--- title: "Distributors: Without Distribution, What Do You Have Left?" description: "China's product distribution landscape is undergoing dramatic changes, with consumers accessing products and services through increasingly diverse channels. Distributors face both challenges and opportunities, as traditional roles are threatened by manufacturers' moves to flatten channels and by information transparency, forcing them to reinvent themselves or risk marginalization." author: "New Distribution" publisher: "New Distribution" email: "zhaobo258@gmail.com" telephone: "+8615854817671" published: "2014-09-02" language: "en" canonical: "https://xinjignxiao.com/en/articles/distributors-without-distribution-what-do-you-have-left-55293d78/" markdown: "https://xinjignxiao.com/en/articles/distributors-without-distribution-what-do-you-have-left-55293d78.md" original_source: "https://mp.weixin.qq.com/s/fzjO8zBuqFdTn9976a0jBA" translation: "https://xinjignxiao.com/zh/articles/%E7%BB%8F%E9%94%80%E5%95%86-%E6%B2%A1%E6%9C%89%E4%BA%86%E7%BB%8F%E9%94%80%E4%BD%A0%E8%BF%98%E6%9C%89%E4%BB%80%E4%B9%88-55293d78.md" attribution: "New Distribution — https://xinjignxiao.com/en/articles/distributors-without-distribution-what-do-you-have-left-55293d78/" usage_policy: "https://xinjignxiao.com/ai-policy.txt" --- # Distributors: Without Distribution, What Do You Have Left? > China's product distribution landscape is undergoing dramatic changes, with consumers accessing products and services through increasingly diverse channels. Distributors face both challenges and opportunities, as traditional roles are threatened by manufacturers' moves to flatten channels and by information transparency, forcing them to reinvent themselves or risk marginalization. **Warm Tip: Click the blue text above to follow "FMCG Distributor Professional Consulting" for more insights on marketing and distributor internal management.** China's product distribution relationships are undergoing dramatic changes, and consumers now have increasingly diverse ways to access products and services. In this unstoppable historical trend, Chinese distributors are enduring many hardships while also facing numerous opportunities. It is said that recent years have been the "Ben Ming Nian" (zodiac year of birth) for Chinese distributors—a mix of great fortune and great peril. But auspicious events are few, while dangerous ones seem to happen almost daily. At this year-end and new-year juncture, let's talk about the stories of Chinese distributors over the past few years, to mitigate some of the perils and hope for more good fortune in 2005. **Distributor Story 1:** Boss Wang's Zhongling Company is a daily chemical products trading enterprise with a decade of history, having distributed "Mijie" products for six years. Over these ten years, Boss Wang has struck gold at least three times, amassing personal assets of over 100 million yuan—truly ambitious and riding high. However, in the past year, his hearty laughter has rarely been heard. Well-informed sources tell us that one day early in the year, the general manager of "Mijie" gave Boss Wang a multiple-choice question: "Either the factory establishes a local branch and hires you as a consultant; or the factory and you form a joint venture branch managed entirely by the factory; or you retire completely." The channel measures the factory intends to take to enhance its market competitiveness have left Boss Wang on tenterhooks. After all, his profits in recent years have relied entirely on "Mijie" products. Resistance seems futile, because his downstream distributors would surely prefer to cooperate directly with the factory, especially since they are well aware of his past deductions from factory rebates and are eager to see him step down. Most critically, consumers favor the "Mijie" brand, while "Zhongling" is virtually unknown. One day at year-end, the company announced a meeting of major distributors. What awaits Boss Wang? ...... **Distributor Know-How 1:** Distributor, your profit opportunities mainly come from your business reputation and the commercial resources you have accumulated over the years. When you believe your profit opportunities come solely from the manufacturer, you are at best a supporting player and a wage earner for the manufacturer's brand. Just as you can fire your employees, the manufacturer can fire you. **Distributor Philosophy 1:** Don't be afraid of being marginalized, because when a manufacturer seeks you as a distributor, they already have plans to marginalize you. Generally, manufacturer-distributor cooperation has three "hurdles": the first year—whether you pass the "first love" stage; the third year—whether you "marry"; the seventh year—whether you survive the "seven-year itch." Even after seven years, you cannot stop the manufacturer from having "three wives and four concubines." Once you understand this, don't dwell on the pain of separation, because from the first day you become a distributor, you must be prepared for the breakup. **Distributor Story 2:** Boss Fang distributes industrial valves. This is a relatively non-competitive industry; although many enterprises produce valves, due to the industry's closed nature, average profits of 100% to 200% are quite substantial. However, a recent incident has made Boss Fang feel a great threat. A few "busybodies" launched a DM magazine called "Industrial Valves" and established a corresponding website, flooding end users with commercial information about industrial valves to profit. The large amount of transparent direct sales prices has made it increasingly difficult for this