Introduction How can smeared distributors finally hold their heads high? They are constrained by brand owners above, retailers below, and face competitive pressure from platform companies, while the market keeps smearing them. Internal costs are rising, payment cycles are lengthening—how can distributors break the deadlock? The feedback I received was roughly: "Old Miao, we appreciate your articles defending us middlemen, but they don't really help. We distributors are constrained by brand owners above, retailers below, and face huge competitive pressure from platform companies. The real economy is weak, labor costs are high, payment cycles are long, and life is tough. If you could offer some practical advice to help us out of this predicament, that would be truly meritorious." So, for the first time, Old Miao will stand from the middleman's perspective to dissect the current distributor predicament and potential solutions. As for the weak real economy, I can't do anything about that—if President Xi had a public account, we could all go leave comments together. Veteran distributors will surely remember the happy days of "channel is king," just like in the era of scarcity when sales managers had it easy while procurement suffered. Now it's completely reversed: procurement is the "boss," and sellers are the "grandsons." Many company salespeople have to rely on long-term motivational pumping to stay in the game. This is primarily due to the shift in supply-demand dynamics. We won't dwell on that; it's not useful. In the previous article, we mentioned the value of middlemen. First, the existence of middlemen reduces the total number of transactions and improves social efficiency. More critically, their specific values are as follows (see Kotler's "Marketing Management," chapter on "Designing Marketing Channels"): 1. Information: All relevant market information about your distribution area, including customers, competitors, upstream and downstream industries. 2. Promotion: Here, promotion is broadly defined, referring to all promotional and expansion activities for the product in your distribution area. 3. Negotiation: Business negotiations with upstream and downstream parties, especially downstream retailers or secondary wholesalers, to reach final agreements. Remember these three. There are five more: ordering, financing, risk-taking, physical possession, payment, and title transfer. The Chinese language is profound; Old Miao finds the term "经销商" (distributor) particularly precise. In foreign countries, they are called channel members, middlemen, or agents. The two characters "经销" (distribution) accurately reflect the value of this marketing chain. This is specifically reflected in the eight functions above, especially the first three market values and functions. The fundamental function of a distributor is the operation and sales of a product, while the brand owner or manufacturer should focus on producing good products and building the brand. Once either side overreaches or tries to shirk its responsibilities, problems arise. In the end, over the years, distributors have been squeezed into a tight corner with shrinking living space, mainly due to confusion in value functions, being led by the nose by brand owners and retailers. This is the so-called unclear "responsibilities, rights, and interests." This confusion is caused by human factors, natural disasters, exploitation by unscrupulous companies, or unintentional mistakes. When the water is muddied, the "fish" (distributors) get poached. Let's first examine the chaotic events over the years that have brought distributors to today's awkward state. Case 1: Brand owners paint rosy pictures, distributors cripple themselves, degenerating into mere deliverymen, losing competitiveness. Among the eight value functions, the first three are core functions—higher value but more difficult. Many distributors, not understanding this, prefer to avoid difficulty and take the easy path, leaving themselves defenseless when others seize this value. Many brand owners (mainly international brands) deliberately try to keep this value in their own hands. Today they set up a system, tomorrow they install a platform, the next day they launch a campaign. Over time, the three core values of information, promotion, and negotiation are all taken over by the brand owners. Thus, distributors become meat on the chopping block. Without core value, brand owners can replace you at any time. If you want to avoid being replaced, you have to "be obedient," which essentially means being exploited. It's all a trap! Case 2: Brand owners burn bridges once they cross the river, leaving distributors in a mess. This is more common with domestic brand owners. In the early stages of recruiting distributors and developing markets, they promise everything—attractive margins and sales policies. Distributors, tempted, throw themselves into the work. Brand owners cooperate, but while helping, they also infiltrate the three basic value functions mentioned above. Once the market stabilizes and they have mastered those three functions, their attitude changes. Price increases, reduced investment, higher targets, and shrinking sales territories (often called "feudal reduction") follow. Old Miao once heard a marketing executive shamelessly say, "Our company grew by burning bridges." Commercial bullying described so grandly is truly nauseating. Case 3: Retailers gain more bargaining power, exploiting distributors with professional, well-armed tactics. Distributors surely remember the years when "terminal is king" was loudly proclaimed, or more dramatically, "bloody terminal battles." Large terminals used their customer traffic as bait to attract numerous brand owners and distributors to set up shop, where they fought each other fiercely—a gruesome scene. Supermarkets, hypermarkets, restaurants, pharmacies, and other large terminals are both retailers and platform companies. The essence of a platform is to create customer traffic to attract suppliers, but they are not responsible for sales. Whether you sell or