I travel a lot for work, often providing consulting and lectures to companies, and I communicate with many people. Recently, a friend who works as a channel distributor told me they feel a strong sense of crisis. Because they sell products on behalf of brand owners, what if one day the brand decides to go direct, or switches to another distributor? What then? They even wonder whether distributors have any value at all. Having a sense of crisis is a good thing. But there's no need to be overly anxious. Channel distributors, of course, have value. It's just that as distributors, we need to recognize our own value, and more importantly, leverage it well. Let me share some thoughts with you. I hope they provide some inspiration. What is the value of a channel? Channel distributors, of course, have value. But have you ever thought about what exactly the value of a channel is? A brand sells a product to a distributor for 100 yuan, the distributor marks it up by 50 yuan and sells it to a store for 150 yuan, and finally the store sells it to the consumer for 200 yuan. This is the chain of the business world, and it should be easy to understand. The distributor earns a 50-yuan margin. But why can the distributor make money? Why doesn't the brand bypass the distributor and sell directly to stores at 150 yuan? It must be because the distributor is more efficient. Each province might have thousands of stores. If the brand supplies directly to stores, it might need to deal with tens of thousands of stores. That's too troublesome. But by working with distributors, it might only need to deal with a few dozen. The brand must have done its own calculations. If it's not cost-effective, why would it do it itself? So, the reason distributors can make money is because they have an efficiency advantage. Managing stores and connecting with downstream through distributors is more valuable than doing it themselves. The value of many channels is essentially the ability to reach users on a large scale. Then, on this basis, find your own unique competitive advantage. So, what are these unique competitive advantages? Generally speaking, there are several types: The ability to reach users at lower cost, the ability to maintain stable inventory, the ability to have lower capital costs, the ability to achieve higher turnover, and the ability to manage risk better. Let's go through them one by one. The ability to reach users at lower cost Distributors can reach users on a large scale. But the cost of this reach should be as low as possible. The ability to reach users at lower cost is the core competitiveness of many distributors. There's a term you've probably heard many times, but it's really effective: private domain. For example, when I was shopping at a mall, I saw a cosmetics brand building its private domain. A young woman said, "Feel free to browse, scan this QR code, and you'll get a free cotton pad." This is actually a way to add users on WeChat by giving away cotton pads. This brand has added millions of WeChat friends. That means it can post on Moments every day, continuously reaching these users and showcasing its products to them. The cost of such reach is much lower than other traditional methods. Many distributors use various online and offline methods to pool traffic into their own reservoirs. Moreover, with a traffic pool, they can continue to innovate in channels. Let me give you another example: some distributors develop partners within their pool. Someone once told me that their community had hundreds of partners, each of whom could help drive significant sales and contribute a lot of performance, and they shared the profits. Through this approach, they continuously find new partners and always obtain lower-cost traffic. Low traffic acquisition cost and low reach cost are the secrets to many distributors' profitability. You can refer to this and think it over carefully. So, besides the ability to reach users at lower cost, what else is there? Let's continue, for example, the ability to maintain stable inventory. The ability to maintain stable inventory Many distributors' upstream brand owners are listed companies. For listed companies, there is an important need: to minimize fluctuations. Some brand owners hope for steady growth in quarterly sales. If there are big ups and downs, it could even affect the stock price. Therefore, brand owners need stability in their operations. For distributors, this means having the ability to maintain stable inventory. The brand's goods are first stored with you, making you a container for inventory, essentially a buffer pool. In other words, for the brand, the goods are already sold. But in reality, you are holding the goods and slowly selling them out. Being able to absorb inventory and smooth sales is a way many distributors make money. Only by using such methods can you have stable cooperation with brand owners and secure stable orders. And these orders often come with decent profits. The ability to have lower capital costs So, what does the ability to have lower capital costs mean? This scenario often occurs with distributors dealing in bulk commodities, such as oil or plastics. For example, you purchase a batch of oil from PetroChina or Sinopec and want to sell it to a company in the United States. In