPO selling mobile phones, logistics is easy, after-sales trouble; such as Nippon selling paint, decorated small partners know that 18L standard barrels exceed 50 pounds, warehousing logistics is very troublesome; such as Zeiss selling lenses, this thing is not heavy or good to preserve, but ordinary people can not use directly, there must be professional links to provide services to produce value.
In a word, for manufacturers, agents can help it sell things smoothly, word of mouth to do, this is the top of the important thing. So far, you smart readers can wonder whether "knocking down dealers and removing intermediate links" is feasible in the current business environment. Is it the right direction, or is it more like a marketing gimmick?
The enmity between manufacturers and distributors (channels).
After talking about dealers, I have to mention the relationship between manufacturers and dealers, before starting to look at a chart, as shown in the following figure, this is the head brand with annual sales of tens of billions of yuan in 2021 circulation channel network map and the proportion of shipments of various channels.
After reading this picture, is it a little bit of a feeling? Let's cut straight to the conclusion and then start the discussion.
Manufacturers and distributors (channels) are always in a state of game
When we say distributors, it may be a little narrower, and it is more representative to understand this matter with channels. The above figure can also be seen that the dealer is a kind of channel, and often the representative of the channel with the largest shipment. The game between manufacturers and dealers, we can take the rise of Master Kang to make a simple understanding.
The story of the national brand Master Kong is quite legendary, how it has grown from a small private factory to a giant in the food and beverage industry, in its imperial structure, there is a word that can never be bypassed: channel intensive cultivation, this marketing method learned from McKinsey's heavy gold, Master Kang has combined it with China's national conditions to make a local version. Let's take a rough look.
As mentioned above, the dealer, as the local agent of the manufacturer, the goal is to sell the goods. For manufacturers, the stronger the dealer's ability is naturally better, we turn the time back to more than twenty years ago, when Master Kang, facing one of the few large dealers in the country, Master Kong products are popular, large dealers have a very strong shipping ability, but the downward channel is completely in the hands of these large dealers, dealers have a strong right to speak in the face of manufacturers, what I want to sell, how much goods are purchased each time, how much delivery service collection methods, etc., there must be room for negotiation. At this time, manufacturers will be restricted, such as Master Kong out of a new product, want to promote it, but sorry, dealers avoid risks, only willing to enter the best-selling products, do not want to touch the new products.
At this time, Master Kang did two things:
1. Weaken the big dealers, support more small dealers to divide up the territory of the big dealers;
2. Using the strategy of channel intensive cultivation and channel sinking, Master Kong is no longer sitting in the factory waiting for dealers to buy goods, but takes the initiative to lay out the national channel network, raises thousands of sales, and firmly grasps the development and maintenance of new channels in his own hands.
3. The specific operation mode is as shown in the figure, and the city and suburban zoning blocks are divided into local sales to regularly develop, visit and maintain. In this way, the control of the sales terminal and the channel network slowly returned to Master Kong's own hands, basically Master Kong's sales negotiated outlets, dealers in accordance with Master Kong's sales instructions to lay out the distribution, once the leading channel dealers slowly became to provide logistics warehousing and distribution services of the city distributors.
Manufacturers always want to control dealers, dealers are always struggling, when the manufacturer brand is strong, the dealer will be weak, and when the dealer is strong, it will counter-pressure the brand. This is almost the case in all walks of life, Master Kong's story can only be used for us to peek into the leopard, to understand a little, in the subsequent chapters, we will continue to see the story brought about by this game relationship.
The smarter the brand, the less willing it is to embrace the e-commerce platform
Today's unicorn-style e-commerce platform, for large, medium, and small brands, is like drinking and quenching thirst, delicious, addictive, but also fatal. Writing here, just Jingdong Express came to send the paper towels bought yesterday, Beijing made paper, the packaging is simple and the size is appropriate, there is no strange aroma, and the feel is OK. Look up again, it seems that I inadvertently bought a lot of Kyo-made in Tokyo, paper drawers, keyboards, charging treasures, black sesame seeds, masks, hair dryers, garbage bags, etc., these daily indispensable and no brand tendencies of things, unconsciously bought Kyo-Tokyo-made, is it a bit coincidental? Have you ever thought that all these coincidences may be the big network that the platform has carefully laid out for many years. Let's look at a famous plagiarism case abroad.
In an interview with CNN reporter Christiane Amanpour in late 2019, Joey Zwillinger, co-founder and CEO of Allbirds, an innovative eco-friendly fashion brand in San Francisco, announced that Amazon had released a private-label shoe that looked almost identical to Allbirds' iconic "Wool Runner" wool casual shoes. Allbirds is a public welfare enterprise officially certified by B-Corp (Benefit Corporation) in the United States, focusing on the development of fashion and environmentally friendly clothing and footwear fabrics, and in 2016 released the first iconic wool casual shoe "wool runner", which was a great success.
