Few companies can do without distributors, but few are satisfied with the ones they have. Because around us, too many companies have seen one market after another become 'half-baked' or even fail due to distributors' inattention, non-cooperation, and disregard for market rules, causing our products to decline without ever thriving... But such problems are not solely the distributors' fault. The reason we and distributors become 'happy enemies' often involves our own issues, and sometimes the manufacturer is the primary cause. For instance, who told us not to be sharp-eyed enough when selecting distributors?!
When we meet the wrong person, we can't always blame their perfect disguise or hidden fox tail. In fact, few companies can withstand such turmoil: our 'daughter'—the product—if remarried even once, easily becomes yesterday's flower in the market.
Yes, here Li Zhengquan wants to discuss: how to find a good in-law family for our 'daughter'—to recruit a 'good son-in-law'—that is, distributor selection that can determine our market success.
Once You Marry into a Wealthy Family, It's as Deep as the Sea
Doing marketing might seem unrelated to romance and love, but it has some connections. The celebrity gossip you're about to see about actresses marrying into wealthy families can also give us insights into selecting distributors.
Take Taiwanese actress Jia Jingwen (star of 'The Conqueror's Princess' as Wu Zetian, 'The Heaven Sword and Dragon Saber' as Zhao Min, etc.), who is not only beautiful but also famous for her acting. A few years ago, she married into a wealthy family with Sun Zhihao, a rich playboy, after getting pregnant before marriage.
'I haven't seen my daughter for four months. Please (Sun) bring the child back. Whether we separate or stay together, we need to talk face to face. Don't deprive me of my right to be a mother.' This was Jia Jingwen crying to Sun Zhihao in front of the media in April 2009, when her marriage was already on the verge of collapse.
In fact, since Taiwanese actress Jia Jingwen began dating rich playboy Sun Zhihao, rumors never ceased: having a child out of wedlock, Sun driving drunk with a girl the night before Jia gave birth, her mother-in-law despising Jia's low education, her mother-in-law seeing ambiguous text messages between Jia and a mainland actor, and so on. These unfavorable rumors were like time bombs planted around Jia, ready to explode at any moment. No wonder the media summarized their love story as 'Once you marry into a wealthy family, it's as deep as the sea.'
Let's make an inappropriate analogy: if our product marries into a seemingly glamorous 'wealthy family' and encounters a situation similar to Jia Jingwen's, what would happen? Li Zhengquan believes:
First, endless exclusion.
After marrying into the 'wealthy family,' the distributor has many products and brands, like concubines—first, second, third, fourth... not a platoon but at least a squad. Each is either from a prestigious family, well-matched, or brings a rich dowry, or is packaged like a fairy—good appearance, good support, good market. In such a case, our 'daughter' will suffer endless exclusion.
Second, hard to gain favor, becoming yesterday's flower.
To avoid being sent to the cold palace, we need to gain attention and favor. But for most of our companies and products, we're at best a 'modest beauty.' Although our 'daughter' is no worse than others, lacking pedigree, family fortune, and 'dowry,' we naturally lack confidence. If we're also poor at political maneuvering and seducing the 'husband,' we won't receive much favor all year round. The 'daughter' becomes yesterday's flower, and we grow old and near death.
Third, what we value is not ours.
If we don't gain favor, our precious 'daughter' may only be fit for the kitchen, not the living room, and suffer a worse fate than Jia Jingwen, who is at least a big star and beauty. Without a prenuptial agreement, Jia could still get a share of the Sun family's wealth; if not, she has her child, and if she wins custody, she gets alimony. Even if she gets nothing, the affair won't greatly affect her acting career or her future chances of finding true love or remarrying.
But for us, it's different. Once we break up, not only is the 'daughter's' youth wasted, the 'dowry' lost, the market half-baked, or even failed leading to market exit; if we try to 'remarry' the 'daughter,' the resistance from distributors, terminal retailers, and consumers will be much greater than before. If the 'marriage' leaves behind thorny issues like price cuts, cross-region sales, expenses, and inventory, the chance of reviving the market becomes even smaller...
