---
title: "Five Models for Distributors to Transform and Develop in Difficult Times"
description: "With the market becoming increasingly competitive and profit margins shrinking, distributors are seeking new profit models to break through difficulties. This article analyzes six profit models for distributors, including product-channel complementarity, rapid volume expansion, terminal channel development, e-commerce, OEM branding, and the 'give and take' model, along with strategies to manage downstream client backlash."
author: "李德猛"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2014-06-06"
language: "en"
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# Five Models for Distributors to Transform and Develop in Difficult Times

> With the market becoming increasingly competitive and profit margins shrinking, distributors are seeking new profit models to break through difficulties. This article analyzes six profit models for distributors, including product-channel complementarity, rapid volume expansion, terminal channel development, e-commerce, OEM branding, and the 'give and take' model, along with strategies to manage downstream client backlash.

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"Business is getting harder, money is harder to earn, and a misstep can lead to losses." How can distributors, squeezed in the market's cracks, return to the era of "picking up money"? As market competition intensifies, retail formats grow stronger, and manufacturers refine sales territories, overall operational costs rise, squeezing distributor profit margins. "Business is harder, profitability is more difficult" is the current reality. Facing this grim situation, many distributors are contemplating changing their profit models to break through. But what model can ensure alignment with manufacturers and downstream clients, achieving win-win for all three parties? Based on my work experience and the actual market operations of distributors, I analyze six profit models for distributors.

**Model 1: Two-P Complementarity**
The first P is product, the second is channel. Two-P complementarity means products complement each other across channels, where distributors combine related products based on customer needs, enhancing their ability to deliver complete sets and provide downstream clients with "one-stop service." Just as people shop at Walmart or Metro for daily necessities, everything you want is available there, eliminating the need to go to another store. Consumers find what they like, and distributors earn more profit through the price difference, benefiting both parties.

Due to bulk purchasing, this model significantly reduces logistics costs and provides downstream merchants with a comprehensive supply, so they no longer worry about not getting needed products from "upper-level" suppliers. It also saves downstream distributors logistics costs and reduces purchasing expenses, meeting their diverse needs while allowing them a small margin—everyone is satisfied. Additionally, from an overall marketing resource perspective, this model integrates and shares product resources based on the company's product mix. Key points for this model: distributors need to prepare sufficient funds, a large enough warehouse (or storefront), and personnel in advance.

**Model 2: Rapid Volume Expansion**
The essence of rapid volume expansion is speed and volume. This model relies on distributing bestsellers, fast-moving consumer goods, seasonal items, and patented products with no current competition. Distributors lower operating costs through scale and generate substantial cash flow. In this model, distributors focus on "volume" as a breakthrough, with speed as a prerequisite, choosing appropriate sales seasons for different products, gaining market share and downstream clients through low prices, achieving rapid profit through increased volume.

Distributors can seize the "seasonal (periodic)" opportunity to bulk purchase relevant products and sell them to downstream distributors and consumers, achieving rapid volume and profit. This model benefits manufacturers, distributors, and sub-distributors alike. Key points: seize the "business opportunity," or wealth will pass you by—it's fleeting! Also, be aware it may provoke jealousy and criticism from competitors.

**Model 3: Terminal Channel Development**
As the saying goes, "A big store bullies customers." Large terminal retailers, confident in their high-quality terminal resources, impose various demands and raise entry barriers for distributors and manufacturers. They may charge entry fees, barcode fees, new product fees, anniversary fees, display fees, DM fees, promotional management fees, information fees, and even kickbacks for staff, with "entry fees" being the largest. Distributors face three major terminal challenges: difficult entry due to high fees; difficult maintenance due to endless fixed and unexpected supermarket costs; and difficult payment collection, often quarterly or semi-annually, sometimes longer, putting immense pressure and risk on distributors.

Facing the dominance of terminal retailers, distributors, "after painful reflection," begin to break free from their control, either by strengthening their own terminal efforts or building self-owned terminal channels.

Distributors aim to earn more money. Previously, they profited from product price differences, manufacturer policies, and year-end rebates. Now, they build self-owned terminals while offering home delivery services—consumers just make a phone call, and products are delivered to their door. This model is popular with consumers, especially those with strong purchasing power, who are willing to pay slightly more than supermarket prices for home delivery. However, this model has no competitive barriers; once competitors follow, price wars become inevitable.

The advantage of self-built terminals is that distributors save on a series of entry fees, solve the problem of credit sales for terminal distribution, weaken the power of original terminals, and gain a large consumer base. This model is also what manufacturers seek; finding such a distributor is like finding a qualified "marketing headquarters" or sales branch. However, self-built terminals inevitably lead to conflicts with downstream clients over local customer resources, regional sales, channel access, sales talent, and terminal and advertising resources (e.g., rural outdoor wall ads). Additionally, when bypassing the sub-distribution network to develop downstream customers directly, downstream clients may resent having their "lifeline" cut off, leading to retaliation such as terminating cooperation, dumping goods, or disrupting the market. For example, some downstream clients may spread rumors, demand promotions or larger territories, ask for more rebates, negotiate terms, defect to competitors, or set up their own operations—issues distributors must address.

**Model 4: E-commerce Model**
What if a distributor's store is too small, or too large and costly? The industry's low profit margins require distributors to develop markets at low cost, and the "e-commerce" model can address this. An online mall, similar to a physical department store, uses e-commerce tools to create a virtual store where transactions occur visibly but intangibly, reducing intermediate links, eliminating transportation costs and middlemen's margins. This model returns benefits to consumers and drives distributor growth.