traditionally closed industry to remain closed. Several recent deals have only yielded 50% to 70% profit margins. More critically, the transparency of prices and the resulting transparency of procurement information have made many previously common gray-area practices increasingly difficult to execute. Procurement personnel, finding it hard to obtain gray income, have turned to demanding higher product quality. Meanwhile, the establishment and popularization of information communication channels have led more customers to want direct business relationships with manufacturers. Traditional industrial product distributors, whose main business content is merely product information, are now facing serious commercial challenges. Experts have suggested to Boss Fang: reposition the enterprise, transforming from an industrial valve trader to a solution provider for industrial production equipment control problems. Proactively offer end users detailed product information, problem-solving solutions, comprehensive system maintenance services, and professional training in design and usage. Boss Fang agrees with the overall direction, but enterprise management and execution personnel are a big problem. After all, his current sales staff are experts at "managing relationships." When business transactions no longer rely solely on "relationships," those salespeople are clearly not fully prepared. Even Boss Fang himself is not prepared. **Distributor Know-How 2:** Opportunities to profit solely from information asymmetry between products and customers are increasingly rare; making money solely through relationships and gray-area practices is also becoming more difficult. The diversification of customer procurement information channels has led to the marginalization of distributors who profit from information asymmetry. The management methods inherent in traditional distribution and the skills of practitioners are facing serious challenges. **Distributor Philosophy 2:** Leverage the opportunity to have more direct contact with customers to capture more customer information. By managing customer information, propose solutions that genuinely address customer problems. As China's marketization deepens, business models are undergoing dramatic changes, and solution selling is gradually becoming the dominant sales model. Unlike manufacturers, your customer solutions can include many excellent brands, because consumers and customers need combinations of more excellent products. The same manufacturer's products can never all be excellent, so manufacturers never have the opportunity to offer the best solutions. As a distributor, you can exactly do that. **Distributor Story 3:** Mr. Lin's company, based in Shijiazhuang, is a medical device sales and trading company of a certain scale, established in March 2008 with only 5 people and 200,000 yuan in capital, mainly selling medical recording paper, medical glassware, simple surgical instruments, and disinfectants to sustain the business. Xinguang Biotechnology Co., Ltd. is an enterprise in Shanghai's Zhangjiang Hi-Tech Park, specializing in R&D and production of endocrine testing instruments. Founded by two PhDs returned from the U.S., it was then just a small workshop-like company. However, their "time-resolved" detection technology was very advanced at the time. Because it was a small company, Xinguang Biotech found it difficult to establish business relationships with mainstream pharmaceutical and device distribution enterprises. So, after an accidental contact, Mr. Lin's company became Xinguang's first distributor in North China. In the first year, 2008, they sold 5 instruments, each worth 18,000 yuan, and also sold 100,000 yuan worth of reagents. In 2009, they sold 12 instruments; in 2010, 23; in 2011, 40; in 2012, 60. 95% of local hospitals adopted Xinguang's testing equipment. As a distributor, Mr. Liu (sic) was indeed hardworking and meritorious. Of course, Xinguang Biotech also grew from a small company with annual sales of 5 million yuan to a large enterprise with annual sales exceeding 1 billion yuan. At the end of 2013, Xinguang suddenly announced a sales channel reform, canceling the original distributor sales model and adopting a direct sales model from the factory to hospitals. The reason is simple: after five years, Xinguang's products had completed popularization in major hospitals nationwide, and the role of distributors had become increasingly small. Moreover, once a hospital uses Xinguang's products, Xinguang can form a monopoly on usage, because the reagents used during instrument operation are proprietary, and the value of reagents required over the instrument's lifespan is at least 10 times the instrument's value. Xinguang Biotech clearly was unwilling to share all this with its distributors. **Distributor Know-How 3:** As a role in the distribution process, distributors seem destined to be short-lived, no matter how hard you work. Especially for distributors of industrial products and instruments, because sales in these industries have a notable characteristic: customers are relatively concentrated and fewer in number, initial entry is difficult, often requiring the mobilization of the entire selling enterprise's strength. However, once entered, the likelihood of customers continuing to purchase that brand is high, because switching suppliers may pose significant risks. So, once a brand has formed usage habits among customers or completed popularization in a region, for distributors, it's definitely "kill you without discussion." **Distributor Philosophy 3:** Don't eliminate all your competitors; keep market penetration below 40%; always watch for the emergence of substitutes. Leave yourself a way out. **Where Is the Way Out for Chinese Distributors?