As a budding brand, allbirds do not have a strong offline channel, they choose the online platform as the main sales channel, and their flagship "wool runner" is listed for $95 to sell on Amazon platform. After a while, I was surprised to find that Amazon released a shoe almost identical to "wool runner" through its own brand "206 Collective", with a list price of $45, a top search ranking, and recommended products next to "wool runner".
For Joey Zwillinger and Allbirds, the most helpless thing is that Amazon knows too much about allbirds' consumer groups, and is too aware of allbirds' products and pricing, Amazon knows who buys what kind of money, these people's consumption habits and selection preferences, on the Amazon platform, allbirds and Amazon's self-operated war has never been a dimension, like a cold weapon force facing a heavily armored unit equipped with firepower , there is no chance of winning.
At the end of the story, allbirds public opinion made a public condemnation and withdrew from Amazon, turned to the arms of Shopify, and chose to build a station alone. What we see is that in the early stage of the e-commerce platform business model, the e-commerce platform asks for the vendor to bid ranking fees, advertising promotion costs, and the hand reaches to the 40% circulation field, at this stage, the platform is only stuck in the manufacturer's sales channel. As e-commerce platforms began to explore new business models, they used the accumulated data to accurately cut away the market cake of manufacturers, extended their hands to the production link, and completely strangled the throat of brand manufacturers.
In summary, smart brands will definitely not embrace the e-commerce platform, and perhaps some people will ask, "I see that many well-known brands have Tmall flagship stores!" Well, good question, but it should be noted that opening an online flagship store and being willing to give online stores good products and good prices are two different things. You can look at the proportion of shipments in the chart I put at the beginning of the chapter, online channels can have, but they will never become mainstream. Mature manufacturers will basically not allow online platform shipments to be single-handed, rather than facing a giant like Tmall JD.com, it is better to face offline dealers, at least, dealers scattered across the country are much better controlled.
Brands will try to operate directly, but not all businesses are king
Let's first disassemble the first question: Why do brands want to do direct business? Let's take a look at a diagram before we begin.
As shown in the figure, from the brand manufacturer to the final consumer, after the dealer and retailer layer by layer, two kinds of scenes that the brand manufacturers do not want to see will occur:
1. The control of the end market is greatly reduced. After the manufacturer sells the goods to the dealer, the property rights are transferred, and the goods are also transported to the dealer's warehouse, so far, the goods have completely disappeared from the manufacturer's vision, the manufacturer does not know who the dealer sold the goods to, does not know how many goods are still in the dealer's warehouse, and does not know whether the dealer is in violation of the regulations in the channel that should not be dumped at a low price to disrupt the market.
Once the terminal is out of control, many of the manufacturer's policies will be overhead or used, such as manufacturers want to do a promotional pull for a certain product, but these offers may be directly eaten by the dealer, completely unable to react to the terminal. Sometimes manufacturers want to try to increase prices, but they will be pressed back by dealers, which is difficult to promote.
In order to avoid their own blind spots, almost all manufacturers are salivating over the dealer's "in-sale-deposit" data, in order to get the dealer's data, many manufacturers will pay their own money to the dealer to provide free invoicing management software, and even in order to encourage dealers to use the system, will give additional rebate rewards. In order to get the reward and in order to cope with the manufacturer, the dealer will send someone to squat in front of the system to falsify the data. Therefore, how manufacturers can get more control of the terminal market through dealers is the direction that many manufacturers have been working towards.
2. The imbalance between production and marketing brought about by the bullwhip effect. Bullwhip effect is a common demand amplification phenomenon in the supply chain, its performance is that even if the market demand fluctuations are not large, the more backward transmission, the fluctuations in demand forecasting will be huge, after the manufacturers are far away from the terminal, under the blessing of the bullwhip effect, inventory forecasting and production scheduling will become very difficult.
The production line of the factory can not be stopped, but the market demand transmitted back through layers of distribution channels fluctuates greatly, making the safety inventory of the manufacturer difficult to control, in our research process, more than once heard such a description, "sales off-season warehouse explosion, forced to stop the production line" "strong sales will occupy the production line for their own large customers, directly move away after production", these scenes that we sound novel will bring direct losses and cost rises to the manufacturer.
"What the market needs, I will produce", it sounds very good, but accurate to SKU, when will the market need what SKU? What market segment needs how much volume? Accurate prediction of this information, for most manufacturers, from the dealer's sales data is lost, let alone the understanding and prediction of the terminal consumer market?
Speaking of this, it sounds like manufacturers directly face end customers to sell, which is a good solution to the problem, but in fact, it is not, how to understand the relationship between direct operation and agency operation? Let's simulate a scenario, if we set up a new company, specializing in the production of household lamps, the product design is novel, the cost performance is also high, as the company boss, how will you promote this product?