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The biggest cause of death for deep distribution is the lack of an exit capability.
At first hearing or first sight, deep distribution is seen as a magical method, but most either fail on the first try or get stuck in the quagmire of deep distribution, unable to exit smoothly. Therefore, only a few companies that grasp the essence of deep distribution thrive.
Deep distribution is definitely not the "human wave tactic" that many people understand, but a very complex technical task with high technical content, certainly more difficult than recruiting distributors or running promotions.
Deep distribution, as a Chinese characteristic, is based on the following premises:
First, after the manufacturer's market focus sinks to the county (district) level, with the county (district) as the basic marketing unit, the channel is still very deep, with insurmountable second-tier distributors and numerous retail terminals. The distributor's distribution, promotion, and management capabilities cannot cover all second-tier distributors and terminals.
Second, during the process of market focus sinking, distributors become increasingly smaller, leading to "functional incompleteness" and forming a deep dependence on the manufacturer.
Under the above background, manufacturers face a dilemma:
If they follow the principle of division of labor between manufacturers and distributors, each performing their own functions, due to the "functional incompleteness" of distributors, market development will inevitably be unsatisfactory, and manufacturers must accept unsatisfactory market outcomes. If manufacturers want to pursue a more satisfactory market structure, they need deep intervention, actively undertaking functions that distributors cannot bear. The cost is excessive manpower and expenses for the manufacturer, even unsustainable.
The basic intention of deep distribution should be to achieve a perfect outcome through a three-step method between the above dilemmas:
The first step is to acknowledge the "functional incompleteness" of distributors and actively invest in replacing some of the distributor's functions, mainly distribution and promotion.
The second step is to drive distributors to make up for "functional incompleteness" and improve distributor functions. The simplest approach is the "1+1" model.
The third step is that when the merchant's functions are complete, the manufacturer gradually exits, and both parties perform their own duties. If the distributor still cannot independently undertake distribution functions after deep distribution, the distributor should be replaced.
Deep distribution is "using the manufacturer's people to do what the merchant should do." This violates the principle of division of labor between manufacturers and distributors and hides huge risks. The biggest risk is cost risk, because the comprehensive cost of a manufacturer's promotion personnel is more than three times that of a merchant. Such high costs are only suitable for short-term strategic investment. If deep distribution eventually becomes a long-term strategic investment, it not only goes against the original intention of deep distribution but may also drag the manufacturer into the abyss.
In other words, the key to deep distribution is not the scale of investment or how deep it goes, but whether there is an exit mechanism, the ability to exit, and whether it can exit smoothly without affecting normal market operations.
Summarizing the failures of deep distribution, there are mainly two situations:
One is that deep distribution is ineffective.
The merchant is incompetent in distribution, and the manufacturer is even more incompetent. This situation is normal, after all, distribution is not the manufacturer's strength, it is the manufacturer's "extra work." The manufacturer's personnel costs are high. If the market structure cannot quickly improve in the short term, it will make the merchant think "the manufacturer is just so-so," making future management of the merchant more difficult. Most deep distribution fails this way.
The other is that the merchant forms excessive dependence on the manufacturer's "deep distribution" and cannot exit.
The merchant's dependence on deep distribution will inevitably lead to a situation where "the manufacturer works, the merchant watches." Originally, the manufacturer helps the merchant, but the merchant takes the manufacturer's help for granted, resulting in a reversal of roles.
The exit mechanism is the essence of deep distribution, but it is ignored by the vast majority of deep distribution companies. Short-term strategic investment to form a step-up pattern is valuable. Without an exit mechanism, short-term strategic investment becomes long-term tactical investment. Even if deep distribution is very effective, the company may be dragged down.
The key to the exit mechanism is "integrate first, then exit." Only after integration does exit make sense. Integration means that the manufacturer and distributor work together, and under the manufacturer's leadership, cultivate the capabilities of the distributor's employees. Only when the distributor's employees' capabilities improve can exit not affect the market.
Many manufacturers that once did deep distribution well now feel they cannot sustain it. The fundamental reason is the lack of an exit mechanism, turning deep distribution into daily work, from strategic work to tactical work. Because integration is not completed, they cannot exit.
Exit Cycle
Based on my experience, to achieve the above goals in deep distribution, four key points should be grasped:
Key Point 1: The manufacturer only helps merchants who are willing to cooperate, only helps those who don't know how to do it, and does not help merchants who are unwilling to do it.
When choosing which markets to do deep distribution, two points should be considered: first, whether it is worth helping; second, whether it can exit after helping.
This should be clarified before sending the distribution team. As long as the distributor does not cooperate, exit immediately, or revoke the distribution rights if they do not cooperate. Because many distributors have a strong sense of dependence, the deeper the manufacturer's distribution, the more the merchant's work shrinks. This is a major taboo in deep distribution. Many deep distribution problems are buried at the beginning.
Key Point 2: Deep distribution should be able to bring the market structure to a higher level in the short term.
