China: Going From “Distributor” to “Service Provider”

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By Tobacco China Online

China’s tobacco industry is undergoing a seismic shift from being solely a distributor of tobacco products to providing services that increase the value of retail outlets. And this is all brought about by emerging new business changes spawned by the internet and mobile interconnectivity.

In August 2016, Bingo Box – the world’s first 24-hour fully self-help smart convenience store – opened its first no-staff outlet in Shanghai. This store – which looks like a large box – received tens of thousands of customers in its 10-month trial operation and registered no theft, with the user repurchase rate reaching nearly 80%.

During the second Taobao creativity festival held in early July, e-commerce giant Alibaba implemented its no-staff retail plan establishing Tao Café, a pop-up store. Shortly afterwards, Wahaba – the largest beverage producer in China – announced it plans to establish 100,000 no-staff stores over the next three years.

All major e-commerce platforms in China have now launched plans to open offline platforms, one after another. From the establishment of convenience supermarkets by e-commerce company Jingdong to the operation of Bingo Box by business magnate Jack Ma and to the establishment of the unattended Tao Cafés, the rush to establish new forms of retail outlets has become increasingly intense. Changes in service includes new forms of outlet operations and non-cash payments. Home delivery service has gradually become commonplace.

With the use of AIT (artificial intelligence technology) and taking advantage of China’s advanced mobile payment technology, no-staff retail stores show spectacular performance in the domestic retail market. Compared to traditional retail businesses, no-staff retail stores enjoy the advantages of payment innovation, low operation costs, and strong technological experience; all advantages worth considering by traditional tobacco products outlets.

For the tobacco industry, retail outlets have always been a crucial link in the industrial chain that is the closest to consumers. The commercial sector, which maintains the closet connections with retail, attaches great importance to service provision for retailers and the development of outlets. In this process, tobacco enterprises virtually shifting from simply commercial distributors of tobacco products into service providers. And by doing so, they increase the value of the outlets.

Take Guiyang City Tobacco Company (GCT) operated by Guizhou Provincial Tobacco Monopoly Administration for example. Over recent years, GCT changed its way of operating, shifting away from attaching importance only to marketing to paying more attention to management; and from focusing mainly about how retailers purchase cigarette supplies to studying how consumers buy cigarettes. In 2016, retailers at GCT saw their annual gross profits from cigarette sales go up an average of 10.91%, with each retailer earning RMB34,800 (US$5,190) in income from cigarette sales. GCT created and recruited specialized personnel such as e-commerce engineers, market analysts, and brands operators. The company established and improved upon its marketing operation model in the era of e-commerce - the new type of online to offline (O2O) service model.

Internet-based conversion from marketing service to products

Guiyang City Tobacco developed its own O2O marketing application using the WeChat app.

Implementing its policy of premium sales of new cigarette products, GCT made full use of the media platform with sustained online and offline follow-up of information. The company regularly collects information on consumer expectations and acceptance on pricing of new products. The company determines the premium in accordance with market demand. It manages to maintain effects of the premium through delivery of supplies and price monitoring. With the adoption of such approaches, the company succeeded in operating premium sales of eight cigarette products including Marlboro (Hard Ice Blast), Lotus Flower manufactured by China Tobacco Hebei Industrial, and Guiyan (Kuayue) manufactured by China Tobacco Guizhou Industrial, powerfully maintaining the value of tobacco brands, and, more significantly, enlarging the profit-making room for retailers.

In terms of distribution of new products, GCT made full use of its official WeChat account, successively launching online promotional activities of new product subscriptions, turntable draws, rewards given by points accumulated, etc., which has contributed to increasing customer recognition of the company’s new cigarette products.

The cigar sector has not received much. However, GCT manufactured more than 5,000 cigars and established a marketing system integrating customization, distribution, and service provision in addition to regular collection of data on high-level consumers, establishing a comprehensive database.

Introducing an online+offline customer service system

As far as customer service is concerned, GCT now shifts from the traditional offline model to a new, more accurate model which is driven by customer demand and data analysis. The company also explores innovative ways to improve worksheet processing by its customer managers, which would lead to more relevant and timely service being provided to customers.

GCT also makes its marketing visits to retailers more productive and effective. The company developed a cloud customer service function in its app, based on its worksheet processing system. After reviewing comments made by retailers and customers on WeChat the company developed new models of home visits. The adoption of such measures solved the longstanding problems experienced under the previous model, such as home visits taking up too much time, weak purposes for the service, serious waste of marketing resources, lack of mechanisms to handle customer comments, etc. The new home visit model brought into full play the technological characteristics of the mobile internet and successfully given rise to new methods of coordinated marketing. Since the company launched its cloud customer service system, the comprehensive rate of satisfaction by retailers has risen to 96.3% from 91.4%.

GCT’s WeChat service platform saw the number of its regular users grow to 20,500 users, with the participation rate by retailers reaching over 60%. The service platform provides customers a channel to obtain information on their order placements and operations in real-time, reaching close to 4,000 customers daily. As a result, its customer service agent on WeChat, known as Young Intellectual, virtually became regarded a good adviser and devoted friend to retailers online.

The company also cooperated with financial institutions in launching value-added services, providing more than 1,500 customers with loans valued at over RMB50 million (US$7.6 million) for trading in cigarettes. Meanwhile, Guiyang City Tobacco developed an “operation tool box” for retailers as a “sharp weapon” for them to improve their operation capacity, with the focus on promoting the soft capacity of retail terminals.

For decades, companies solely played the role of distributors, mechanically delivering supplies from manufacturers to retail outlets. For retailers today it is now necessary to provide their business partners with services enabling them to meet the demand for more growth. This requires that tobacco companies should not only become aware of the prices, packaging, and selling points of their products, but should also, more significantly, consider retailers as part of the company and not a separate entity, helping to address their concerns and immersing them in the brand culture, thus creating a sense of value and belonging. The success of Guiyang City Tobacco Company in improving its service provision for retail terminals which led to higher sales volume is an example of a successful “internet +” model.

There are about five million cigarette retailers throughout China. If these five million retailers can be interconnected to form a web, and if a nationally unified O2O retail platform can be established, it may become a breakthrough for the tobacco industry to realize its “Internet +” strategy.