Introduction Distributors won't be eliminated, but that doesn't mean you as a distributor won't be. The idea of 'no middlemen taking a cut' is unreliable, but the 'disintermediation mindset' is real.
In recent years, distributors have been living in fear, constantly told they will be eliminated.
Some distributors have seen the light early and found a large company to 'take them in', transforming from anxious bosses into professional managers. They get their money and live a comfortable life.
I know a few distributors who have been absorbed; some are in this state. One guy even used the money from selling his company to speculate in several properties and made a fortune. As for what happens to the company next, that's Boss Zhou's problem.
But most distributors are not so 'lucky'. If they don't want to 'die', they are said to have to 'transform'. How? Usually in two directions.
First, 'Internet+' – almost every distributor I know with any scale has to get an ordering app, and some even get into WeChat business.
The outcome is usually not good, because they often end up directly competing with something called a B2B platform. Your money as a distributor is earned bit by bit through the 'evil' middleman's price difference, while B2B platforms often get their money from the capital market.
They burn money on subsidies – can you afford to play that game? Just when you see a B2B platform burn out and die, before you can celebrate, another one pops up and continues burning. Eventually, you'll be the one who can't keep up.
And Alibaba and Tencent's determination to lay out B2B is obvious to all. Within two years, this will be a nightmare for distributors who only do delivery.
Second, extending upstream to become a 'manufacturer'.
Distributors as a group have low self-identity. No matter how big they get, they feel like they're just small-time businessmen, 'middlemen', lacking security. If they have their own factory, or at least their own brand, they feel like 'entrepreneurs'.
So before the Internet 'wind' came, many distributors' first choice for transformation was to become a 'manufacturer'. Even big distributor Lin Jianhua had to create his own brand Tianwo, listing Tianwo International instead of Nanpu Foods.
But being a 'manufacturer' is not that simple. Over the years, I've seen a few successes, but most are failures.
Manufacturers have their own thresholds and difficulties: R&D, production management, cost control, brand building, channel design – none are easy. Many distributors' initial idea is: if a product sells well, they find a factory to OEM it, and if it grows, they build their own factory and equipment. Most distributors who fail in transforming into brand owners die from this logic.
I remember a distributor who brought me several samples, saying he wanted to produce. The products did look good. But when I talked with him, I found he knew nothing about the product's process, packaging materials, cost, formula, ingredient characteristics, or raw material sources. It's no wonder that rushing into upstream like that is risky.
Old Miao has always been a firm opponent of so-called 'disintermediation'. Anyone with basic marketing knowledge knows that middlemen have value. Unless there are redundant links, or new technology creates more efficient middlemen to replace the old ones, disintermediation only reduces channel efficiency.
Distribution economic effect diagram
Kotler said that middlemen are the 'main source of economic efficiency' – that's no empty talk; old Kotler doesn't need to flatter distributors.
In fact, those who have been calling for disintermediation over the years – hypermarkets, Tmall, JD.com, and even the used-car platform that advertises 'no middlemen taking a cut' – have not truly disintermediated; instead, due to 'platformization', the intermediary structure has become more complex.
But middlemen having value doesn't mean current middlemen have value. Distributors won't be eliminated, but that doesn't mean you as a distributor won't be.
In recent years, distributors have had a hard time precisely because they have lost their core value. When distributors degenerate into delivery providers, losing their core value, no matter how big they are, they fall to the bottom of the food chain. Who else to bully? Who else to push inventory on? Who else to delay payments to?
The channel development history of the past twenty years is a history of the collapse of distributors' core value.
Let's revisit the eight values of middlemen mentioned by old Kotler:
1. Information; 2. Promotion; 3. Negotiation; 4. Ordering; 5. Financing; 6. Risk-taking; 7. Payment; 8. Physical possession and title transfer.
I previously called the first three the core value of distributors because they represent the core operational capability; the latter five represent the distribution capability.
Of course, we can also call the first three 'information flow operation capability' and the latter five 'commercial flow operation capability'.
See the figure below (five flows of a product in the marketing channel):
Understanding the value of distributors and the flow patterns in marketing channels, the transformation path for distributors becomes clear.
If you have large scale, complete network, strong financial strength, mature warehouse and logistics, but lack core value while having solid delivery capability, my advice is:
Optimize the few big brands you hold. Big brands have brand pull; you should have a few. But for those clearly declining, always asking you to advance expenses but slow to reimburse, drop them early to avoid sinking deeper.
Don't take on new brands or new products. Don't listen to the hype like 'distributors should do new products'. New products require promotion capability, and although you have scale, promotion is your weakness.
Use your strong network capability to horizontally integrate surrounding delivery providers and become a platform.
Quickly open up Internet information ports and become a large regional or even national online 'second-tier wholesaler'.
With this, you'll have a voice. Of course, you're no longer a distributor but a B2B platform with efficient delivery and the risk of channel conflict, but others can't do anything about you. In the end, you might still be absorbed.
But for most distributors, this path is not feasible.
They need to forge their core value as distributors; the rest can be ignored. Master the information flow; you can ignore the commercial flow, and even outsource warehousing and distribution.
Don't always rely on manufacturers to guide your promotions. Chinese manufacturers know how to advertise, but few really know how to do ground promotions, including multinationals. Their operation manuals are mostly routine. But you can ask manufacturers for promotion funds.
Master the core value of promotion. It's easier to start with products with high consumer attention and high involvement; ordinary FMCG products are harder and less effective.
Clarify responsibilities and rights with manufacturers: don't reach into my territory. Any matter should bypass the manufacturer's sales staff and directly communicate with the boss or top marketing executive, otherwise don't cooperate.
The premise of information flow operation is the ability to generate information traffic, including both online and offline traffic.
Establish a stable vertical alliance with manufacturers: In the past, cooperation often started with a honeymoon period, but as growth slowed, they began to fight over existing market share. New manufacturer-distributor relationships should: first, build a joint entity with mutual interests, referencing Gree or Wahaha's distribution alliances or branch models; second, in core functions, manufacturers and distributors are interdependent – manufacturers control the brand, distributors control promotion – each holding the other's 'eggs', unable to separate.
Find peers to build horizontal alliances, not for channel conflict, but to 'share traffic', cross-promote, and share information. Strengthen your core competitiveness.
I always speak up for distributors when I get the chance, because this group is large but overall weak, at the bottom of the channel chain. Few speak for them or analyze from their perspective, but there are all kinds of traps: investment traps, new product traps, traffic traps, platform traps, technology traps – there's always one for you.
In the past two years, the environment for traditional distributors has further deteriorated. A friend was once a top distributor in a big city, with annual turnover of nearly one billion yuan, but now he's basically given up, running a restaurant and making investments, enjoying semi-retirement at a young age. Although it's a pity, he's glad he exited early.
What's gratifying is that I've seen some new operational distributors rise: a distributor-turned-entrepreneur used a single egg yolk pastry, leveraging WeChat and e-commerce to sweep the country, quickly reaching tens of millions in monthly sales and starting to build his own brand. In the maternal and infant channel, operational distributors keep surprising us. Some have achieved over a hundred million in sales through whole-network distribution and precise targeting. Even someone selling cosmetics via a WeChat public account achieves millions in monthly sales and hundreds of thousands in net profit.
All advantages are efficiency advantages. 'Disintermediation' is unreliable, but the 'disintermediation mindset' is real: sales only happen at the C-end, and all resources and expertise point to the end user.
With this mindset, distributors who truly understand 'distribution' are flourishing, and these 'professional' distributors are the hope of China's distributor community.
Source: Old Miao's Marketing (ID: yiheyingxiao) -END-