Chapter 7 3. Stay away from rage and rebuild credit

What are the factors that can guarantee the sustainable profitability of the enterprise? This seems to be a proposition that the beholder sees benevolence and the wise see wisdom.Since Schumpeter, most management scientists will regard "innovation" as the answer.And Michael Porter provides a new perspective in "Competitive Strategy".He writes: The primary and fundamental factor in determining the profitability of a business is the attractiveness of the industry. Porter believes that competitive strategy must be derived from a deep understanding of the law of competition that determines the attractiveness of an industry, and this law is reflected in five forces—the invasion of new competitors, the threat of substitutes, and the bargaining of customers capabilities, bargaining power of suppliers, and competition among existing competitors.The combination of these five competitive forces determines the ability of firms in an industry to obtain an average return on investment that exceeds the cost of capital.Therefore, the profitability of an industry does not depend on the appearance of the product or its technical content, but on the structure of the industry.The relatively stable and healthy development of the industrial structure will benefit everyone in the industry.On the contrary, there is no profit for everyone.

Around 1992, when Zong Qinghou stood in front of a new development opportunity, he suddenly discovered that the health care product industry that made him take the first step in his career seemed to be evolving into a disorderly "bad" industry. The popularity of Wahaha and Sun God has completely activated China's health care product market. First, Jiang Wei's Feilong Group rose in the Northeast with its Yansheng Hubao Liquid, and then Shi Yuzhu's giant company became popular in Shenzhen with its brain gold.From 1992 to 1994, the number of health care product manufacturers nationwide increased to more than 3,000, an increase of 30 times in 4 years, with as many as 28,000 varieties, and an astonishing 30 billion yuan in annual sales, an increase of 12 times.The health care product industry has become the fastest growing and most eye-catching "golden land" in the country.Limited investment in production equipment, loose approval procedures, disorderly market order, and staggering excess profits have brought about a frenzy of irrationality in this industry. "As long as you dare to smash advertisements, as long as you dare to speak big words, you can sell crazy even if you wrap it in a stone." This has almost become the only survival rule in the health care product market.Passion is squandering rationality, speed is brewing death, and Zong Qinghou, who is in the middle, has already heard the babble of the building going forward.

In 1991, with the expansion of production scale, the cramped site and the scarcity of skilled workers became the bottleneck restricting the development of Wahaha. In the second half of this year, Zong Qinghou decisively merged an old local state-owned factory—Hangzhou Canned Food Factory.The bottleneck of the production site and employees was broken, and Zong Qinghou immediately faced a major decision: where should Wahaha go?Should we continue to make great strides in the health care products industry, or open up a new territory?At that time, the market space for nutrient solution seemed to be still expanding. Wahaha’s annual sales were only one-third of that of Sun God.However, Zong Qinghou, contrary to everyone's expectations, decided to gradually fade out of the field of health care products and enter the children's beverage industry instead.In the future, we asked: Is there any scientific investigation or basis for making such an important and risk-free decision?Zong Qinghou hesitated for a long time, then said, it was intuition.

This is the most mysterious part of business decision research.There are indeed some entrepreneurs who can foresee the upcoming strategic transformation point of an industry when others are not aware of it.It's experience, it's feeling, it's a gift that no MBA education can give.Andrew Grove, who once led INTEL to create a chip miracle, recalled his managerial career, and said with emotion: Business success includes the seeds of its own destruction. The more successful you are, the more people will want to follow you. Take a share of the soup in your pot until nothing more can be squeezed out of you.All the worries pale in comparison to how I feel about the strategic transition point.Maybe we can only encounter once in a lifetime that the basis on which our business depends changes, and this situation is often not calculated with data, it is on the edge of science and intuition.

Grove also describes two signs of this "entrepreneurial hunch": First, you have a sense that something seems wrong—in fact, "gut feeling" is one of the most important gifts of entrepreneurs—and things don't work. Unlike their original development, you will notice some changes in consumer attitudes, jobs are getting smaller and smaller, competition has arisen in neglected areas, and the company's marketing laws seem to be a little weird.Secondly, when it comes to predicting something, the gap between your opinion and the actual development of the thing is getting farther and farther, and there are discordant voices and thoughts within the company.Grove believes that when these conditions appear in your company or your industry, you must choose to change.This is a very headache and risky business, you don't know which situation is definitely correct, and you can't wait until you know the answer before you start to act.Just like Grove gave up memory and chose microprocessors, you can only take risks, sometimes even desperate ones.At this time, you need scientific management and judgment, as well as non-scientific intuition and firmness beyond ordinary people.

The new product chosen by Zong Qinghou is fruit milk for children.At that time, Robust and other companies had already taken the lead and achieved a lot in this market, and the market awareness period had passed.Zong Qinghou believes that this should be the best time to cut in.We can find that Wahaha is accustomed to intervene as a "latecomer" in the market, such as children's nutrient solution, fruit milk, eight-treasure porridge, purified water, and very cola.Such a strategy needs to be based on a strong brand and overall marketing, and its advantage is that it can save the cost of market cultivation during the introduction period.

"Sweet, sour, nutritious, delicious--Mom, I want to drink Wahaha Fruit Milk." This is Zong Qinghou's advertising slogan for fruit milk.Strong taste hints, intuitive functional appeals, and colloquial straightforward statements once again reveal that this marketing master has an accurate grasp of the mentality and tastes of Chinese consumers.When fruit milk was just launched, Zong Qinghou planned a "fruit milk gift" activity in Hangzhou in order to create a market atmosphere and quickly start sales.During the event, consumers could receive a bottle of fruit milk with a clipping from a local daily newspaper. This was a large-scale on-site promotion that was only seen in China at that time, and its sensational effect was far beyond the organizers' expectations.The city of Hangzhou was almost insane. The shopping malls and squares where the event was held were packed, the counters were knocked down, and the sales staff were injured. In the end, a large number of police forces had to be deployed to make the event barely last.

