Another year, another Sugar and Wine Fair, with products everywhere, but choosing the right product is a headache for distributors. Many are swayed by the rosy prospects painted by companies, only to find after a hasty choice that the product doesn't fit them. Selecting a product is not just a technical task; it's a strategic decision for the distributor.
Four Channel Power Models
Every company chooses a different marketing model when entering the market. Based on two dimensions—channel push and brand pull—they can be roughly divided into four categories (see Figure 1).
Product Pull Model
A typical example of the product pull model is Taiwan's Uni-President. Its marketing model can be summarized as "distribution + product." Uni-President generally adopts a differentiated product strategy, but not entirely. Many of its products are not first developed by itself; if a product sells well in the market, Uni-President quickly follows, saving R&D costs and keeping up with market trends. Before launching a new product, Uni-President conducts rigorous market research to refine product taste and uses scale production to lower costs. In terms of channel pricing, it adopts a low-margin system, ensuring that high-quality products at relatively lower prices naturally guarantee product strength and sales power.
Uni-President believes that "distribution is the feet of the product." Therefore, it pays great attention to channel building. Its marketing expenses are basically spent on channel maintenance, and channel customer resources are almost entirely controlled by its marketing personnel. Distributors only need to stock and deliver goods. The profit distributors earn is just the warehouse and freight fees paid by Uni-President, plus interest on the goods.
Because of strong product power and smooth channels, products move quickly, distributors' capital turnover is high, and with small profits but quick turnover, the return on investment is naturally not low. Such brands are the best investment for distributors.
Brand Pull Model
The typical brand pull model is Procter & Gamble. Its marketing method is to use "omnipresent" strong advertising to quickly build a powerful brand influence in consumers' minds, "occupying" their mental resources, and even subtly influencing them to turn brand consumption into habitual consumption. This brand influence pulls product turnover, thereby maintaining channel profits.
This model has high brand-building costs, and if not executed well, it can easily become sunk costs. It suits products with large market capacity, so that marketing expenses per unit are lower. Ideally, the market is large enough that average costs approach zero.
Price always returns to value. If the allocated costs are high, consumers, once familiar with the product, will gradually abandon such a "not really cost-effective" brand. For example, Qinchun (a Chinese liquor brand) used CCTV advertising to create strong market influence, but when consumers learned that in 1997, with sales of less than 700 million yuan, it paid 321.2 million yuan in CCTV advertising fees, the logical question was whether its price matched its value. The answer was definitely no.
Interest-Driven Model
The interest-driven model operates by reducing manufacturing costs by any means, but packaging is aligned with strong brands in the same category. By "hugging" (placing products next to strong brands to leverage their halo) similar products at the same price point, and attracting consumers with slightly lower prices, this low-cost, high-price marketing approach creates very high channel margins, which extremely stimulates channel intermediaries. Therefore, many distributors spare no effort to promote such products. As a result, these products can enter the market very quickly, almost overnight spreading to every corner.
This model is very suitable for weak brands to compete against strong leading brands to enter the market. For example, in the FMCG industry, Future Cola's "trump card" against Coca-Cola was to exploit intermediaries' pursuit of profit, using interest-driven tactics to gain an advantage in Coca-Cola's weak second- and third-tier markets.
Most such products are suspected of being counterfeit, though some brands do adopt a follow-the-leader or "borrowing momentum" strategy. Most brands and products use this method to accumulate funds, and they adopt a "hands-off" approach with distributors, letting them operate the market freely, even hoping distributors will buy out the brand. The interest-driven model is a typical one-shot deal, but for distributors with speculative tendencies, it's like Zhou Yu and Huang Gai—one willing to hit, the other willing to be hit.
Two-Way Drive Model
The two-way drive model can be seen as an evolution of the interest-driven model, most common in the health products industry. On one hand, it designs relatively high channel margins and even deploys strong promotion and distribution teams to create powerful channel push. On the other hand, it uses strong and dense advertising to pull the market, often with immediate sales results.
However, this model also doesn't last long. Because such huge marketing expenses must be allocated to each product, the only way is to set terminal prices very high. On one hand, it exploits consumers' belief that "you get what you pay for." On the other, it creates a great concept. In the health products industry, examples abound: either exaggerating product efficacy or creating a "novel" new invention or high-tech concept, then heavily hyping the brand.
