Address from Conference Chairman ——Veronique Yang, Partner & Managing Director, The Boston Consulting Group

1. Address from Conference Chairman
— — Veronique Yang, Partner & Managing Director, The Boston
Consulting Group
Last year, the theme of my speech was the future growth, the market had
entered a relatively weak state, so we concerned more about if there
would be growth in Chinese market especially Chinese consumer market.
We shared the 2010-2015 report on development of Chinese consumer
market, jointly written by Boston Consulting Group and Ali Research, and
pointed out that considering the base stock of Chinese consumer market,
a growth equal to the volume of Japan or Germany can be assured in 5
years in spite of the overall slowing consumption and growth of the
market. The key is that Chinese market has entered a polarized phase,

2. which we call double speed growth, driven by various forces, such as the
upper middle class, the 80s and 90s, the e-commerce and services. These
are new drivers of growth. Back to today, although we all know that there
are good prospects and new drivers for growth, for most consumer
companies, these two years are tough. Only a few can achieve a
double-digit growth. How such situations occur? What are challenges for
our market? How should we do to deal with today’s challenges with
innovation and transformation?
First, with a set of data, let’s see the consumer market growth in the
past few years. We can find growth in amount is very limited, with a
growth rate lower than 5%. The main driver of growth is the price, or
consumption upgrade. From the consumption upgrade, traditional
categories now all have a very slow growth rate, most of which have
been under 10%, or even 5%. Why? Mainly because the penetration rate

3. has already been very high, or it is the category itself does not meet
consumers’ expectations, such as not very healthy, not very nutritious,
or does not provide additional excitement for consumers. In addition, for
either vanguards of each category or large cross-category companies,
sales of these two years were not pleasant. Through further research on
development of the entire consumer market in different cities and of
different levels, we found five years ago, lots of progress was driven by
the expansion of low-line market. As what Mr. Ma (Stephen Maher) of
Mondelez has mentioned, the past mode was making the product,
through channels and ads, we can take the yields. However, such simple
penetration has almost finished, now the competition lies in how to
attract consumers to choose your products rather than your
competitors’. So the key competence has been shifted to consumption
upgrade, which first occurs amid the upper and middle class in first and
second tier cities. But such consumption upgrade will spread to mid-line
cities gradually as consumer goods popularized in the past, which
requires a process. The consumption upgrade trend has posed a great
challenge to companies.

4. Channel is another challenge. In these two years, patterns of big retail
and supermarket are mostly squeezed. Supermarkets only have a growth
rate of 5%. Only e-commerce maintains a fast growth rate, and the next
is small retail businesses, such as convenience store and small shop.
Besides, there are another two fast growing channels. One is of
specialization. Such as shops that specialize in babies and children, or
cosmetics or personal nursing products. For these specialized shops,
which provide lots of services besides selling products, the growth is
relatively strong in the overall decline of the big retail. The other is the
services channel. In the past, service and the sale of product are widely
divided. Though products consumption in service sites is not so big, as
more and more consumers come to service sites to spend their leisure
time, it is important and popular for products entering these sites. At the
same time, new services channels are emerging, such as schools, gyms,

5. even libraries, all of which give access to our sale. Why big retailers are
squeezed? There are two reasons for that. On the one hand, e-commerce,
with great convenience and cheaper prices, has a huge impact on it. On
the other, as consumers demand a higher level of convenience, they are
less willing to walk a long way for products with little cheaper price, while
small shops, which provide them with quick and integrative services, are
greatly welcomed. How will companies redesign the sales mode and
market groups as the growth of supermarkets which used to be our main
sale channel slow down? This is another challenge for companies.
For enterprises, how to deal with these challenges? How to seize the
chances within these challenges?
We think there are two innovations.
The first is the product & marketing innovation. The second is the sales
mode innovation. Without the two innovations, we cannot get further
growth in such a competitive market.
The most important point of product and marketing innovation is to
understand consumers. First, we should know their demand mode, next,