In the end, we find that the 'wealthy' distributor's big house, good cars, people, relationships, reputation—all the things we valued—are not ours to use. They are all floating clouds, not ours.
In reality, many of our companies regard recruiting 'wealthy' distributors as a principle for attracting investment. They all want to follow Jia Jingwen's path, believing these 'wealthy' distributors have channels, people, vehicles, big brands to 'hitch a ride' for sales, and volume—everything. Once our product enters their system, we can rest easy and everything will be fine.
Few ask themselves: Can you control such a distributor? Can you satisfy their desires and meet their requirements? How much capital do you have to attract these distributors to 'favor' you and make your product a main push?
The vast majority of companies, especially SMEs, lack such conditions and capabilities, so they end up with a much worse fate than Jia Jingwen.
Therefore, here Li Zhengquan wants to give you some suggestions on distributors you should try not to 'marry' (not that you can't 'marry' them)—these are the 'most' types among the distributors you're considering. Of course, 'most' here is relative to the distributors you're selecting and the industry distributors in the local market.
1. The Richest.
Dealing with this type of distributor, three common situations arise:
First, they have money but want more, not by earning from the market together, but by preying on us.
For example, they desperately squeeze our profits, find ways to demand higher rebates and deductions, ask for more preferential policies, demand more advertising and promotion support, but then withhold these expenses, exaggerate or fabricate channel costs to share with us...
Second, they have many products that can make money easily or more profitably than ours, so they're not in a hurry to earn from you.
This 'not in a hurry' is our problem, because they either raise the ex-factory price to affect market acceptance, or they don't pay attention, aren't proactive, and take it slow.
Third, they have a greater ability to hoard inventory.
If they're not in a hurry about capital turnover, neglect and slowness can concentrate the pressure of meeting sales targets, increasing the risk of channel cross-region sales and price system collapse.
2. The Largest in Scale.
Having scale doesn't necessarily mean having money, but often they have many people, many product divisions, many segmented channel departments, large warehousing and throughput capacity, many delivery vehicles, and deep network penetration with wide coverage—such distributors are often the 'big shots' at the local market level.
Since they're 'big shots,' they tend to be arrogant, leading us by the nose with an 'I'm the boss' attitude, making cooperation difficult and impossible to restrain. For most companies, it's good enough not to be tightly controlled by them.
Since they're the 'boss,' these distributors will weigh among various brands and products. If our product's overall conditions are a bit inferior, it may be sent to the 'cold palace,' our market plan shelved, not cooperated with or executed, and ignored.
3. The Most Experienced.
Experience is one of the necessary conditions for selecting distributors. But there are three issues to note:
First, channel operation has its philosophy; anything excessive is as bad as deficiency.
For example, using old methods like being a 'sitting merchant' to operate in the new market environment will cause our product to hit a wall along with the distributor.
Second, experience is also graded A, B, C, D; some distributors' experience may not suit our market operation philosophy.
For instance, some distributors' experience is in mass distribution, others focus on modern channels, and others specialize in special channels. If we don't differentiate, problems are likely.
Third, the distributor's 'most experience' hides many traps.
For example, some seasoned distributors, when taking on our product, don't consider how to build it up but take it on regardless, just to reduce competition. Other distributors' experience is to complete sales tasks and fight for rebates and support through price cuts, cross-region sales, and other 'small moves.'
Deep Courtyard, Overgrown Weeds
'Lend me, lend me a pair of discerning eyes, so I can see this chaos clearly, distinctly, truly...'
These are lyrics from Na Ying's song 'Seeing Flowers in the Fog,' sung by the Chinese pop diva. Many friends may gain insights when hearing or humming this song.
We also need a pair of discerning eyes when dealing with distributors.
Because in reality, many distributors are quite good in terms of network, financial strength, personnel, warehousing and delivery, company management, and business philosophy. We have pleasant conversations, some even hit it off immediately, giving us the excitement and illusion that we've found the right partner and the market should be easy to open.
