Marketing Dilemmas Under the Deep Distribution Model Marketing expert Liu Chunxiong recently said, "Over the past two decades, the channel model in FMCG has changed the least. Most of the deep distribution techniques from twenty years ago are still applicable today." I interpret Mr. Liu's words in two ways.
First, what was effective twenty years ago still works today, proving that deep distribution is a long-term effective methodology. Therefore, deep distribution remains mainstream today.
Second, the FMCG channel model has a weak ability to keep pace with the times. Today's market environment and structure have undergone tremendous changes, and deep distribution based on the traditional dealership model has encountered major problems. What problems? A walk through the market reveals the real issues. Manufacturers face the big problem of 'unwillingness to sell new products'; without continuously successful new products, sustained growth becomes a problem. Distributors face the big problem of 'big products not making money'; tasks increase year by year, making revenue growth difficult and profit growth even harder. New products carry high risks, so they are also unwilling to sell them. Why is this? I believe the core reason is that deep distribution is a high-cost channel model with rising costs and diminishing competitive effectiveness. Why do I say this? Let me explain in detail. The Truth Behind 'Unwillingness to Sell New Products' Let's clarify a fact: deep distribution is a sales model based on a human-wave tactic. This is an arithmetic problem. A salesperson serves about 150 retail outlets. If a brand wants to cover 3 million outlets, it needs at least 20,000 salespeople and 2,000 sales supervisors. Whether it's the manufacturer or the distributor, maintaining such a large team costs at least 3 billion yuan annually, not including sales management, promotional, and brand building expenses. So, the essence of deep distribution is a high-cost sales model based on human-wave tactics. Moreover, with social progress, consumption growth, and improved welfare, these costs will continue to rise. Not only that, but the effectiveness of deep distribution is also diminishing. Some say it's due to the growth of online business, which has rendered deep distribution ineffective. That's only partly true. The first major reason for the diminishing utility of deep distribution is the end of China's population growth era. Previously, it was about dividing a cake; now it's about grabbing a cake, increasing difficulty without necessarily increasing sales volume. The second major reason is that deep distribution, as a standard model, no longer enjoys model dividends. "One person's effort raises scores; everyone's effort raises the cutoff line." Today, which brand or distributor doesn't understand deep distribution? When everyone knows and uses the same method, does effectiveness improve or worsen? As demonstrated above, deep distribution is a sales model that requires both scale and gross margin. The truth behind the problem of 'big products not making money, new products not being sold' is: products with scale have increasingly thin profits and don't make money; so-called new products have relatively higher profits but lack scale, so they are unwilling to sell. Now that we've identified the problem, what should we do? On December 18, 2023, taking advantage of the annual meeting of the China FMCG Distributor Alliance (Tower Alliance), New Distribution attempted a supply chain reorganization—the 'Extreme Supply Chain' Brand Factory On-Site Procurement Fair. It was New Distribution's first attempt to jointly solve the 'unwillingness to sell new products' problem with brand owners and channel partners. Therefore, although it was a small attempt, it holds extraordinary significance. Why Did the First 'Brand Factory On-Site Procurement Fair' Exceed 4 Million Yuan in Orders? This attempt received participation and strong support from 'A Da', a new brand under Genki Forest's company 'Believe in Young People'. 'A Da' selected some of its new products and supplied them to alliance distributors at an extreme price for a one-time purchase, with interested distributors paying in cash. The brand did not invest in market expenses; distributors handled all sales and market issues. The result exceeded New Distribution's expectations: over 50 distributors attended, and nearly 30 placed orders for the new products. The total order volume exceeded 150,000 units, with a value exceeding 4 million yuan. This order volume is too small to mention, but its value and significance deserve our high attention and reflection. This on-site procurement fair proved one point: it's not that excellent distributors are unwilling to promote and sell new products, but that your products aren't good enough and incentives aren't high enough. For manufacturers, the traditional way of launching new products is outdated. How is the traditional new product launch done?** First, internally select and evaluate several new products for launch, then formulate launch budgets and channel policies, determine terminal activities; then choose pilot regions, and after mobilization, the company team and distributor team go all out to distribute, display, and run consumer promotions. After a charge, exhausted and spending heavily, they finally occupy the terminals. Three months later, the thunder and rain diminish, and products don't move; after another three months, new products are 'strewn across the battlefield', and manufacturers start calculating how much it will cost to recover and dispose of mountains of returned new products. Spending tens of millions, mobilizing thousands, wasting half a year, only to see one new product after another 'die in battle'. Some may ask: when manufacturers' regular forces lead new product launches, the mortality rate is high, but can distributor-led launches solve this problem? To this end, New Distribution interviewed Mr. Yan Shun, founder of Zibo Haochunte Trading, who ordered 10,000 units at the first on-site procurement fair. Isn't Boss Yan worried about these goods piling up in the warehouse? He said he really isn't