---
title: "Channel Model Iteration from the Perspectives of Business and Operations"
description: "At the 2023 (8th) China FMCG Innovation Conference, Hai You, partner of New Distribution and expert in offline channel models, delivered a speech on channel model iteration. He analyzed the evolution of channel models from 1.0 to 6.0, emphasizing that the best model is the one that matches a company's own capabilities, and discussed operational upgrades such as efficiency, cost, scale, and consumer reach."
author: "高级研究员 海游"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2023-04-12"
language: "en"
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# Channel Model Iteration from the Perspectives of Business and Operations

> At the 2023 (8th) China FMCG Innovation Conference, Hai You, partner of New Distribution and expert in offline channel models, delivered a speech on channel model iteration. He analyzed the evolution of channel models from 1.0 to 6.0, emphasizing that the best model is the one that matches a company's own capabilities, and discussed operational upgrades such as efficiency, cost, scale, and consumer reach.

On April 8, at the main forum of the 2023 (8th) China FMCG Innovation Conference, Hai You, partner of New Distribution and expert in offline channel models, arrived at the conference site.

_Hai You: Partner of New Distribution, planner and practitioner of offline channel optimization for FMCG manufacturers, has provided channel optimization consulting to more than ten brand owners, achieving cost reduction and efficiency improvement._

At the conference, Hai You delivered a brilliant speech titled "Channel Model Iteration from the Perspectives of Business and Operations." The following content is compiled from Hai You's sharing at the conference.

**China is a super-large-scale, multi-level, and three-dimensional market.** China's market is vast, and no company can directly connect to every corner with its organizational capabilities. Based on this, brand owners must design a channel model that matches their own needs to connect factories, marketing companies, distributors, sub-distributors, wholesalers, retail outlets, and consumers. The matching of the channel model determines the efficiency of the enterprise's operations and its overall market competitiveness. The three-year pandemic has had a certain impact on channel execution, mainly in the following three aspects:

**1. Mindset: "Explosive thinking"**
In the past three years, home isolation has caused considerable anxiety among many FMCG practitioners. At the same time, it has driven the rapid development of short videos, live-streaming e-commerce, and other industries. Some novel and unique "viral" internet-famous products have appeared, leading many FMCG professionals to think about how to make products "go viral" or "explode in sales" through a clever trick. They once began to abandon the down-to-earth, persistent, and steady approach, not realizing that internet-famous products "come in a hurry, and go in a hurry."

**2. Action: "Self-disabling martial arts"**
In the past three years, many FMCG professionals have adapted to intermittent "home life." Once a region had a window period, the first work elements were store visits and replenishment. The eight-step visit became a two-step visit, leaving only greeting the store owner and suggesting orders, completely neglecting basic market work and basic sales work, leaving the channel in a long-term "trusteeship" state.

**3. Cognition: Offline is king**
In the past three years, the rise and fall of new business models such as community group buying have gradually made FMCG professionals realize that "money-burning" businesses will not last. For FMCG to develop, they must focus on offline. They need to awaken their previous state, stimulate the team's work passion, and light up every retail outlet to prepare for a return to offline. 2023 is a major turning point for the FMCG industry. Channel executors are ready to go, and a new round of offline competition has begun.

**What is the essence of the channel model?**

**1. From a business perspective:** The essence of the channel coverage model is the redefinition of "responsibilities, rights, and interests" for FMCG manufacturers and distributors. This is easy to understand: from production to consumption, products first rely on brand owners (manufacturers), then channel partners (distributors, sub-distributors, retail outlets, etc.), and then the links at each level (managers, frontline supervisors, sales representatives, promoters, etc.). The definition of channel model upgrade and innovation is the redistribution of rights, responsibilities, and interests between manufacturers and distributors. Whoever has certain rights must match corresponding responsibilities, and whoever bears certain responsibilities must obtain corresponding benefits. In this process, manufacturers and distributors must fully empathize with each other, combine their actual capabilities and willingness to achieve the optimal match, and finally implement these optimal matches into the seven major strategies of daily operations. Then this new channel model is the most suitable for you.

**2. From an operational perspective:** The essence of the channel coverage model is low-cost, large-scale, diversified, and efficient reach to target consumers. To put it plainly: high efficiency replaces low efficiency, low cost replaces high cost, scale replaces localization, diversified consumer reach replaces single-channel reach, and human factors are replaced by higher subjective initiative of personnel at all levels under the supply chain benefit distribution mechanism. Let's take efficiency as an example: high-efficiency channel coverage replaces low-efficiency. What is the level of channel efficiency? For example, when launching a new product, a high-efficiency enterprise can make the new product blossom in targeted channels and outlets within one month, reaching target consumers in a very short time. A low-efficiency enterprise may drag on for half a year without meeting the target, and over time, elimination is inevitable.

