Case Study: The Game of Deception Between Distributors and Manufacturers

What kind of relationship exists between distributors and manufacturers? Is the former courted by the latter, or does the latter act like a big shot?

At least in the author's view, most manufacturers would want as many agents as possible, because that would spread their products wider in the market.

However, after hearing Mr. Chen's complaints today, I realized that things are not entirely so! What exactly happened to Mr. Chen?

Mr. Chen said: A knife from the manufacturer has been stuck in my heart, right in a vital spot! Listen to Mr. Chen's story too! Perhaps you will also empathize...

Mr. Chen's Misfortune

Recently, a cosmetics distributor from Zhejiang complained to the author that after just over half a year of representing the BXT brand, his agency rights were transferred to a new distributor without any notice. This not only meant he had been "raising a child" for someone else, but he was also seen as a "fraud" by retailers who thought he no longer had the agency rights.

Mr. Chen, the distributor in question, said that when his salespeople visited stores, they found that many retailers did not believe he had the agency rights and were told that another distributor was already handling the brand.

For an FMCG company to grow, it needs stronger distributors, and it may take measures to refresh its blood, survival of the fittest. Mr. Chen could understand that, but what made him furious was that when he called the company's head to ask, the answer was a denial.

A few days later, the new distributor in the region told him to stop operating the brand immediately. When Mr. Chen called the company again, they played "Tai Chi," passing the buck, which made him suspect the company's motives.

The company kept calling, demanding payment, and if he didn't pay, they would replace his agency rights. The intention to raise capital was obvious. "Mr. Chen said that the agency situation in Zhejiang and Jiangsu markets is chaotic now. There are six or seven provincial and city agents in Zhejiang alone, covering Jinhua, Yiwu, Wenzhou, Taizhou, and Hangzhou, with overlapping regional markets."

His reputation was damaged, and the tens of thousands of yuan he had invested earlier went down the drain. Mr. Chen no longer wanted to represent the brand, but even so, there was still a problem: he had tens of thousands of yuan worth of inventory, and the company told him to solve it himself.

"This isn't food that I can eat every day; I can't apply a bottle every day." The company's attitude was truly disheartening. Even one of the company's beauty consultants said, "With a brand like this, I have no confidence selling it."

According to Mr. Chen, as early as March, when BXT held a recruitment meeting, there was already "under-the-table" activity, signing up a batch of new distributors.

For the old distributors, the agency policy was very harsh. The original regions had to be handed over to new distributors, and they could only operate a few areas in their own cities, with a monthly payment of 100,000 yuan. The new distributors also had a monthly payment of 100,000 yuan for the larger region.

Why Do Manufacturers Cut Off Distributors?

Distributors Have Limited Strength and Slow Progress; Manufacturers Keep Options Open, Wanting to Attach Themselves to Bigger Players

This is a common practice of manufacturers that lack integrity and long-term planning. When a product is first launched, it lacks brand awareness and is hard to attract strong, ideal clients. To quickly achieve channel layout or complete payment tasks, they accept any distributor as long as they have money, which leaves hidden dangers for future cooperation.

When the manufacturer grows, and the distributor can no longer meet the manufacturer's needs for local market development, the manufacturer also has the conditions to attract quality distributors. Many dishonest companies do not support or help the outdated distributor but instead "stray outside the marriage."

These manufacturers' sales managers think: "Modern society advocates freedom of marriage. If following you has no future, I have to pursue my own happiness, even if it means being Pan Jinlian."

Manufacturers Paint a Rosy Picture to Brainwash and Raise Capital; Distributors Greedy and Gullible, Lose Money!

Readers can get some insight from the above case. Borrowing the words of Ms. Zhang from C2CC: Agents and distributors should be cautious and rational when choosing companies and brands, avoiding falling into the "capital trap" designed by companies.

These manufacturers' sales managers think: "Whoever pays is the boss. I get commission only if there is payment. Whoever gives me payment can be the distributor. Once the goods reach the distributor, I don't care how they sell to consumers. The company's strategy is to raise money once, then switch brands, design a new recruitment policy, and raise money again. We don't care about the market's survival."

Pursuing Channel Flattening or Deep Distribution, Manufacturers Implement "Feudal Reduction"

Company X's regional distributor in Jiujiang had monthly sales of only about 50,000 yuan, while in Pengze County, a small county with a population of nearly 300,000 under Jiujiang (the distributor there started early and cooperated directly with the manufacturer), monthly sales reached over 300,000 yuan. Huangmei County in Hubei, across the river from Jiujiang, had monthly sales of over 700,000 yuan. This shows that although the Jiujiang region had been operating for two years, it was no different from a blank market.

The Jiujiang distributor was a relatively strong local distributor with annual shipments of tens of millions. Initially, they were optimistic about X brand, but due to some legacy issues from early cooperation, the client refused to invest or build distribution channels. Even when the regional manager developed some sub-distributors, the distributor's markup was high, and policies were not passed down, leaving sub-distributors with no room to operate and no motivation to work the market.