not, they charge platform fees. Whether you sell well or poorly is your problem. If you don't sell well, they delist you and replace you with another brand to exploit again. Traps always look like pies. Blinded by the huge traffic, few question this business logic. In fact, suppliers can simply ignore it; there are business criteria to measure terminal value. If interested, follow Old Miao's upcoming article on "Terminal-Driven Model" to see how to position terminals for maximum value. This business model of taking money without solving problems has already faced retribution, but new, even fiercer platform companies have emerged. Case 4: Rapid growth of e-commerce platforms makes distributors cry "winter is coming." The rapid development of e-commerce has made distributors feel even more crisis. Many brand owners are moving online, starting to "eliminate middlemen." Distributors also set up their own online stores or Tmall shops, but either sales don't take off, or sales rise but profits vanish. Many distributors feel like eggs on the brink of breaking. Many distributor friends often ask how to "survive in the cracks." Old Miao tells them, "Surviving in the cracks" is a false proposition. Every business link exists between two others, so you can't call it a "crack." The current predicament of distributors is mainly due to the loss of their core value. In business, if you lack core value and your functions are easily replaceable, you naturally become prey. Also, it's undeniable that many distributors have a speculative mindset, which leads to self-inflicted consequences. Some hope to latch onto a brand or grab a new product and ride it to success, but this logic no longer works. The possibility of profiting from information asymmetry is now minimal. What truly brings long-term development and profit to distributors is their value, especially core value. Old Miao gets angry when he sees companies fooling distributors with "choice is more important than effort": Only effort can improve your core value functions. With core value, you'll have plenty of choices. Without it, even good choices won't come to you, and if they do, they'll be taken away. Distributors can lose anything, but they must firmly hold onto their core value. Internally, the distributor's predicament stems mainly from unclear understanding of their core value, or from being deceived repeatedly in negotiations with brand owners and retailers, eventually losing all advantages. From a structural perspective, the loose connection among brand owners, distributors, and retailers easily leads to a game of negotiation, where distributors often have lower professionalism and are numerous and scattered, usually at a disadvantage. McCammon described traditional channels as: "A highly loose network in which manufacturers, wholesalers, and retailers are loosely connected, engaging in unenthusiastic bargaining, each holding their own views on sales terms, refusing to yield, thus each acting independently." In fact, in a channel system composed of producers, distributors, and retailers, each member pursues its own profit maximization, even at the expense of the system's overall interests. No channel member has full or sufficient control over others. Kotler believes that distribution levels in Asian markets are very low. In China, the low distribution level is shocking. On one hand, excessively high distribution costs, inefficiency, and internal friction significantly raise business costs and reduce competitiveness. On the other hand, high channel costs force companies to set higher retail prices, making Chinese consumers accept low cost-performance products. Inefficient or even ineffective distribution also prevents many innovative products from entering the market or causes them to die prematurely. Inefficient distribution also puts manufacturers and distributors at a disadvantage when facing large retailers, subjecting them to exploitation. More seriously, because companies invest too many resources and energy in distribution, they neglect more important product innovation and brand building, even ignoring quality control, leading to repeated tragedies. The means to eliminate this fundamental difference is further integration, giving channel members more common interests, eliminating conflicts caused by pursuing individual interests, and avoiding the "tragedy of the commons" for channel systems and brands. Integration can be vertical or horizontal, i.e., establishing vertical marketing systems and horizontal marketing systems. The efficiency of channels in Europe and America is closely related to their integrated marketing systems. In their consumer goods sales, vertical marketing systems have become the dominant form of distribution, accounting for 70%-80% of the entire market, with a considerable number of horizontal marketing systems. Traditional inefficient and loose distribution systems are rare. As for how domestic companies can establish vertical and horizontal marketing systems and design channel levels, Old Miao will continue to break it down from the brand owner's perspective in the next issue. -END- China's best FMCG distributor learning platform Dedicated to providing professional, practical, and actionable tutorials for companies and distributors Committed to helping Chinese FMCG distributors grow rapidly The most professional and practical knowledge base in the FMCG industry Reply with the red number below to get the corresponding content Reply with number 1 to view the complete knowledge base | 001 Excellent Article Selection | 002 Distributor Market Operations | 003 Terminal Visit Management | 004 Sales Supervisor Skills | 005 Sales Improvement Tips | 006 Channel Expansion | 007 Managing Distributors | 008 Distributor Development | 009 Distributor Internal Operations Management | 010 Team Management | 011 Efficient Distribution Techniques | 012 Sales Manager's 18 Skills | 013 KA Operation Methods and Strategies | 014 First Lesson for New Salespeople | 015 Internet, Brands | 016 Distributor B2B Transformation | [Long press QR code to follow]