But the greater the hope, the greater the disappointment. As we get to know each other and cooperate more deeply, we find we've either found a 'brocade pillow stuffed with straw'—beautiful outside but rotten inside—or met a 'wolf in sheep's clothing.' In short, we've entrusted the wrong person.
A certain company made leisure food. When considering the Guangxi market, the boss, Mr. Wang, immediately thought of an old friend—a local distributor mainly dealing in beverages and small snacks. This distributor's annual turnover ranked in the top five among local peers, with mature networks in both mass distribution and modern channels. Mr. Wang thought that although he hadn't done business with this distributor's boss, they had dined and drunk together several times. The company's strength and channel resources were good, and it's better to deal with familiar people. So he 'internally designated' the Guangxi market to that distributor friend when the marketing department considered recruiting there.
That distributor was also very straightforward. The boss patted his chest and said to Mr. Wang, 'Don't worry, Mr. Wang. I can't say for other manufacturers, but I will definitely value your product and do my best to build the market.' But after cooperation began, regional supervisors reported one issue after another: paying lip service but not acting; after five or six months, the target network's shelf presence, especially in supermarkets, was below 40%; accounts payable were delayed repeatedly.
What problems lay behind these situations? The distributor had been consciously transforming in recent years, with investments and industries becoming diversified: expanding downstream into specialty stores, upstream into manufacturing, and also investing in real estate. The capital chain was always tight, and cash flow pressure was enormous.
To this end, the distributor had made efforts, such as internal cost-cutting, one typical example being layoffs, streamlining the original food trading company's sales staff. But no matter how tight money and personnel became, key brands and products with high support, high sales, and high overall profits still needed priority attention. Therefore, other secondary brands faced insufficient investment. Unfortunately, Mr. Wang's product was among them.
'Are people who drive good cars necessarily good people?'
Those who have seen the movie 'A World Without Thieves' may remember this scene: 'Thief' Andy Lau drives a BMW freely in and out of an upscale villa area. When leaving, he asks the gate guard who had no suspicion of him: 'Are people who drive good cars necessarily good people?'
Are distributors who look attractive and sound appealing necessarily good for us?
The above example and many similar ones around us have given us a negative answer.
We need to polish our eyes.
Here, Li Zhengquan also gives three suggestions—to achieve market success, try not to find distributors with the following 'three many' characteristics.
1. Many Industrial Expansions.
Diversification and the resulting capital chain shortages are the fuse that leads many 'successful' companies to the abyss, and along with them, a string of partner companies. This is no exception for distributors.
2. Many Debt Disputes.
Behind debt disputes, in many cases, hide credit issues and debt-paying ability problems. You have to be careful with such distributors.
3. Many Competing Products.
From the traditional second-tier distribution to the terminal, competition among competing products becomes concentrated and fierce. The consequence of this concentration and intensity is that demands for expense support and gross profit contribution rise.
Most companies, lacking the ability to meet these demands, have to accept being ignored, excluded, and eventually failure. If we look purely at product strength, many brands eliminated by 'the times' might be superior to those thriving in the market.
Except for a few companies with exceptional resources and capabilities, almost no company is willing to be such a brand or product. So from the start of selecting distributors, we hope to join a distributor's system as a differentiated, gap-filling, product-structure-enriching identity, not a repetitive one.
But this situation cannot be completely avoided. Even if our product doesn't directly compete with the distributor's existing products in a specific market segment, there is still competition for the distributor's attention, human resources, and material resources.
Therefore, for many of our companies, a distributor with many brand resources, high product cluster resources, large sales scale, and strong negotiation power with downstream channels is not necessarily a good thing—because the harm of them limiting our ability to win their attention and resources may outweigh the benefits.
A Forced Melon Is Not Sweet
Every day in this world, many couples marry, and many divorce.
Take our country as an example: in 2008, a total of 10.499 million couples registered for marriage nationwide, equivalent to 28,800 per day; civil affairs departments handled 1.553 million divorces (excluding court-mediated and adjudicated divorces), equivalent to 4,400 per day (according to the Ministry of Civil Affairs statistics released on February 4, 2009). The reasons include infidelity, material and economic problems, and incompatible personalities. The relationship between companies and distributors is no exception.