worried at all. Haochunte is a typical deep distribution model. A sales team of over 30 people directly covers nearly 5,000 terminals in Zibo, and it is the distributor for well-known brands like Tsingtao Beer, C'estbon, and Genki Forest in Zibo. "Why am I not worried about selling these new products? First, they are produced by a major factory, so I don't worry about quality; second, I have a sales team of over 30 people with good customer relationships, so I don't worry about distribution; third, terminal margins are sufficient, so I can build floor displays in the best positions; fourth, if sales don't meet expectations, I have ways to dispose of remaining stock without losing money." Yan Shun said his company sells over 2 million units of beverages annually, and these 10,000 units account for less than 0.5%, so he is completely unconcerned about losing money on this batch; no matter what, he will earn more than before. "I have a team and network, so I'm not afraid to push new products; I just lack new products with enough margin space," Yan Shun further analyzed. "The so-called high-profit new products only bring a few more yuan per unit, which isn't enough to drive the team and terminals." Yan Shun's confidence represents the majority opinion of the thirty distributors who ordered 'A Da' new products. This March Let's Play Big Together! What is the value and significance of the 'Brand Factory On-Site Procurement Fair'? For brand owners, the on-site procurement fair reduces new product launch costs to zero while greatly improving launch efficiency. Launching a new product is, in essence, a math problem. Previously, launching a new product required millions in budget and half a year. Now, ten new products can be launched at once. Zero investment, zero after-sales, zero market expenses to start; dozens of distributors test for you, better verifying the market viability of new products. If a new product performs well and distributors reorder frequently, it can be listed as a potential future growth product. If there are no reorders, it proves the product's strength is insufficient, and you don't lose money but can still earn marginal production benefits. For distributors, there's no need to bear new product targets or engage in various seemingly scientific but actually useless actions for sales to obtain new product rewards. As long as you have a team, customer relationships, and terminal network, you can trust your product selection judgment and your team's execution. No tasks, no manufacturer assessments; whether you order a thousand or ten thousand units is entirely up to you. As long as you have capability, you won't worry about making money; it's just a difference of earning a few yuan or dozens of yuan per unit. If it sells well and you earn more, you can request regional agency from the manufacturer; if it doesn't sell well, you earn less, dispose of remaining stock, summarize lessons, and strive to pick a better new product next time to earn more money. New Distribution believes that new product launches based on supply chain reorganization will become one of the important new product launch methods in the future. Therefore, we have decided to go big at the 9th China FMCG Innovation Conference from March 14-16 this year.** We will bring the 'Extreme Supply Chain' Brand Factory On-Site Procurement Fair to more excellent brand owners and channel partners. We will solicit and select 5 FMCG categories, 30 well-known brands, and 150 excellent new products, and recommend them to excellent channel partners over several days during the 'Brand Factory On-Site Procurement Fair' at the conference. Every new product comes from the professional team of a well-known brand and is produced by a strong factory;
Every new product has been pre-tasted, reviewed, and approved by a review panel of excellent distributors from 5 categories organized by New Distribution before appearing at the on-site procurement fair;
Every new product has no brand premium and removes marketing and management costs; all are factory prices. The extreme supply chain means extreme low prices based on excellent quality;
Every new product has a low order threshold; above the minimum order quantity, you can order a few hundred or tens of thousands of units as you wish. Under the attraction of ultra-high profits, the only test is your judgment and confidence in your team. The 'Extreme Supply Chain' Brand Factory On-Site Procurement Fair is the most eye-catching innovation activity at the 9th China FMCG Innovation Conference; it will also be an extraordinary exploration and experiment under the backdrop of the supply chain revolution. If you are a well-known brand owner with excellent new products at extreme prices, to register for the 'Brand Factory On-Site Procurement Fair', please contact:**** If you are an excellent channel partner looking for high-quality products at extreme low prices, to register for the 'Brand Factory On-Site Procurement Fair', please contact:**** We welcome all excellent brand owners and channel partners to participate in the 'Extreme Supply Chain' Brand Factory On-Site Procurement Fair. In Chengdu this March, let's play big together! From March 14-16, 2024, the 9th China FMCG Innovation Conference, themed 'Supply Chain Revolution', will be held on time in Chengdu. Over 3 days, there will be one main forum, one China FMCG Hard Discount Conference, one China FMCG Distributor Conference, and over ten sub-forums and closed-door exchange sessions. Together with thousands of FMCG brand owners, distributors, retail innovators, and industry service providers from across the country, we will meet in Chengdu for continuous brainstorming to discuss the challenges and opportunities, changes and solutions in the era of the supply chain revolution. The 'Extreme Supply Chain' Brand Factory On-Site Procurement Fair will be one of the standout innovation activities during this conference!******** ********In this era of supply chain revolution, a new business era will be born. We hope every participant will still have a place in this wave, and we believe this will be a conference worth attending! 🔺Scan for ticket inquiries🔺