Usually, doing the following three aspects well can quickly improve: first, rapid expansion of outlets in the short term; second, terminal promotion of "invisible KA" (terminals with high traffic but not modern KA). "Invisible KA" is relatively hidden and not easily valued, but it is the easiest terminal for increment; third, the capture of large KA—large KA has indicator significance and driving effect.
Only when the market structure improves can distributors be prompted to increase investment, that is, the manufacturer's investment drives the merchant's investment, especially in personnel. The merchant's functional incompleteness is mainly due to insufficient personnel.
Key Point 3: The manufacturer only does key work, and daily work is done by the merchant.
Routine visits, relationship maintenance, delivery, shelf management, and other daily work must be done by the distributor. The manufacturer can require it but cannot replace it, and cannot spoil the merchant through deep distribution. If the distributor cannot do these jobs well, then they do not meet the conditions for deep distribution.
What does the manufacturer's personnel mainly do? Mainly distribution (outlet expansion) and promotion. If the merchant's daily work is not done well, the distribution personnel can guide the merchant to do it, but the manufacturer's expensive personnel must not do simple daily work.
Key Point 4: Cooperative distribution, gradual exit.
Deep distribution is not the manufacturer replacing the merchant, but embedded training and assistance. Initially, the "1+1" model (one manufacturer person and one merchant person forming a team) can be adopted, or even the "2+1" model.
At the beginning of deep distribution, the manufacturer's personnel can be slightly more, mainly to quickly form momentum and atmosphere. As the market becomes active, the manufacturer's personnel can gradually exit (gradual exit can avoid market turmoil), but the merchant's personnel must be supplemented. If the distributor has few personnel, recruit in advance. To avoid the merchant shrinking after the manufacturer fully exits, the manufacturer can leave a "coach" to assist the merchant in management.
Jump Out of Distribution to See Distribution: Solving the Personnel Shortage Problem
Deep distribution has developed to this point, and personnel has become a key factor.
In 2013, the Lewis turning point appeared in China, with the labor force population reaching its historical peak. Around the Lewis turning point, the pricing mechanism of labor changed, meaning that the supply of labor would be short, and due to the imbalance in labor structure, labor for arduous marketing positions would be even scarcer, and labor prices would rise.
This poses two challenges for deep distribution: first, the increase in costs—is deep distribution economically worthwhile; second, the shortage of personnel—are people willing to do deep distribution?
Solving the personnel problem of deep distribution requires both "looking at distribution from within distribution" and "jumping out of distribution to see distribution."
"Jumping out of distribution to see distribution" means treating distribution personnel and other marketing personnel as a whole, and finding promotion paths for distribution personnel.
I have always not advocated that companies directly recruit salespeople, because newcomers without work experience in sales have an adaptation period of nearly a year, and for about a year they are basically in a "dream state." I advocate establishing a promotion path for marketing personnel: "promotion personnel (distribution personnel) → sales assistant → sales representative → sales manager," treating promotion personnel and sales assistants as the training period for marketing personnel.
I have found that marketing personnel who have done frontline promotion work have a deeper understanding of marketing than those who directly become sales representatives, because they are in direct contact with consumers from the beginning, rather than mainly in contact with distributors like sales representatives.
Promotion personnel work in teams, sales assistants work semi-independently (mainly assisting sales representatives), and sales representatives work independently. This is a very good growth process.
When promotion personnel leave, hard work and low income are the more visible and audible reasons, but the helplessness, hopelessness, and even despair about career advancement are the main reasons.
Based on my understanding, good promotion personnel can be promoted to sales assistant in 3 months, and most can be promoted after half a year. This is also the expectation of promotion personnel for their work, and we should understand that this is normal.
"Looking at distribution from within distribution," we should see the difficulty of distribution management and the difficulty of performance assessment.
The assessment of sales representatives is generally result-based, that is, sales volume is the main assessment indicator. Distribution personnel do not do daily work, so they cannot be assessed based on visit rate, transaction rate, visit cycle, hit rate, distribution rate, penetration rate, second-position display ratio, activation ratio, etc. The main work of distribution personnel is distribution (development of new outlets) and promotion (sell-through), and this should be the basis for assessment.
Whether distribution personnel should be assessed mainly by process or result may vary by industry, and it is difficult to generalize. But one thing is very important: whether assessment is the basis for income distribution or promotion. According to my understanding, distribution personnel value promotion more, because promotion means both a change in position and a change in income. Many companies use two lines for income distribution and promotion, which may be suitable for other marketing personnel, but not for distribution personnel.
I once found a phenomenon in the distribution team: when one person was promoted, a group of people left. Everyone thought they were the best and should be promoted first, but promotion lacked unified standards, or the standards for promotion were separated from those for income distribution.
I have used an effective method in many companies: the assessment of distribution personnel adopts a points system, and when a certain cumulative score is reached, they can be promoted to sales assistant. This gives distribution personnel hope, and their work is directly linked to promotion. Of course, there have been exceptions, such as when the score is reached but promotion is truly difficult, but this phenomenon is not common.
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