As is well known, promotional activities are an important means of driving consumption and building brand awareness. The 'proactive promotions' we refer to are promotional activities organized by distributors themselves in local markets, as opposed to those led by manufacturers.
In addition to manufacturer-organized promotions, distributors also conduct promotions independently in regional markets. This can be divided into two scenarios: one where the distributor funds the promotion of the manufacturer's products themselves, and another where the manufacturer provides some support based on the specific conditions of the regional market, allowing the distributor to execute promotional activities in a specific area.
In industries with higher profit margins, such as automobiles, real estate, and electronics, both distributors and manufacturers have greater profit space, making it possible for either party to reduce prices or initiate promotions without the other's knowledge or consent. For example, Fuji announced a price reduction for one of its digital cameras online first, then calculated distributor inventory and compensated the difference. In contrast, condiment manufacturers have lower profit margins, so when distributors organize promotions without manufacturer support, there are five key points to consider.
Proactively Report Promotion Process and Results to the Manufacturer
Distributors often request manufacturers to run promotions. For instance, a distributor in Guangzhou, specializing in supplying supermarkets and hypermarkets, was pressured by these retailers to ask the manufacturer for promotional support. For manufacturers with low gross margins and limited profits, this is a significant burden. Therefore, promotions obtained by distributors are often outside the manufacturer's budget, making the manufacturer somewhat reluctant. In such cases, it is crucial to proactively report the market results after the promotion to secure support for future promotions. A food distributor I know, under pressure from the supermarket channel, made many promotional demands to the manufacturer but failed to report the outcomes afterward. This led to the manufacturer's resentment and eventual withdrawal of support.
Avoid Damaging the Relationship with the Manufacturer
When a distributor independently runs promotions in a regional market involving the manufacturer's products, it is essential to communicate fully with the manufacturer's representative to avoid misunderstandings.
This is especially important for price promotions. For example, Brand A had a dispute with a department store in Harbin over a special price promotion. The store lowered the price, and the manufacturer believed it violated their pricing agreement, ultimately taking the matter to court. Another conflict occurred between Brand B and a chain store when the store promoted a competing brand and offered a product from Brand B as a free gift. Brand B felt this damaged its corporate image, leading to a clash.
In the wholesale food market, profit margins have always been low, especially for well-known brands. Some distributors, feeling they can't earn much anyway, deliberately lower prices on famous brands to create an image of low prices, attracting downstream customers to purchase other products. They use these brands as loss leaders. However, manufacturers may catch on and respond by halting shipments, imposing fines, or even revoking distribution rights.
These cases illustrate that distributors and manufacturers are interdependent. Market actions taken after full communication will give both parties confidence.
Avoid Causing Discontent in Surrounding Markets
If a manufacturer runs a promotion for a specific region, it is crucial that goods from your regional market do not flow into other markets. Since your region has a promotion while others do not, your market gains an advantage, making it easy for goods to be diverted to other markets, causing price chaos in surrounding areas. Therefore, if the manufacturer only runs a promotion in your region, you need to plan carefully and also monitor the market to prevent cross-regional sales.
A common issue with regional promotions is the flow of goods from new markets to old markets. For example, in a regional market I managed, the promotional intensity in surrounding large cities was greater than in my area, so customers went to those cities to purchase goods, leaving my inventory unsold. This is a channel problem caused by promotions.
Distributors rarely fund promotions themselves; most are organized by manufacturers. However, some distributors do run local promotions, often regional general distributors with some profit margin. Sometimes the manufacturer covers the costs, and the distributor organizes the promotion.
When Distributors Run Their Own Promotions, Focus on Key Channels
Whether the promotion is supported by the manufacturer or funded by the distributor, the resources available to the distributor are limited. To achieve maximum market performance with limited resources, it is essential to prioritize and strategize.
A distributor in Hebei, who produced sesame oil, bundled his product with a manufacturer's soy sauce for a promotion. However, the soy sauce was primarily sold through the foodservice channel, while he only promoted in supermarkets. As a result, he spent a lot of money with little effect. If he had coordinated with the manufacturer's regional representative and run the promotion in the foodservice channel, the results would have been much better.
Another instructive case: A manufacturer was competing with a major brand. In a county-level market in northern Guangdong, a distributor organized a promotion. The manufacturer provided some gift-pack products intended for the regional general distributor to use for building relationships with restaurants or key individuals. The distributor calculated the cost, converted the products into cash value, and devised a brilliant plan: for newlyweds who presented their marriage certificate and proof of booking a wedding banquet at a restaurant, they would receive a free wedding photo session, free rental of a wedding dress on the wedding day, and a complimentary video recording. The only condition was to use their products, which were offered as buy-one-get-one-free, with no minimum purchase requirement. This strategy created a significant breakthrough in the stronghold of the regional dominant brand, leading to a landslide in the wedding banquet market. Later, the promotion expanded to other celebratory banquets, and the brand became famous in the region. The distributor grew from a small shop to a prominent player. The success lay in fully utilizing the manufacturer's resources and focusing on a specific channel rather than spreading efforts evenly.