After multiple failed communications, the regional manager got angry! "If you don't do deep distribution, then I'll do channel flattening!" Behind the distributor's back, he opened county-level distributors one by one in the counties under Jiujiang, and the Jiujiang market's sales multiplied several times in the short term.

The regional manager said: "The manufacturer cannot give up the whole forest for one tree."

Not Treating Manufacturer Managers as Important, Forcing Manufacturers to "Execute Ma Su with Tears"

Many experienced and powerful distributors do not put the manufacturer's "spokesperson" – the regional manager – on an equal footing. They think the regional manager is just a hired hand, a young lad, or a woman with long hair and short insight.

For the regional manager, the manufacturer's policies are not implemented, they are not respected, and distributors always use payment as leverage to demand policies, threatening not to pay if they don't get special support.

If the distributor does not cooperate, the regional manager's work cannot proceed. When the work becomes unsustainable, the regional manager will look for backup distributors, collect evidence of the existing distributor's violations and non-cooperation, and apply to the company to change the distributor.

Using Gang Rules Instead of Business Rules – Those Who Don't Play by the Rules Will Be Defeated

Some distributors, after becoming big, have connections in both the underworld and the officialdom, and can get things done through various channels.

They don't do business by the rules, relying on the fact that the manufacturer cannot do without them locally. They look down on the company's frontline salespeople, treating them like servants, summoning them at will, and acting like local emperors.

In the early years, there was a distributor in Harbin who considered himself a "hero" in the Northeast. No one dared to touch the brands he took over. He demanded resources from the company, almost like a gangster collecting protection money.

Not only did he fail to meet sales targets, but he also threatened salespeople, saying things like, "If you don't transfer the expenses to my account, you won't leave Harbin today." This made frontline salespeople dare to show their faces in Harbin only once every two or three months, and even then, secretly.

Probably this guy thought the company wasn't making any big moves, so he thought it was all talk. Taking advantage of the negotiation over distribution rights, he actually beat up the office manager, and after the office called the police, the case was dropped.

This made the distributor even more fearless, declaring that anyone who dared to touch his Harbin distribution rights would be met with force from the company's people.

For such violent distributors, removing one is like removing a tumor.

If you want to cause trouble in the Harbin market, then we'll just leave it aside for now.

China is a huge market. We'll concentrate resources on other markets and do them deeply. The company doesn't rely on any single market to survive.

If you want to source goods from other places and disrupt the market, we'll issue a notice to surrounding distributors: anyone who supplies Harbin will have their distribution rights revoked.

This "leave it aside" lasted for three years in the Harbin market.

This distributor, who relied on muddling through, struggled for over a year without market planning or policy support. How could he make money? Even the biggest distributor needs to make money to support his family. Gangster tactics that don't make money can work for a short time, but no one can stand it for long.

Channel Optimization and Integration: Cutting Off Distributors' Weak Channels

Mr. Wei was the general agent for G brand in Q region and had a good relationship with the factory's top management. Mr. Wei was very optimistic about G brand, wanting to make it the number one local brand and also use G brand to develop his own distribution channels.

Mr. Wei's main strength was in supermarkets, but G brand was a mass-market FMCG product, and wholesale distribution was its main channel.

Since Mr. Wei took over G brand, all local supermarkets had been entered, but the distribution rate in the wholesale channel was less than 10%. The high costs of supermarkets became an unbearable pain for G brand.

To fully occupy the Q market, achieve deep distribution, and lower market costs, the G brand regional manager had no choice but to find another strong wholesale distribution agent, Mr. Li, and authorize him the distribution rights for the Q market's wholesale channel.

When Mr. Wei learned that his distribution rights for the wholesale channel had been cut off, he felt betrayed by G brand and flew into a rage. To appease Mr. Wei, the manufacturer transferred the regional manager (who had achieved rapid growth after the channel split) and issued a public criticism.

The regional manager said: "If I let the client continue in the wholesale channel, I'm waiting to die. Cutting off the client's weak channel is my chance to survive."

Cooperating with Brand Companies Is Quite Different

First, brands don't worry about clients; there are plenty of backup clients waiting in line. You are like the crow; as soon as you open your mouth, the meat falls into the fox's mouth under the tree.

Second, brands basically operate on a national scale. At most, you are just a provincial client. Without you, they can still shine in other places. But if you lose them, you have to wonder if you'll have cash flow tomorrow. In the FMCG industry, it is increasingly recognized that channels are king and terminals win!

Distributors are strategic partners of manufacturers. High-quality distributors are a scarce resource. Developing and replacing a distributor both incur extremely high costs.

No legitimate manufacturer doesn't want to create a win-win with distributors, and no legitimate manufacturer would casually cut off a distributor. It's just that business is like a battlefield – there are no permanent friends, only permanent interests.

Source: New Business Station

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