---
title: "A Beverage Distributor's Practical Case: Net Profit Up 10% in 2020 Through Price Adjustments"
description: "In the market, pricing determines success; it's both an economic issue (demand elasticity) and a psychological one (buyer psychology). This article shares a case study of a distributor's price adjustment strategy in 2020. The distributor, Mr. Zhang, operates in a third-tier city with a population of 1.6 million, generating annual sales of 25 million yuan for a beverage brand, facing a main competitor with 20 million yuan in sales. He navigated price, profit, and volume challenges to achieve a 10% profit increase."
author: "高级研究员 海游"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2021-02-03"
language: "en"
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# A Beverage Distributor's Practical Case: Net Profit Up 10% in 2020 Through Price Adjustments

> In the market, pricing determines success; it's both an economic issue (demand elasticity) and a psychological one (buyer psychology). This article shares a case study of a distributor's price adjustment strategy in 2020. The distributor, Mr. Zhang, operates in a third-tier city with a population of 1.6 million, generating annual sales of 25 million yuan for a beverage brand, facing a main competitor with 20 million yuan in sales. He navigated price, profit, and volume challenges to achieve a 10% profit increase.

**In the market, pricing determines success; it's both an economic issue (demand elasticity) and a psychological one (buyer psychology).** Today, I'll share a case study of a distributor's price adjustment strategy in 2020.

First, the basic situation:
Distributor Mr. Zhang primarily handles a beverage brand A in a third-tier city with a market population of 1.6 million, annual sales of 25 million yuan, and a main competitor with annual sales of 20 million yuan. His service channels are offline traditional channels and local supermarkets, but local supermarkets are weak, so traditional channels account for 95% of sales.

At the beginning of 2020, he shared his confusion with me:
In 2019, his business fell into a price vicious cycle. On one hand, he couldn't balance price, profit, and volume because the sales target was set by the brand owner, and he had to achieve at least 80-90% of it, or it would affect his distribution rights for the next year.

In previous years, to meet sales targets, he increased promotions to lower prices, which reduced profits but boosted volume, allowing him to hit the manufacturer's sales targets and earn year-end rebates, keeping the business afloat.

**In 2019, he used the same old methods, but prices dropped, profits fell, and sales declined instead of rising.** The business became passive, like being stuck in a quagmire. On the other hand, the gap with competitors narrowed; 2019 was the smallest sales gap with the main competitor in recent years, with the constant risk of being overtaken. So he was very confused. How to solve these problems?

**-01-**
**Understand the relationship between price, volume, and profit**

First, clarify that distributors rarely face consumers; they deal more with terminal store owners. A good habit developed over the years is to keep the invoice price fixed and adjust prices through tiered bonus policies. That is, the invoice price is the highest price at which distributors normally sell. Under policy adjustments, four scenarios may arise:

**1. Focus on profit**
Reduce promotional intensity, raising product prices, decreasing sales volume, but increasing total profit. It's worth noting that promotional adjustments should be within a controllable range, meaning the impact on sales volume is also manageable. This suits situations where the brand owner's annual target is achievable or already met.

**2. Operational mistake**
**Reducing promotional intensity raises prices, lowers sales volume, and decreases total profit.** If the promotional adjustment exceeds the controllable range, price affects sales, and the sharp drop in sales reduces total profit. This is the start of your nightmare and an opportunity for competitors to counterattack. This is the most undesirable state; monitor the market, detect issues early, and correct them promptly.

**3. Focus on volume**
**Increasing promotional intensity lowers prices, raises sales volume, but decreases total profit.** Again, promotional adjustments should be within a controllable range, meaning the impact on profit is manageable. This suits situations where you're sprinting to meet the brand owner's annual target to earn the year-end rebate.

**4. Ideal state**
Increasing promotional intensity lowers prices, raises sales volume, and increases total profit. This occurs when the market foundation is solid, the price system is stable, and a slight increase in promotion can bring significant sales growth, boosting total profit.

**Summary:** From the above, we see how price affects sales and profit under different scenarios. Distributors focus more on their own profit, while brand owners focus more on distributor sales. As a distributor boss, you need to balance your own interests with the manufacturer's needs for long-term business success.

**-02-**
**Balance the reactions of terminal stores and competitors after price adjustments**

First, clarify the purpose of price adjustments through channel promotions. There are three main reasons:
**1. Seize market share;**
**2. Increase sales volume;**
**3. Increase profit.**

Two factors inevitably follow:
**1. Terminal store owners' reactions, determined by price sensitivity, affect how much they stock.**
**2. Main competitors' reactions: will they match prices or wait and see?**

Let's analyze each.

**1. Price adjustment analysis**
Distributors should note two points when adjusting prices:
> **a. After price adjustment, how much volume must be sold to keep sales revenue from falling below the previous level?**
> **b. After price adjustment, how much volume must be sold to keep total profit from falling below the previous level?**

Both questions must be considered. To be frank:
**The first question relates to whether the manufacturer will continue cooperation next year. If you fail to meet the brand owner's sales target or fall too short, you may lose distribution rights, wasting all previous market efforts.**
**The second question relates to whether current profits can sustain the business, as without sufficient profit, the business cannot continue.** So both a and b must be satisfied.

