---
title: "“De-intermediation” Targets Second-Tier Distributors: Will B2B E-commerce Really Kill Them Off?"
description: "In the past, the phrase “second-tier distributors will die” referred to their gradual elimination with the times—a natural death. Now, B2B e-commerce aims to kill them off, claiming to replace them. Can B2B e-commerce fully replace second-tier distributors?"
author: "张宇"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2016-02-27"
language: "en"
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# “De-intermediation” Targets Second-Tier Distributors: Will B2B E-commerce Really Kill Them Off?

> In the past, the phrase “second-tier distributors will die” referred to their gradual elimination with the times—a natural death. Now, B2B e-commerce aims to kill them off, claiming to replace them. Can B2B e-commerce fully replace second-tier distributors?

Topic
In the past, when we said “second-tier distributors will die,” we meant they would be gradually phased out with the progress of the times—a natural death. Now, B2B e-commerce is out to kill them, declaring, “We can replace them!” So, can B2B e-commerce fully replace second-tier distributors?

“De-intermediation” Targets Second-Tier Distributors
Currently, B2B e-commerce mainly comes in two models: centralized e-commerce and distributed e-commerce. Both claim to “de-intermediate,” but the extent varies.

In the traditional supply and marketing model, distribution layers are excessive, and transaction costs remain high (Manufacturer F—Distributor B—Second-tier Distributor b—Retailer R—Consumer C). B2B e-commerce aims to shorten the distance between manufacturers and retailers, cut redundant links, improve efficiency, and reduce costs. On this point, centralized and distributed e-commerce are basically aligned. However, because the platform operators differ, the targets of “de-intermediation” also differ.

Centralized e-commerce, represented by JD.com and Taobao, pursues thorough “de-intermediation” in an F2R model, viewing both distributors and second-tier distributors as “redundant.” Distributed e-commerce, on the other hand, is distributor-led, corresponding to a B2R model, so the only possible target for “de-intermediation” is the second-tier distributor.

Regardless of the disagreement between centralized and distributed e-commerce on “de-distributorization,” both at least tacitly accept “de-second-tier-distributorization.” In other words, the first target of “de-intermediation” is the second-tier distributor.

Second-Tier Distributors Will Die? They Live Better Than Anyone
For a long time, amid waves of channel flattening, deep distribution, and direct terminal control, the claim that “second-tier distributors will die” never ceased. Yet the result is that second-tier distributors not only haven’t died, but some even live better than distributors.

Everything exists for a reason. Compared to distributors, second-tier distributors have these advantages:

**1. Light entrepreneurship, high efficiency.** Unlike distributors’ corporate operations, second-tier distributors are the epitome of light entrepreneurship. They don’t need large warehouses, many vehicles, or even employees—the boss does everything alone. This minimizes operating costs and makes actual work efficiency higher than any distributor’s salesperson, since entrepreneurship and employment are fundamentally different.

**2. Low storage and transport, fast turnover.** Second-tier distributors typically operate within a small radius and use flexible delivery methods like tricycles or electric bikes. This ensures frequent visits to terminal customers, especially remote small shops with poor transport links, while speeding up inventory turnover and capital return, keeping storage and transport scale low.

**3. Wide connections, good customer relations.** Compared to distributors, second-tier distributors also have an edge in customer relations. In fact, a considerable number of terminal customers are maintained by second-tier distributors, and many group-buying customers are in their hands. This is why many distributors are reluctant to cut them off—losing second-tier distributors means losing their customer relations and networks.

**4. Full product range, strong combination.** Second-tier distributors’ profit model is based on product mix. Many think that since manufacturers have excluded them from the channel value chain, they can’t make money. Indeed, some branded products are hard for distributors to profit from, let alone second-tier distributors. In reality, second-tier distributors don’t make money from branded products but from third- and fourth-tier products. Since they sell more than just one brand, they leverage product mix advantages, letting high-margin products hitch a ride with branded ones, ultimately reaping substantial profits.

