When it comes to channel diversion, every distributor deeply detests it but has to face the reality. Every manufacturer often shouts: "Strictly investigate channel diversion! Severe penalties if found!" and other strong words, yet channel diversion is talked about every year, and it happens every year!
So why does channel diversion happen, and how does it occur? Let me explain:
Q: What products are prone to channel diversion? A: Brand products. Analysis: Products without reputation don't get diverted because they don't sell much, and manufacturers find it hard to even find a distributor. Of course, manufacturers don't have high quotas, and distributors usually mark up prices high, leaving no profit, so no one plays along!
Q: Why do famous brand products get diverted? A: Because sales targets are not met! Either the distributor fails to meet the target, or the regional manager fails. Analysis: Once a brand gains some recognition, the manufacturer becomes arrogant, providing personnel, expenses, etc., but the distributor must complete sales tasks. Distributors who easily meet their targets every year generally don't engage in channel diversion.
If a distributor can't meet the target, what do they do? Basically, they divert goods at cost or with a slight markup to complete the manufacturer's task, earn their due profit, and call it a day.
If most distributors can meet their targets but a few can't, causing the regional manager to miss the overall target, what happens? The manager privately applies for expenses for favored distributors, asking them to divert goods to weaker markets. This situation is more severe because the distributor is doing a favor! They wouldn't do it without profit, especially since next year's target will definitely be higher! Most of the time, the manufacturer's manager uses persuasion and promises: "Next year's target won't be raised; we brothers need to help each other!" This kind of diversion price is relatively low, even lower than the factory price.
Q: All the distributors of the brand I handle are diverting goods, and it's a mess. What's going on? A: This situation definitely exists! Especially in the last two years! Analysis: Many domestic companies, when setting distributor sales targets, tend to set them as high as possible, as if every distributor has unlimited potential! If the growth isn't at least 20%, they feel embarrassed to report to the boss! Why do I say channel diversion has become severe in the last two years? The reason is: the habit of setting sales targets has been increasing by such a margin every year for many years! But in the last two years, the economy has slowed, and sales growth hasn't been as fast as expected! Distributors can't meet their targets without diverting goods, and regional managers force them to do it. No one has any other choice, especially for domestic brands that don't cultivate the market intensively and just put pressure on distributors. If they don't divert, what can they do? In the end, it becomes a situation where you divert to me, and I divert to you, and no one can blame anyone!
Q: My area is always being diverted into, and I can't make money even if I don't want to! What's going on? A: You should ask the regional manager. Analysis: If the same customer doesn't want your goods because of price, it's likely that the manufacturer's regional manager gives different policies to different distributors. Also, the regional manager might get some gray income from a distributor and deliberately give them a better policy than yours.
All channel diversion is blamed on distributors by manufacturers! After my simple analysis, you'll see that the manufacturer's hand is everywhere. Distributors are not the culprits behind channel diversion! The real culprits are the manufacturers and their sales teams!
Think about it: if distributors could smoothly complete the manufacturer's tasks, earn their profits, and get their expenses reimbursed, which distributor would divert goods? Channel diversion means giving up profit! It means raising next year's sales target! It means offending industry friends! It means you're on the way to giving up that brand! Without profit, no distributor will play along with any brand! Industry vicious cycle: Why do some distributors always divert goods? Because they completed their tasks through diversion last year, and if they don't divert this year, how can they meet the target? How can they survive?
Why do some brands grow big without channel diversion? Why do some big brands fail to find distributors willing to work with them? Please let the manufacturer leaders explain!
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