this case, you are a distributor. This business seems simple: buy from the left, sell to the right, and earn a margin. But we often overlook a key factor: capital costs. Think about it: after you ship the goods to the US, will the American customer pay you immediately? Those with experience should know that generally, they won't. They usually pay you after one or two months, or even six months. But when you source from upstream, you need to pay cash on delivery. That is, you must pay upstream immediately, but you might not receive payment from downstream for several months or even half a year. This is what we often call: advancing funds. So, to do this kind of business, to be this kind of distributor, you need a large amount of capital to ensure your own safety. Many people say, "I buy at a low price and sell at a good profit, but in the end, I still lose money." This is the reason. If your capital cost is low and you have a way to advance funds, you can ensure your cash flow doesn't break. The ability to achieve higher turnover What I just mentioned was relatively large-scale business. But what about distributors who are in retail? What ability is important then? The ability to achieve higher turnover is very important. Speaking of this, I have to mention a company that many retail people love: Costco. Because retail companies like Costco make money by increasing turnover rates. So, how high is Costco's turnover rate? Close to 12. What does that mean? It means that after Costco purchases goods, it can sell them within a month. So, the same money can be turned over 12 times a year. Then, we can do the math. Costco's profit margin is at most 14%, let's assume it's 10%. So, 1 yuan, turned over 12 times a year, can earn 1.2 yuan. But an ordinary supermarket might only turn over once every three months, so only 4 times a year. Then, 1 yuan can only earn 4 mao. So, the faster the turnover, the higher the profit. At Costco, there's a famous saying: The best way to reduce costs is to increase sales. The inspiration for distributors is to look at how long it takes to sell your goods. Is the efficiency high enough? Everyone is making money, but there is a difference between "money" and "money." The ability to manage risk better Some distributors also rely on another ability: the ability to manage risk. What is risk? Risk is essentially uncertainty. Distributors, in many cases, absorb this uncertainty and can handle and digest it. Let me give you an example. Some people are in the tourism industry. As distributors, they secure the agency rights for European and American airlines' flights in China. Then, they sell these flight tickets to internet platforms, or some directly to users, earning a margin. This business is also very familiar to many people, called "general agency." But being a general agent is actually quite risky. The risk is: what if the tickets don't sell? If there's a pandemic or riots, and people can't go out or are afraid to go out, these tickets will all be stuck in your hands. So, airlines, by finding general agents, sell all their tickets to distributors in advance. Essentially, they are selling off the potential risk. For distributors, they need a strong ability to predict and manage risks. If sales start to decline, they might need to launch large-scale promotions. If sales stagnate, they might use cross-industry alliances, cooperating with partners to bundle products or use them as gifts. So, it can also be said that the business distributors do is dealing with risk every day. Because I have a more accurate judgment of the market, and I can better withstand risks, I can earn this money. Two suggestions The ability to reach users at lower cost, the ability to maintain stable inventory, the ability to have lower capital costs, the ability to achieve higher turnover, and the ability to manage risk better. These are some of the core capabilities that distributors should possess. And distributors can make money and continue to make money because they have achieved excellence in one capability or combined multiple capabilities. Thus, they form their own competitive advantages. And only these advantages can better leverage the value of the channel, reaching users on a larger scale and more efficiently. So, two suggestions, simple and plain: What abilities do you currently have? What abilities do you need to have? This requires us to have an unbiased self-awareness, and also requires us to continuously cultivate and refine ourselves. Keep these two questions in mind, take them out often to look at, and you should have quite a few thoughts. Final words: Back to the initial question: Do distributors have value? Channel distributors, of course, have value. It's just that we need to recognize our own value, and more importantly, leverage it well. Only then will we not be bypassed. In fact, a public account is also a distributor. We strive to write good articles and attract high-value audiences. This is the value we want to build and leverage. Then, when clients cooperate with us, we can help them reach readers. Let readers see good articles, and let clients reach good readers. This is what we hope to do. In this way, everyone wins. I hope you do too. Let's encourage each other. Source: Liu Run (ID: runliu-pub) Author: Liu Run