The Wenzhou Model: Innovation in the Face of Adversity

by

Wenzhou City – an economically developed region in east China’s affluent Zhejiang Province – has been remarkably successful in cigarette sales promotion using innovative techniques amid the current adversity in tobacco trade seen as part of a general slowdown in economic development in China.

By Tobacco China Online

Today, despite the recent slowdown following years of high economic growth, a new round of scientific, technological, and industrial revolution resulted in the emergence of a series of new technologies, new industries, and new fields of innovation.

The tobacco industry, which many experts are calling “the barometer of the Chinese economy”, shows similar trends. Faced with an economic slowdown, increase of inventories in both the manufacturing and commercial sectors, shrinking room for maneuver when it comes to structural reform of products, and the quickly approaching turning point in market demand (which are commonly referred to as the four major problems faced by the tobacco industry in China), enterprises of both sectors strive to come up with new methods and ways of reform and innovation.

Zhejiang Province is a rich region and an economic development leader in China. Both the tobacco industry manufacturing and commercial enterprises in Zhejiang keep innovating throughout steady business development. As a result, Liqun of China Tobacco Zhejiang Industrial (CTZI) emerged as one of China’s big competitive cigarette brands thanks years of investment, while the commercial sector the province’s tobacco business ranks among the most successful in the country. In particular, Wenzhou City is one of the most rapidly developing regions in all of China.

Since China adopted its policy of reform and openness to the outside world in 1978, Wenzhou demonstrated its innovative spirit, coming up with competitive household products like kitchen knives, scissors, peeling knives, hair cutting knives, and screwdrivers that were well received nationwide and exported. Having developed such competitive products, the city gradually formed the “Wenzhou model” for active business development over the past 30+ years. Today, amid intensifying innovation and reform across China, the tobacco industry of Wenzhou – which is still in the forefront of systemic transformation of the country’s economy –defined the policy of the so-called “Internet+” as the driving force for continued business development. With cloud computing, big data, and mobile internet, Wenzhou’s tobacco industry goes for innovation and transformation of such essential components of industrial production as conception, function, methodology, processes, and organization.

Comprehensive development of Internet+

Internet+ recently become a highly popular concept and is promoted on an unprecedented level. The Internet+ strategy means integration of online technologies with all industries and sectors – including traditional ones – in order to create a new business model in new fields by applying information and telecommunication technology.

In the area of innovation and reform, the Wenzhou City Tobacco Monopoly Administration (WCTMA) has been designated by CTZI as the institution to operate Internet+ pilot projects. As part of this endeavor, WCTMA took the lead in introducing the AliPay escrow service accounts settlement system into the process of cigarette retail, becoming the first to launch the so-called “Internet+cigarette marketing” service for China’s tobacco industry.

Thanks to today’s rapid development of mobile internet technologies, one can easily imagine future scenarios of online cigarette sales. For example, let’s say Mr. Wang’s son is to get married the next month, he needs to buy a large quantity of Liqun brand cigarettes in preparation for the wedding ceremony. However, none of the local retailers can satisfy his demand immediately, and there is no quality guarantee of the products if he chooses to buy cigarettes from the many local retailers. Under the Internet+cigarette marketing model, Mr. Wang doesn’t have to worry at all. He can log on to an official website operated by the local tobacco company to place an order. When he clicks the button on the website to place an order for cigarettes, cigarette shop operators in the vicinity will respond almost immediately by scrambling for the order. Some of the operators say that they can deliver the goods in as little as one week while others say they can do so in two or three weeks. After careful consideration, Wang accepts the offer from one of the operators. It means that Wang can easily complete the deal without so much as leaving his home, and what he needs to do next is just await delivery at the scheduled time. Moreover, he doesn’t have to worry about the payment for such a large quantity of cigarettes – he can complete a convenient and swift transaction by merely making a use of the online AliPay escrow service.

The aforementioned scenario of online cigarette sales under Internet+ in still largely a plan, but it is gradually turning into a reality. So far, there are 500 cigarette retailers in Wenzhou City who can settle accounts in cigarette sales using the AliPay escrow service, and their number is growing.

Technological progress means an all-round upgrade and update of traditional industries. But online placement of orders and online account settlement using the AliPay escrow service are just the beginning. Presently, WCTMA is promoting development of Internet+ in an all-inclusive way, with the support of could computing, big data, and mobile internet. It is holding talks with cloud service providers about improving retail terminals, enabling them to support the integration between offline sales and online account settlements at all retail shops. It is also working to establish a consumer information database accessible by all retail terminals in the city in order to unclog channels for tracking consumption, etc.

Of course, Internet+ has not just been launched in the area of cigarette marketing. Rather, it has been extended to all fields in a comprehensive way, with steady promotion of strengthening all four channels: “Internet+cigarette marketing”, “Internet+tobacco monopoly control”, “Internet+logistics and distribution”, and “Internet+mobile business processing”.

Simultaneous innovation of online and offline services

If the all-inclusive development of Internet+ means innovation of online services based on internet technologies, and can be a process to strengthen the “soft” capacity of marketing, then promoting development of terminals to higher levels and innovation of retail terminals means an innovation of offline services and strengthening of the “hard” capacity of marketing networks. In terms of innovation of offline services to strengthen the hard capacity, WCTMA actively exerts efforts to develop a “pyramid-shaped” business ecosystem of retail terminals. What does “pyramid-shaped” mean? The “pyramid” here is a vivid metaphor. It refers to a structure of retail terminals with a sharp top, a wide middle layer and a firm foundation.

By developing a diversified and differential structure of retail terminals, WCTMA believes it can better set up its image as operation and service provider for the tobacco industry, and enable its marketing personnel to have greater room for maneuver in adopting distinctive and customized approaches to policy making on cigarette supply and customer service in order to realize maximum use of market resources and increase in cigarette sales.

In terms of development of retail terminals at the “top” of the pyramid, there are the visually-appealing billboards, neat and clean counters, and well illuminated LED light boxes, plus automatic maintenance of purchases, sales and inventories of goods with the retail terminal system, and gradual establishment of a customer information database in connection with the AliPay escrow service system. All of this is intended to facilitate business operations by retailers in the ever-changing marketing environment.

In terms of developing retail terminals as the foundation of the pyramid, the WCTMA has adopted a Quick Response Code recognition system to identify large numbers of geographically-spread general customers. In keeping with its customer operation capacity, the company comprehensively assesses the customer value, further defines the types of customers, and applies lean management principles.

Then how will WCTMA realize a transition between the “top” and the “foundation” of the pyramid? In practical terms, the company has taken the lead in Zhejiang Province in putting forward the concept of “general modern terminals” highlighting the functions of terminal product sales, corporate image display, competitive brands development, etc.

So far, WCTMA succeeded in developing a “pyramid-shaped” business ecosystem of retail terminals in the local market, and became the leader on the total scale of development of modern terminals in Zhejiang Province.

Both the comprehensive development of Internet+ and the development of a “pyramid-shaped” business ecosystem of retail terminals are part of WCTMA’s innovation drive in cigarette markets, which is actually a crucial move taken by the tobacco industry of Wenzhou City to ensure sustainable business development under the new economic conditions.