This model is more suitable for second- and third-tier markets. These areas have relatively closed information, and consumers' learning ability (awareness of brands and products) is lower than in first-tier markets. Many health products are easier to operate in second- and third-tier markets or underdeveloped areas, exploiting consumers' lack of awareness of the true benefits. Once consumers deepen their understanding, the product or brand is nearing its end. This inherent flaw makes it hard for the health products industry to break the "two to three years of glory" barrier. To sum up this model in two words, "hype" might be a bit extreme, but for some health products, it's spot on!
There are also successful cases using this model. For example, Zhuzhou Tailinai (a dairy brand). When entering the market, Tailinai designed very high channel margins, with distributors earning about 50% gross profit, greatly motivating them. After opening the market, Tailinai began to focus on brand building. In March 1996, product development was successful, and in October of the following year, the group won the CCTV daily consumer goods "Bid King" with 88.88 million yuan, establishing a long-term strategic partnership with CCTV and starting its journey of brand influence marketing.
A Brand Is a Business Philosophy
Among the four marketing models, the latter two start channels relatively quickly, but often "come fast, go fast." The interest-driven and two-way drive models have inherent shortcomings for sustained product and brand growth—high channel margins, high unit marketing costs, and difficulty in improving cost-performance (no selling point for consumers).
The reason can be best explained by the economic theory of price returning to value: First, in the early stages of market operation, there are fewer channel intermediaries, information flow horizontally and vertically is insufficient, and competition is not fierce, so high channel margins can be "luckily" maintained. But as the number of intermediaries increases, competition intensifies, and information becomes more transparent, bargaining vertically and price-cutting horizontally reduce channel profits. On the other hand, as consumers gain experiential knowledge and deeper involvement, they eventually realize the deviation between price and value, lose trust, and switch to other brands.
Due to this inherent flaw, many manufacturers adopting these two models put profit first from the start, even above long-term brand development.
From the perspective of business philosophy, it's easy to understand that every brand a distributor represents is actually introducing a business philosophy, which determines the limitations in the distributor's strategic planning.
Imagine a distributor who wants stable, long-term development but mainly represents a speculative brand. If the manufacturer just wants to make a quick buck and leave, while the distributor wants to build it into a strong brand, the more effort the distributor puts in, the greater the risk. The distributor's decisions in this environment must adapt to the manufacturer's philosophy, and strategic thinking is greatly constrained.
Moreover, if the manufacturer and distributor cannot agree on basic business philosophy, they will eventually part ways. For example, a well-known brand finds a risk-seeking distributor. Such distributors are naturally eager for quick success, and they are more likely to become "brand killers," using speculative tactics (like channel crossing, excessive promotions, and other predatory market operations) that accelerate the product's life cycle.
Don't Choose the Best; Choose the Most Suitable
Each marketing model has different requirements for the distributor's human resources, material resources, financial resources, downstream network building, and even risk preference. This determines that not every brand suits every distributor.
Distributors need to know which brand is suitable and clearly understand the resource requirements of each model and which model best matches their own resources and endowments.
For example, under the product pull model (see Table 2), companies place great importance on the distributor's network foundation, followed by distribution capability and human resources. The pressure on capital is not great, and operations are relatively stable, making it suitable for channel intermediaries with insufficient cash flow and limited financing channels.
Interest-driven products or brands have larger profit margins, but slower turnover and significant capital occupation, making them suitable for distributors with spare cash, especially those who want to accumulate initial capital through agency and are willing to take risks for speculative short-term operations.
Additionally, from a strategic, or short-term strategic, perspective, representing different brands brings different added value to distributors. For example, for new distributors, the priority is to build their customer network. If they have sufficient funds, representing interest-driven brands is more conducive to channel network building, as profit margins are the best way to win over downstream customers. Conversely, distributors with weak financial strength and low risk tolerance should avoid interest-driven brands and instead represent product pull brands, advancing steadily and step by step.
For distributors who have been in business for a long time, have certain financial and scale strength, and have a low marginal growth rate, brand pull brands are more suitable. These brands are relatively stable and are excellent "defensive" tools, helping maintain regional leadership.
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