**Iteration of Channel Models at the Business Level**

**1. Channel Model 1.0: Traditional Agency Model**
Model characteristics: Material supply falls short of demand; agents work independently, and enterprises only provide products. Brand owners race to find provincial, municipal, and county agents, then distribute through second-tier and third-tier wholesalers. The channel features multi-level distribution, building volume through layers. For distributors, obtaining agency rights is the key to success; for brand owners, the deeper the agency level, the more agents, and the more guaranteed sales. Agents work independently, and enterprises only provide products and management personnel (whose main duties are payment collection, shipping, and communication of expenses). This relies on demographic dividends. In an era of material scarcity, as long as a factory could produce quality products, natural circulation was enough to meet the coverage needs of small and medium-sized enterprises.

Representative brand: Wahaha's joint sales model: brand owner – provincial company – first-tier – second-tier – third-tier – retail outlets. The enterprise's marketing team is responsible for developing and managing the entire channel. Channel role analysis: The brand owner is the athlete, and the agent is the athlete, each doing their own thing.

**2. Channel Model 2.0: Deep Distribution Model**
Model characteristics: Intensified competition, terminal is king, channel model focused on controlling terminals, brand owner-led operations, distributors as delivery partners. Product abundance leads to fierce competition, and the drawbacks of the rough channel distribution model become apparent. Brand owners begin to optimize channels, and the deep distribution model takes the stage, shifting the focus downward to terminal outlets, with the slogan "Decisive at the Terminal." Many methods emerge, such as Coca-Cola's "101" model, where manufacturers and agents cooperate with KA (key accounts). All these aim to strengthen terminal maintenance and customer relationships. Key indicators are distribution rate and increasing single-store sales. Leading FMCG brand owners begin to deploy deep distribution operations. To improve operational efficiency, they recruit a large number of field staff for a human-wave tactic, sweeping the streets indiscriminately. The basic requirement is that brand owners have a replicable and widely adaptable operational efficiency. At this time, the channel coverage of domestic leading brand owners becomes dense, though the model is simple and crude.

Representative brands: PepsiCo, Master Kong, Coca-Cola, etc. Channel role analysis: The brand owner is the athlete, and the distributor is the sparring partner, with division of labor and cooperation.

**3. Channel Model 3.0: Traditional Distributor Model**
Model characteristics: Distributors dominate market operations, with brand owners supporting, relying on enterprise resource guidance and operational direction. Around 2005, with the booming domestic economy and increasing demographic dividends, the gap in market product demand expanded, and many FMCG enterprises sprang up like mushrooms. At the same time, more people began to pay attention to the low-threshold FMCG business. Agents were also educated and led by companies like Wahaha and Master Kong, and the channel chain was quickly established. New brand owners needed to build local distributor channel networks to reduce operating costs, giving distributors more responsibilities, rights, and interests, and retreating to the background to handle "logistics services."

Representative brands: All new brand owners during that period. Channel role analysis: The distributor is the athlete, and the brand owner is the sparring partner.

**4. Channel Model 4.0: Distributor Contracting Model**
Model characteristics: Distributors lead operations, brand owners provide macro guidance, with clear division of responsibilities, rights, and interests. As demographic dividends disappear, the incremental market becomes a stock market, and brand owners' growth is no longer as easy as before, bringing profit pressure. Additionally, with the standardization of labor laws and rising prices, labor costs have soared, making the human-wave tactic unsustainable for many brand owners. Therefore, some brand owners design the rights of manufacturers and distributors and begin to delegate authority to distributors. The basic requirement here is that distributors have high operational efficiency.

Representative brand: Nongfu Spring. Channel role analysis: The distributor is the athlete, and the brand owner is the coach + referee.

**5. Channel Model 5.0: Four-in-One Contracting Model**
Model characteristics: Distributor owners partner with frontline sales staff, and brand owners act as sparring partners. The employment relationship between distributor owners and frontline sales staff transforms into a partnership. The more the distribution rights are delegated, the stronger the subjective initiative of personnel. Only by stimulating people's primal desires can market competition be invincible. From the results, Jinmailang has maintained leading annual growth rates among FMCG head enterprises in recent years despite a weak market, under the four-in-one model. The basic requirement here is that both the execution team and distributors have a certain level of operational efficiency.

Representative brand: Jinmailang. Channel role analysis: The distributor is the athlete, and the brand owner is the referee.