**5. No agency, no tax burden.** Second-tier distributors don’t hold agency rights and can only do wholesale. In the past, this was seen as a weakness. But now, agency rights have become a hot potato, with manufacturers imposing unbearable sales targets and capital pressure on distributors. In contrast, second-tier distributors face no pressure from manufacturers and no tax burden—they earn whatever they can, and it’s all theirs. That’s why distributors say second-tier distributors live better than they do!

Killing Off Second-Tier Distributors Isn’t as Simple as It Seems
“A truly excellent distributor won’t allow second-tier distributors to exist!”—This is one distributor’s view, and it likely represents many. But is killing off second-tier distributors really that simple?

I know a Hebei-based Yangyuan distributor who, a few years ago, responded to the manufacturer’s “three trips to the countryside” initiative by deeply exploring rural markets, but failed. The reason: costs couldn’t be controlled because sales volume wasn’t achieved. That was a costly lesson. Afterward, he changed his approach: instead of having salespeople compete with second-tier distributors for sales, he focused on maintaining second-tier distributors and promoting new products, with sales mainly through second-tier distributors and large terminal customers. Salespeople concentrated on consumer pull, and that year sales grew by 30%. Recently, he told me his company has outsourced all logistics and delivery to second-tier distributors, with his own salespeople only handling order taking and customer relationship maintenance. Despite a poor market environment this year, the company remains profitable!

This shows that second-tier distributors are not useless and won’t be easily replaced. Now, with B2B e-commerce arriving, what will happen to them?

Last year, an e-commerce platform openly launched a campaign to “eliminate second-tier distributors” in one market. That area happened to have a very strong wholesale channel. Soon, 45 second-tier distributors jointly formed a trading company, countering with the slogan “Drive ××× out!” For a time, distributors were caught between the e-commerce platform and second-tier distributors. Many weaker distributors stopped supplying the platform because they couldn’t survive without the capital and channels of second-tier distributors.

Should B2B E-commerce Leave a Place for Second-Tier Distributors?
In the past, “second-tier distributors will die” meant they would be gradually phased out with the times—a natural death. Now, B2B e-commerce is out to kill them, declaring, “We can replace them!”

So, can B2B e-commerce fully replace second-tier distributors? To understand this, we must first analyze their role and function in the supply chain.

**First, their financial function in the supply chain.** If distributors are the financing targets of brand manufacturers, then second-tier distributors are the financing targets of distributors. Many distributors rely on second-tier distributors to advance funds to maintain cash flow. Without them, distributors’ capital chains could break. Moreover, second-tier distributors provide short-term credit to some terminal customers, and their debt collection ability is far stronger than that of distributors’ salespeople. Without them, terminal credit sales and payment collection would become a major headache.

**Second, their logistics and delivery function.** As mentioned, second-tier distributors’ logistics are characterized by low storage, short radius, and high frequency. They can reach many terminal outlets that distributors can’t or won’t deliver to, improving product shelf presence and sales in the most “economical” way. Without them, logistics would have to be handled by distributors, e-commerce platforms, or third parties. But whoever does it, one question remains: Can they do it at a lower cost than second-tier distributors?

**Finally, channel development and service functions.** Channel service is the biggest challenge for B2B e-commerce, especially for centralized e-commerce. China’s FMCG industry is said to have one million retail terminals. How to serve all these terminals well? And who will do the service? If second-tier distributors or even distributors are abandoned, what personnel and management costs will be incurred? Even distributed e-commerce needs to solve and optimize channel development, after-sales service, customer relationship maintenance, and marketing promotion.

In short, for B2B e-commerce to eliminate second-tier distributors, it must take on all their existing channel functions. If it can’t or won’t do well, then it should consider whether to leave a place for second-tier distributors in its business model design. Due to space limitations, we won’t expand on this issue here. Interested friends can long-press the QR code below to join the group for discussion.

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