To satisfy a, pay attention to the ratio of new to old supply prices. For example, if the brand owner runs a promotion of 10+1, the market actually absorbs 11 products, but the distributor's target counts only 10. If the original price is 11 yuan and the current price is 10 yuan, sales volume needs to increase by (11-10)/10 = 10%, which is the amount of the promotional intensity.

To satisfy b, pay attention to the ratio of new to old gross profit. For example, if the distributor runs a channel promotion, previous profit was 10 yuan per unit, now it's 8 yuan per unit. To keep total profit unchanged, sales volume must increase by 2/8 = 25%. Otherwise, it's better not to run the promotion.

Of course, before balancing sales and profit, you must also balance your market share (this data is usually supported by the brand owner). **Market share reflects the competitive landscape and determines the product's development trend. As long as the momentum is good, the product can develop healthily.**

**2. Terminal store owner analysis**
**Price + profit + volume all ultimately reflect on terminal store owners,** so this role is crucial. Terminal store owners will consider the following six aspects:
> **a. How popular is the product in the market? Can it be quickly converted to cash?**
> **b. Compared to previous sales data, how long will it take to sell a large one-time stock? What if it becomes unsellable?**
> **c. What promotions are available for similar substitutable products? Compare to find profit differences.**
> **d. Do I have enough funds? Are there any non-negotiable expenses (e.g., fixed tobacco bureau payments, loan repayment dates, upcoming holiday gift box stocking)?**
> **e. Is my warehouse sufficient? Can I pay a deposit without picking up goods? What are the policy differences between picking up goods and paying a deposit?**
> **f. Are there any sudden situations causing a surge in demand (e.g., periodic corporate group purchases)?**

These are questions terminal store owners will inevitably think about. Consider them before adjusting prices.

**3. Competitor reactions to price adjustments**
> **a. Quick response: they follow with market promotions. How big is the price advantage between our product and the competitor's?**
> **b. No response: how long can our price advantage last?**

**Summary:** **A product with certain market influence, price adjustment is a move that affects the whole. You must fully consider the feelings of terminal store owners and competitors, while balancing the manufacturer's sales targets and your own profit.**

**-03-**
**How to implement it specifically**

Based on the above analysis, let's briefly share how distributor Mr. Zhang executed his price adjustment. In 2020, due to the pandemic, partial business activities resumed in early April, and full normal market operations were only achieved by late April to early May.

**1. First step: Focus on sales volume; without volume, there's no momentum**
In early April, just after the city lifted lockdown, the beverage peak season was approaching. Mr. Zhang personally visited fortress wholesale clients, offering the lowest price of the year (with stronger promotions than previous years' water-head promotions), allowing wholesalers to take full truckloads, and promising after-sales support for slow-moving stock (usually no problem, as he had a clear picture of annual sales data). Within fifty days, he shipped over 20 truckloads, collecting 3 million yuan in payments (the pandemic still had a significant impact).

At this time, the main competitor was adjusting its distributor due to conflicts between the manufacturer and distributor, so they didn't respond to the promotional intensity.

**2. Second step: Focus on profit**
Without profit, the business can't sustain. Starting in June, he gradually reduced promotional intensity. By late July, he even canceled all regular promotions, focusing on market sell-through efforts, using sell-through to drive distribution. Prices rose, profits increased, and sales volume decreased (but at this time, wholesale stock was selling through, so overall sales were still rising).

**3. Third step: Enter the ideal state**
To achieve growth in both sales and profit, in early August, he continued investing in market sell-through efforts while launching another round of strong channel promotions. At the same time, most wholesale clients began to reorder. Prices dropped, sales volume rose rapidly, and total profit also increased quickly. This state continued until the end of National Day.

**Summary:** **The above description is a high-level overview; many execution details can't be fully described. But it's clear that distributors need to plan price adjustments with staged goals.**

The final result: Mr. Zhang's 2020 annual sales were flat compared to 2019, he eliminated chaotic, piecemeal promotions, and overall profit increased by about 10%. More notably, the sales gap between his product and the main competitor was the largest in history, almost dominating the market.

**Final thoughts:**
As marketing professionals, we all understand the importance of **product price system (referring to the terminal purchase price; terminal retail prices generally don't change)**. What's lacking is the planning of price adjustments and the estimation of terminal store owners' reactions and main competitors' reactions after adjustments.

Simply put, the promotional price adjustment in one phase and the next have almost no connection except for promotional intensity and timing. As a result, annual price adjustments lack specific planning for marketing stage goals, and there's no subjective macro control over sales and profit. The outcome is predictable.

Often, you work hard all year, spend no less money, fail to build market volume, and don't make money yourself. So, for any price adjustment, remember these six keywords: **annual planning, terminal store owners, competitors, profit, sales volume, ideal state.**

**—end—**


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