This profit model primarily uses three types of online malls: B2B (Business-to-Business), B2C (Business-to-Customer), and C2C (Customer-to-Customer), each with different functions. B2B examples include Alibaba and Made-in-China.com, mainly for wholesale; B2C examples include Joyo, Newegg, JD.com, Juedai Mall, and Tianyue Mall, mainly for retail; C2C examples include Taobao, EachNet, and Paipai. Distributors building online malls gain six benefits: first, increased brand promotion opportunities; second, free new product launches; third, enhanced brand image and customer loyalty; fourth, new sales channels increasing revenue; fifth, zero inventory, reducing operating costs; sixth, reducing consumers' options for other brands. The online mall model avoids traditional channel competition, achieves win-win for manufacturers and distributors, and offers consumer convenience. Its disadvantage: due to network coverage, remote rural and economically underdeveloped mountainous areas may remain "blind spots."

**Model 5: OEM Branding Model**
OEM branding means distributors don't produce themselves but commission other manufacturers, while owning the brand. With this model, distributors can devise the most suitable marketing plans based on their actual situation, adjust strategies quickly when problems or market changes arise, control profit margins independently, and avoid disagreements with manufacturers. This allows for rapid response and high efficiency in complex business battles, while manufacturers can fully utilize their resources, achieving true complementarity and win-win.

This model's profit points include: first, reducing fixed asset investments like factories and equipment; second, having your own products without needing much capital; third, focusing on design, R&D, and sales, saving time and costs; fourth, leveraging strengths by outsourcing production to specialized companies, improving product quality and shortening production cycles. Distributors can first represent a first- or second-tier brand, and once channel resources are secured, find an OEM manufacturer for private labeling, then distribute to downstream clients, or directly reach terminals or do direct sales, eliminating the middleman's price difference and logistics costs to earn more profit.

**Model 6: "Give and Take" Model**
"Give and take" means giving first to gain more later. As the saying goes, "You have to lose the child to catch the wolf." Haidilao, known nationwide, uses this model by offering free snacks like melon seeds, watermelon, cantaloupe, fried shrimp chips, fried green beans,情人果 (a type of fruit), soy milk, and sour plum juice, plus free shoe shining and manicure services while customers wait, attracting them to spend and profit.

Distributors' "give and take" model includes:
- Free logistics: Offering free delivery attracts customers to purchase from you.
- Free initial stocking: Provide products on credit for the first order, with payment on the second order, cycling for profit.
- Free training: Offer free operational training to attract customers; if they need products, they'll feel obliged to buy from you unless your prices are unreasonably high.
- Free promotional materials and publicity: Provide free promotional items, saving customers the hassle of planning promotions.
- Free trials: Let customers experience products firsthand; if they're satisfied, they're likely to buy.

While this model incurs upfront costs, it's worthwhile if it leads to repeat purchases, referrals, and trust-based buying. It saves customers money on capital, circulation, and operations while improving sales profit, operational efficiency, and brand reputation. Key caution: "Losing the child but not catching the wolf"—if you give without achieving profit, it's counterproductive.

In a market economy, there's no fixed marketing formula. Regardless of the profit model, the ultimate goal is maximum profit. But every coin has two sides; when some profit, others may suffer or become envious. If major clients defect and others follow, core clients could collectively rebel, threatening the business. How should distributors address this? I've summarized several measures for prevention or remedy:

1. Humble yourself and proactively "apologize." If profit-seeking causes client defection, don't blame downstream clients. Instead, lower yourself, sincerely apologize, perhaps by treating them to meals, entertainment, or offering new product incentives.
2. Investigate other clients for signs of defection. One defection isn't scary, but collective "uprising" is. Immediately survey downstream clients, "isolate" defectors to prevent them from spreading plans, and consider "cleaning house" if necessary.
3. Engage in "deep" communication with clients showing defection signs. Put yourself in their shoes, help resolve their "defection ailments" and worries, and aim for early "recovery."
4. Develop a "win-win plan" in advance to retain clients. When changing profit models, simultaneously create a corresponding "win-win plan" and distribute it to downstream clients, giving them confidence to follow. Don't wait until after the change to "mend the fold after the sheep are lost." Also, create a "profit dream" for clients, exciting them and making them eager.
5. "Appease" major clients. For large or core clients, dreams alone won't suffice. Implement appeasement policies, possibly signing private agreements, offering material or spiritual incentives to win loyalty and prevent competitors from exploiting gaps.
6. Bundle new products with existing ones. When implementing product integration, use old brands to reasonably bundle or distribute, hiding your "scheme" until it's achieved, like product placement in TV dramas. By the time clients notice, you've achieved your goal, and they've unconsciously experienced your model, smoothly transitioning. Of course, this is an ideal transition.
7. Full distribution and channel restructuring. Changing profit models is a strategic shift. If the new model brings a profit growth point ten times the original, consider restructuring the channel architecture and, if economically feasible and profitable, implement full distribution.
8. Handle defecting clients properly. For clients who obstruct your model and refuse to "repent," or "dog" clients, avoid arguments. Resolve issues amicably, even generously, parting on good terms. This way, they'll hesitate to speak ill of you, enhancing your reputation and image, and they might even become your "spies" with competitors.

Indeed, regardless of the profit model, it will inevitably cause some pain to downstream clients, and their defection is understandable. But as long as both sides find a balance of interests, they can achieve mutual benefit and win-win.

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