6. discover the emerging consumers and redefine products’ consumption
space and groups so as to adjust the design and services according to
the needs. So which emerging groups deserve our focus? There are
mainly the following categories.
1. The elderly
There is an example of mine. Yesterday, when I returned home, my
mother-in-law told me about her old friend, who sold the house and was
planning to have a one-year world tour, with a wish of looking at places
she has never seen before. My mother-in-law was moved a lot,
immediately making a reservation to Southeast Asia on May Day for a
trip. The entire consumption group used to have more youngsters or
those over 35 with some savings, who have relatively bigger spending
power or are willing to pay. Now, some elder people are very glad to
spend money for last life experience rather than save it in the bank, and
pass it to their later generations.
2. Young Men
We have discovered that 40% young men especially those in first and
second tier cities read about cosmetics and personal nursing. So men
have increasingly high demand for their appearance and consumption.
3. Single people

7. It is reported single people over 35 exceed 20% of China’s population.
This percent is approaching to those of Japan and other countries.
Consumption mode of single people is very different. For example, in
Japan, lots of products and services are designed for single people so
that they can enjoy the products and services without being disturbed
and discriminated. So products targeting single people are also
promising.
4. People hoping to be masters
Some may want to be a marathon master. One or two years ago, it is
hard to get a marathon ticket. Some people want to become a
photographer or a baker. So classes for baking are rising. We can see
that lots of consumers want to cultivate their interests and become a
master in a certain area. Products designed for these people will bring
new growth.
5. Virtual groups
Digital also brings its impact on our lives, with new consumers in two
dimension world, virtual reality and virtual society. These new consumers
invest most of their time, emotion and consumption on the Internet. This
group of people can make for further growth of companies.

8. However, we should pay attention to the fact that the consumption
patterns of these new groups are different from those of the past. It
requires us to create a corresponding consumption scene to handle
these emerging groups. Specifically, we should master the characteristics
of consumer groups as a whole, and what desires and needs should be
met at the moment of consumption. For example, when we helped our
customer in snacks marketing, we found there were two levels of
consideration in figuring out the driving factors behind the consumption
of snacks. The first level is the most important, which is considering if he
eats alone or eating outside with others. The second level is, if he eats at
home, when does he probably take snacks and whether he has
nutritional requirements? If he eats out, who will he spend time with? So
enterprises need to design their products according to different
consumption scenes. If a consumer loves eating snacks alone at home

9. for more energy, at the same time, caring about nutrition, the snacks
should be of more nutrition and good taste. And for someone who just
wants to have something to chew and get a sense of satisfaction, without
caring about nutrition and its impact on health, the taste is more
important. In addition, the design is not only on the product itself, but
must be combined with marketing and the final form showing to its
consumers. Because the message that conveyed to consumers will be
distorted if there is only product innovation with no marketing and
channel innovation combined.
Second, form the perspective of sales mode, sales mode innovation
requires marketing to fund for future growth rather than only serve as a
growth engine as before. So the key is how to optimize the sales
management, improve the efficiency and save funds for new channels
and products. How to do this?
There are two steps, the first step is what we often say, the fine
management. The fine management is reflected in the price control, the
optimization of the marketing cost and the sales management.
Specifically, we can make some fundamental changes in sales pattern
and structure, such as taking the flat management, reducing levels and

10. strengthening the control of the lower distributors. The second step is to
employ technologies, such as the B2B mode of Ali, Jingdong and other
e-commerce. Besides, we can make full use of the data to open up
relations between dealers and retail, and manage the team with data.
The last is organizational changes, which is to create our sales groups
based on channels rather than distribute according to categories. In this
way, during the market expansion, we can improve our efficiency and
open the market.
In the end, let me make a simple conclusion. We should maintain
confidence in the development of consumer market. The growth rate of
the entire market may not go back to double digits very soon, but as we
gradually take the growth mode of developed markets, there will be
more opportunities of product marketing and sales innovation. In this

11. process, we believe that companies that can grasp the innovation
opportunities will lead the competition and win a place in the market.