**6. Channel Model 6.0: Three-Power Separation Partnership Model**
Model characteristics: Distributor owners, professional managers, and frontline sales staff form a partnership, with brand owners providing logistics support. The three-power separation model is the endpoint of channel coverage models when distributors exist. It not only fully defines the rights of manufacturers and distributors but also more precisely empowers distributor managers and the daily operations of sales teams, using management as the core incentive logic to stimulate subjective initiative at all levels. The basic requirement here is that execution staff, frontline management, and distributors have operational efficiency.

Representative brands: Some liquor companies, some first-tier brands' new marketing departments. Model characteristics: The distributor is the athlete, the brand owner is the referee, and the professional manager is the sparring partner.

**Summary:** First, it should be noted that channel coverage models are constantly iterating, but newer is not always better. The best is always the one that matches your own situation. That is, to this day, **channel coverage models 1.0 to 6.0 still coexist.**

So when is it time to upgrade the channel model? As shown in the figure, if we want the carriage to go faster, we can "add horses." Suppose one horse's speed is 20; with investment, add another horse, speed becomes 30; add another, speed becomes 40; we need more speed, so we add more horses, but horse speed has a limit. After adding one more, speed becomes 45; after another, 47. Finally, after adding two horses, fixed costs remain the same, but speed improvement is not ideal. At this point, we should consider whether to replace the carriage with a high-speed train. Similarly, when comparing the operational efficiency of channel models, we should consider whether to eliminate the old model.

**Iteration of Channel Models at the Operational Level**

**1. High efficiency replaces low efficiency: People, goods, and places**
"People" efficiency: The era of prime commercial locations, where one shop could support three generations, seems to have ended; prime locations are no longer prime. We can attribute this to the fact that under this model, "people" efficiency cannot be improved, or is difficult to improve.

"Goods" efficiency: Once, black-and-white TVs: the efficiency of product updates did not keep up with trends. If product iteration lags behind competitors, failure is inevitable.

"Place" efficiency: Once, Sears百货: pioneered the business strategy of "selling everything to everyone," leveraging the newly emerging railway network in the United States by establishing a massive mail-order operation center in Chicago (sending product information to users, aggregating user demands to the enterprise operation center, and delivering goods to homes based on demand). High efficiency replacing low efficiency is inevitable in channel model development!

**2. Low cost replaces high cost: One-yuan water "water does not land"**
When products enter the distributor's warehouse, secondary distribution adds at least 1.2 yuan in cost. For high-quality outlets in the region, implement a "base direct delivery" model to optimize the supply chain and increase channel price competitiveness. Low cost replacing high cost is inevitable in channel model development!

**3. Scale replaces localization: Omnichannel reach, proactive sales**
Channel scale is also one of the core competitiveness of brand owners. It can effectively improve the ability of manufacturers and distributors to manage customer relationships. The higher the scale, the higher the requirements for the sales team, especially the traditional channel business team. Improving omnichannel capabilities should be acted upon immediately. Scale replacing localization is inevitable in channel model development!

**4. Diversified consumer reach replaces single-channel reach**
With diversified purchasing methods, brand owners must achieve diversified consumer reach to meet different consumer needs. Diversified consumer reach will inevitably improve enterprise operational efficiency. The core of reach is to try every means to accurately convey brand concepts or product information to target consumers, so they can think of, see, and buy your products at any time. Diversified consumer reach replacing single-channel reach is inevitable in channel model development!

**Final Thoughts:** I remind all manufacturers and distributors: for channel models, the "copycat" approach does not work, but they are highly referential! Many brand owners try to copy the channel models of excellent enterprises, but there are almost no successful cases. The reason is that the product categories, corporate culture, and the operational methods of bosses and operators are very different. Copying the same things on different foundations, the probability of success is predictable. Therefore, **brand owners need a channel coverage model that matches their own situation; that is the right path for business.** However, the channel models of excellent enterprises are highly referential. For example, we can understand under what circumstances they used what methods to solve what problems. This is very valuable, at least it can help us point out the direction of channel model reform and avoid as many "pitfalls" as possible. It should also be reminded: for confusion about channel model reform, it is best to seek advice from people who have in-depth understanding of the learning enterprise (ideally those who have personally operated and reformed the model from 0 to 1, to 100). Otherwise, people who are like the blind men and the elephant, or who have heard hearsay, may lead the enterprise into a deeper quagmire.

_PS: Friends interested in the on-site speech content can follow the recent push of the "New Distribution" WeChat official account. We will compile and publish all guests' speeches for readers._

_Click **Read Original** to see more highlights of the 8th China FMCG Innovation Conference..._


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