** **1. Build Channel Alliances Through the Power of Capital** If a distributor loses distribution, you are still a true merchant. You may not have a production workshop, but you have capital, product sales experience, and customer relationships. Example: Distributors in a certain region jointly established a sales investment company, gathering almost all powerful and reputable local distributors. They share supply sources and information, and unify store investment, management, promotion, and new store openings. This makes it impossible for manufacturers to establish a second effective network in the region to compete. Eventually, manufacturers have to compromise. **2. Use New Technologies** New technologies include product display technology, product promotion technology, and product information technology. Example: Product display technology classified by product use makes it easier for customers to choose; product promotion technology combined with distributor commercial commitments makes customers feel the merchant's value; electronic and software-based product information helps distributors better control product structure. **3. Make Service a Core Competitive Advantage** Consumers' demands on product providers often evolve from trying to wanting more. Therefore, distributors can meet customers' changing "tastes" and increasing "acquisition" demands by offering a wider variety of products. Example: Walmart initially offered only general merchandise. As its commercial status among customers rose, it began offering groceries and achieved great success. **4. Build Commercial Brands** Commercial brands, as symbols for consumers to identify merchant value, have long been valued by Chinese merchants. However, in the last decade, influenced by the mindset of seeking quick success and instant benefits, many merchants believed price was everything and neglected brand building. As a result, although Chinese distributors bear the task of commercializing China's industrial and agricultural output, they face increasingly severe marginalization. Example: Why do modern circulation enterprises pose a huge threat to traditional distribution systems? The reason is that modern commercial enterprises all start with building commercial brands, whether it's Walmart, Carrefour, Gome, or Suning. What Chinese distributors need to strive for is not to replace the manufacturer's position, but to secure their rightful status as circulation intermediaries and service providers in the product distribution process. What distributors strive for is not just victory in the game with manufacturers, but winning consumer recognition and support. "Merchant as king" is a worldwide fact. Why do Chinese distributors face difficulties? The fundamental reason is that they have neglected their essential role as service providers for both manufacturers and consumers. The biggest concern for distributors is losing supply sources. To cope with competition and maximize profits, manufacturers increasingly adopt channel forward movement (the so-called "flattening"). In this battle between manufacturers and distributors over supply source control, how can distributors, who do not produce products, safeguard their lifeline supply sources and win the initiative in the manufacturer-distributor game? This article offers three suggestions for Chinese distributors' reference. **1. Advice for Industrial Product Distributors** Always strive to hold in your hands a competitor's product, or at least a product that can replace your current one. Do not yield to the manufacturer's threats or temptations. If conditions permit, control upstream enterprises through capital export to secure supply sources. **2. Advice for FMCG Distributors** Open more end retail customers; do not pin your business performance on a few major customers, because no manufacturer has the ability to manage countless retail terminals. Similarly, you should also prepare substitutes, ready to attack the products you are currently distributing at any time. Because competition among manufacturers is eternal, to remain invincible you must encourage this competition. Only through their fierce competition can you have your living space. **3. Advice for Durable Consumer Goods Distributors** Service is the greatest expectation of durable goods consumers. At the same time, the consumer base for durable goods is enormous, not something any manufacturer can face alone. Therefore, controlling service means controlling the market. Controlling service requires three things: build your service reputation and even brand; control ownership of the service network through capital penetration; and control the actual operation of the service network through management and personnel output. Also, control retail through service control. **Warning:** When a distributor is loyal to a brand they are currently distributing, you have already lost yourself. --- **Like this article? Feel free to tap the top-right corner and share it to your Moments.** **About Us:** WeChat Name: FMCG Distributor Professional Consulting Management Account Introduction: 20 years of FMCG distributor operation and management experience, professionally aligned with distributor internal affairs: We understand distributors better than manufacturers, and we understand internal management better than distributors. Senior marketing experts help your enterprise develop. 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