Through this activity, Zong once again experienced the huge potential of the market. "You hardly know how deep the 'well' of the Chinese market is. As long as you have a good product and an effective marketing method, you will become the most popular person." When he was interviewed by a reporter from the Associated Press who came from Shanghai after hearing the news, he said with emotion.And the Associated Press reporter expressed another emotion in the first paragraph of his press release: "Today, in socialist China, there are finally entrepreneurs who understand consumer psychology and understand marketing."

Relying on the marketing foundation laid by Wahaha in the development of nutrient solution, Wahaha Guomilk made a successful start and quickly covered the national market.However, at this moment, a worrying phenomenon surfaced like a ghost: With the expansion of the market territory and the huge increase in sales, Wahaha's marketing front is getting longer and longer, mercenary, ignoring agreements Dealers emerge in endlessly. When the sales situation is good, they send telegrams to urge the goods every day, but when the off-season comes, they stand still. The pressure and risks of marketing are all concentrated in the manufacturer.Zong Qinghou is particularly troubled by the fact that more and more funds are deposited in the circulation link. On the surface, the production and sales of the company are booming, but the actual return of funds is very unsatisfactory. Arrears of payment are like snowballing, and there are even some The merchants sold the goods and received the money, but they disappeared in the world and could not be found anymore.

This is a common dilemma for almost all Chinese consumer goods manufacturers: as the market scale expands, marketing risks increase exponentially, and the most fatal of these is the loss of cash flow. "If you don't deliver the goods, there will be no business, and the enterprise will be ruined; but if you do business, you will not receive money, and the enterprise will be even more ruined." This kind of pain is by no means a temporary pain for one person.The weak business ethics and disregard for the rules of the game make people really love and hate the Chinese market. Around 1993, Wahaha owed 100 million yuan in arrears in the circulation link. A dealer owed Wahaha as much as 2 million yuan. Later, sometimes I had to travel across the country for this, exhausting my tongue. "At that time, my only feeling was that we had to rebuild the market's credit system. This work must be done sooner or later. If we don't do it today, we will do it tomorrow. It is better to do it later. We can't control other people's affairs, but Wahaha must finish it as soon as possible." Zong Qinghou recalled.

At the National Distributors Conference in early 1994, Wahaha proposed a plan: From then on, the deposit system will be implemented, and all merchants who distribute Wahaha products must pay a certain deposit on an annual basis. Many preferential policies and provide interest rates higher than bank interest rates.This is an unprecedented move in the national beverage and food industry. When Zong Qinghou read out the plan word by word, the dealers in the audience stared wide-eyed. "Wahaha why?" Zong Qinghou said that there are three factors: first, Wahaha's fruit milk is easy to sell, and everyone can make money; second, the deposit has interest, which is better than depositing in a bank; It took Zong Qinghou two full years to truly complete the implementation of the deposit system.It's hard to compare the pressure to outsiders, but Zong Qinghou gritted his teeth and resisted.Over time, "to do business with Wahaha, you must pay a deposit" has become a self-evident rule.In this process, Wahaha eliminated a group of dealers with bad credit, manufacturers changed from passive to active, and a revolutionary change occurred in the marketing network.As for dealers, because they use their own money to buy goods, of course they are more active in promotion.To this day, in an environment where the business ethics atmosphere has not been fundamentally changed, Wahaha does not have a penny in arrears in the market, and the flow of funds is very smooth, so that marketing personnel can devote all their energy to actual promotional actions. The implementation of the deposit system has enabled Wahaha to reach a brand-new contractual relationship with dealers. This institutional arrangement around 1994 seems to have not been noticed by outsiders, but it was of great significance to the establishment of Wahaha's marketing system, and it also enabled Wahaha to safely survive many market turmoil and crises in the future. The reason why we describe this part in the first chapter is because the establishment of "credit contract" is so important for marketing.In the following chapters of this book, we will give a more in-depth description of Wahaha's marketing system and concepts. However, the basis of these systems and concepts is the establishment of credit contracts.As Zong Qinghou said, "Sales arrears are a knot in marketing. If this knot is not broken, hidden dangers will always exist. Once this knot is opened, the meridians will be opened, and everything can be planned." In the growth history of Wahaha, children's nutrient solution is the first step of primitive accumulation, the appearance of fruit milk has promoted the layout of the national marketing network, and the implementation of the deposit system has completed the system construction of the production and sales credit contract.It is on this basis that as the chairman and president of Wahaha Group, Zong Qinghou, a strategic Chinese business master, began to build his own marketing kingdom. In 1996, Wahaha reached a joint venture agreement with Danone Group, the fifth largest food company in the world.In the same year, Wahaha purified water was launched, which won the first place in the national market share that year, and the company's sales exceeded 1 billion yuan. In 1998, Wahaha suddenly announced the launch of Coca-Cola, directly challenging Coca-Cola, the world's No. Variety of carbonated drinks. In 2001, Wahaha successively entered the field of tea drinks, fruit juice drinks and pure milk. In the first half of 2002, its total output surpassed that of Coca-Cola for the first time, becoming the veritable Chinese beverage king.