Climbing Hills and Navigating Obstacles: Is Full-Chain Digitalization of Distribution Channels Necessary?

Climbing hills and crossing hurdles—these are the two alternating phases I once used to describe a company’s growth. Climbing hills addresses growth within a given business model, while crossing hurdles involves shifting or transforming that model. These two processes alternate: after a hurdle comes a climb, and after a climb comes another hurdle. If a company can’t climb the hill, it stagnates; if it can’t surmount the hurdle, it reverts to its previous state. A hill represents the difficulty of moving upward, while a hurdle signifies the risk of falling downward. The current challenge for fast-moving consumer goods isn’t climbing a slope—it’s navigating a hurdle. Until that hurdle is cleared, emphasizing growth is meaningless. If you can’t get over the hurdle, you might end up back at square one—reduced to your original state. Climbing a bit more slowly is just a matter of growth; failing to surmount the obstacle becomes a question of life and death. Right now, we’re in an era of shrinking volume, with no slopes left to climb—only hurdles remain. Only after clearing those hurdles will there be slopes again. The new wave of consumer‑goods upgrades and channel digitalization are the two critical hurdles that fast‑moving consumer goods companies must now overcome. The current challenge facing businesses is that they have yet to surmount these two hurdles. Companies that successfully navigate them—such as Dongfang Shuye and Dongpeng Special Drink—no longer face growth as a problem; the only question is the rate of growth. Over the past few years, my marketing focus has been on just two key areas: the two mentioned above.

01 New Volkswagen, overcoming obstacles or life and death

Recently, Zhong Shanshan said in a dialogue on China Central Television that, A product is in In 2023, the money earned (profit) exceeded that of the past decade. Which product is making money? Of course, it’s Oriental Leaf. Oriental Leaf. Listed in 2011, with a decade of groundwork, it exploded in popularity in 2021. I call Dongfang Shuye the new mass-market brand. Because the traditional mass-market positioning in the beverage industry is At 3 yuan, Dongfang Shuye has directly upgraded to 5 yuan, and even its traditional mass‑market 3‑yuan products have risen to 3.5 yuan. In the beverage industry, 3 yuan used to represent the mass market, while 5 yuan now defines the new mass market. In the past, we’ve repeatedly emphasized product upgrades—using terms like “upgrading,” “structural adjustment,” “shifting gears,” “a new world,” “premiumization,” and “new mainstream price tiers”—but consumers remained indifferent. The reason for this lack of response was that these concepts were too vague and abstract. While “mass market” is inherently an abstract notion, “new mass market” is much more concrete. The old 3‑yuan mass market and the new 5‑yuan mass market are both sufficiently specific. Why a new Volkswagen? Because product upgrades require both structural integrity and scale—namely, sales volume. Structure refers to the upward shift in price tiers—this holds true for both the premium and luxury segments. Scale, on the other hand, means achieving a size large enough to fundamentally alter that structure. If the premium segment is too small, and the luxury segment even smaller, any impact on the overall structure would be negligible. The “New大众” is one tier above the original “大众,” yet still within reach and affordable for the general public. It offers an upgrade without losing its mass‑market appeal—hence the name “New大众.” Some argue that we should define the “new mass market.” In fact, the beauty of the mass market is that it defies definition; the “new mass market” is simply an upgraded version of the traditional mass market, and it too resists rigid categorization. After all, even at the experiential price point, there’s a common denominator that resonates with consumers. So, the emergence of the “new mass market” raises a practical question: in today’s sluggish consumer environment, do consumers really have the purchasing power to embrace this new segment? Discussing this issue on social media is hardly a winning strategy. Yet Dongfang Shuye has done it, and Pangdong has done it as well. Whether you believe it or not is up to you. I have always been optimistic about consumption upgrading. The industry case of Dongfang Shuye and the retail case of Pangdonglai—personally, I find Pangdonglai more compelling. Pangdonglai… Success isn’t just about culture, service, or other peripheral factors; the core lies squarely in the product. Customers come to Pangdonglai to buy goods—and then, as a bonus, they enjoy the service.

Pangdonglai’s products aren’t cheap, but they offer exceptional value for money—exactly the hallmark of the “New Mass Market.” In every industry, the go-to, mainstream offering represents the “Old Mass Market,” while the next tier up—the one that elevates the experience—is the “New Mass Market.” Pricing can serve as an anchor, but the real key lies in how you innovate on the product itself. The Old Mass Market is clear; the New Mass Market should be just as clear. In my view, there are two critical priorities when it comes to products: First, we will no longer emphasize the cost‑driven approach of squeezing every last penny out of materials, because once prices rise, there’s no room for cutting corners on inputs. Second, in building our brand, we may need to anchor our value proposition in Chinese cultural elements, thereby meeting the evolving expectations of increasingly confident consumers. The issue of consumer spending power isn’t a major concern. It’s true that some consumers have shifted to lower‑end spending, but the bulk of profits has never come from the majority of buyers—it’s always been driven by the 80/20 rule. Some might also argue that today’s competition is largely about “involution.” I don’t deny that. But I’ve seen how such involution typically plays out in an industry. I once witnessed an extreme case: the industry leader was wiped out in the process, and the second‑largest player stepped into the top spot. The reason the leader fell wasn’t because it lacked scale—on paper, it certainly had the edge. So why did it lose? Because the runner‑up adopted a strategy: for every product the leader offered, the runner‑up sold at a loss; for every product the runner‑up didn’t have, it turned a profit. For the big players, their products are all for the mass market. The cutthroat competition is driven by the mass market; when the big players don’t offer a product, the second‑tier firms step in with new offerings that appeal to the emerging mass market—and that segment ends up making money. Zhong Shanshan said he earned in one year what he had earned in the past. Ten years’ worth of money. I’m not questioning that. Let me now explain why the new‑generation Volkswagen is facing a critical hurdle. Crossing such a hurdle means it’s a pivotal threshold: if it can’t be cleared, even the industry leader could be in jeopardy. There’s no doubt that the old‑generation Volkswagen has become the main battleground for involution, because the players vying for its position are all large‑scale enterprises. Once the competition turns inward, each one outdoes the last—thanks to their deep financial resources. But when involution reaches its most perilous stage, losses can snowball; the bigger the scale, the greater the losses. And when the leader starts posting losses, the situation becomes truly alarming. When involution reaches its most perilous stage, you must secure reinforcements—products that can generate profits. For example, In 2024, Nongfu Spring launched a 9.9‑yuan blue‑bottle product, which represents serious price‑cutting competition. However, thanks to its Dongfang Shuye brand, Nongfu has backup and isn’t afraid. The end of involution is market cleansing. Simply put, it’s about cleaning up the ranks—eliminating a large number of players to establish a new equilibrium. If you can’t get past this hurdle, you’ll be knocked down. Forget about growth; it has already become a matter of survival.

02 End-to-end digitalization of the entire channel, a generation ahead.

There are three types of digitalization. First is platform digitalization, which refers to e-commerce. Strictly speaking, e‑commerce represents the digitization of platforms, not of manufacturers, because manufacturers do not have access to genuine user data. Second, private-domain digitalization—this is new retail. This is true digitalization, because you have user data at your fingertips. Third is channel digitalization. This is end-to-end digitalization. F2B2b2C—digitalization that engages every member of the channel. In terms of complexity, each stage is progressively more challenging. Platform-level digitalization essentially involves a single internal department, focusing solely on the organization and the platform itself. Private‑domain digitalization poses the challenge of reaching end‑consumers, but the most demanding task is full‑channel digitalization, as it spans every link in the entire value chain—requiring not only self‑transformation but also collaboration with external partners. Digitalization will become the infrastructure of the future, and no enterprise can do without it—just as today, the smartphone has become an integral part of human life. It is as indispensable as the “sixth organ.” So, what value does end-to-end digitalization bring to enterprises? First, digitalization enables channel management and seamlessly connects F2B2b ecosystems. In the past, the advertising industry often said that half of all ad spend was wasted—though no one ever knew which half. In fact, the same holds true for channel‑related expenses. Under a deep‑distribution model, companies operate within a four‑party ecosystem: F‑end (manufacturers), B‑end (distributors), b‑end (retailers), and C‑end (consumers). However, this simplistic framework falls short of capturing the complexity of managing China’s channel system, which is organized at the county level as its basic unit. The internal management hierarchy and the external channel tiers together can span up to six levels—without such a layered structure, it would be impossible to effectively cover China’s vast and intricate distribution network. Yet a stark reality of Chinese management is that its penetration depth rarely exceeds 1.5 levels. This creates a fundamental contradiction: how can a management system with only 1.5 layers of internal coordination possibly handle six distinct internal and external tiers? Consequently, the greatest obstacle to deep distribution lies in effective management; only companies capable of addressing this challenge can truly achieve it. Even today, even those firms that have made significant progress in deep distribution often waste substantial resources on channel‑related expenses. Channel digitalization offers a dual purpose: it enables both operational oversight and cost control. Its value resides in giving managers a “bird’s-eye view,” making both activities and expenditures transparent. Thus, moving costs online represents the first step toward digital transformation. Cost management, meanwhile, focuses on bringing internal expenses under tighter control while ensuring that funds are channeled directly to end consumers. After all, any spending that fails to reach the customer merely fills gaps and gets siphoned off through internal bargaining. Only expenditures that actually reach the consumer can drive meaningful channel‑level performance. Second, full‑chain digitalization and the integration of online and offline channels are applied to… Consumer end. Full‑chain digitalization rests on three core principles: first, full‑chain digitalization. The role of full‑chain digitalization is defined as follows: manufacturer‑owned stores ( F2B2b) integrates the three parties—manufacturer, distributor, and retailer—into a unified whole, addressing the bC integration (business-to-consumer). This leverages the combined strengths of all stakeholders to resolve the relationship between the point of sale and the end user. This is user‑centric operations rooted in the B‑side. Second, it emphasizes the seamless integration of online and offline channels, with coordinated efforts across “land” and “air” forces. Third, it adopts an incremental mindset: rather than simply shifting offline traffic online, the focus is on creating new, additional value.

Isn’t the logic behind end-to-end digitalization of distribution channels similar to that of modern high-tech warfare? Consequently, the advent of full‑chain digitalization has transformed traditional, inefficient channels into ones that are both more efficient and more pervasive. It can be said that traditional marketing is a battle where the opponent is visible, while digital marketing is a battle where the opponent is invisible. Dongpeng Special Drink Five years ago, it was still a regional brand; in recent years, thanks to channel digitalization, it has rapidly risen to become a nationwide brand. Platform digitalization and private‑domain digitalization address specific internal functions, whereas channel digitalization transforms the entire business landscape—representing a level of digitalization that is ahead of its time.