Speaking of this, I recall a typical experience from the past.
A few years ago, I was the general manager of a leisure food company. Less than half a month after taking office, I suddenly received a call from a woman—she was our distributor in Changsha.
'Hello, General Manager Li Zhengquan, my surname is Xiao, and I'm your company's distributor in Changsha. Some issues have not been properly resolved by your regional supervisor Xiao Wang and Director Zhang, so I'm taking the liberty to disturb you...' She didn't beat around the bush and went straight to the point.
The call mainly focused on this issue: she demanded that we remove the price information from our company website and Taobao store. The reason was that our online selling price was 12% lower than the offline channel's suggested retail price. She was worried that her customers, when searching for product information online, would feel cheated, affecting her business. If we couldn't meet her demand, she would post negative messages online about how we don't respect distributors and don't protect their interests; she would also submit our product to the local quality inspection department, saying 'we can always find some faults.'
It's natural and absolutely right for a company to protect distributors' interests. But selling products online reduces many costs, and a 10%-15% reduction in online retail price is a normal price fluctuation range. There are also significant differences in target audiences between offline channels and e-commerce channels. Moreover, our distributors mainly do distribution and service. Why did the Changsha distributor have such strong objections, make such demands, and issue such harsh threats?
It turned out that when our regional supervisor developed distributors, he only wanted to complete the recruitment task quickly, completely ignoring whether the distributor's network resources matched our main channel direction—supermarkets and OTC channels—and didn't care whether they identified with our product and market operation philosophy. Seeing the other party's interest and confidence, he granted the Changsha market distribution rights to this distributor.
But how did this distributor operate our product?
In terms of channels, she felt that the barriers and costs of supermarkets and OTC channels were too high, so she abandoned the main channels and focused on the beauty channel where she had some foundation. But after two or three months, she was still in a trial mode, showing no confidence or determination.
In terms of pricing, we left distributors a profit margin of 46%, which is not low. The national suggested retail price was 25 yuan per bottle, targeting the mid-end consumer segment. Now she was focusing on beauty salon lines, trying to exchange high prices for big profits through 'narrow circulation,' raising the retail price to 68 yuan per bottle, and correspondingly raising her supply price significantly.
We wanted to win big profits by expanding the market and market share, but the Changsha distributor wanted to exchange high profits for a relatively much smaller market and volume by raising prices. Obviously, the two sides' philosophies were completely incompatible, like east and west. Behind the demand to remove online price information was this serious divergence in brand operation, profit acquisition, and market operation philosophies.
Men fear entering the wrong profession, women fear marrying the wrong man, and finding a distributor, we fear choosing the wrong partner.
When we encounter such a distributor with 'different paths,' trying to 'cooperate' often costs more than temporarily not finding a distributor and putting the regional market on hold. Because we will invest, but this investment not only doesn't add points but also deducts points; because restarting a market with many leftover problems and barely alive is often more difficult than starting a brand-new market; because if our brand and product can't be built up after a period, they will be unwelcome in front of channel partners and consumers.
However, I think we can't blame the distributor. Who told us to focus only on quantity over quality, as long as there's a distributor and an initial purchase payment? Who told us to be eager for quick success, only seeking speed over stability, rushing to start a market? Who told us our selection criteria for distributors are unclear or not strictly implemented after being clear? Who told us to only focus on task indicators without process review, not strengthening review of the distributors developed by sales staff and the contracts they bring back?
So, combined with the above, when selecting distributors, we must remember the 'three mismatches' not to choose.
1. Brand Identity Philosophy Mismatch.
What kind of company we want to be, what kind of cooperative relationship we have with distributors and each other's roles, what kind of brand we want to build for what target group and with what image, and through what safeguards to develop this brand—these aspects of identification affect whether we and the distributor can have aligned philosophies and consistent actions.
2. Market Operation Philosophy Mismatch.
What channels to operate, to what extent in each channel within what time frame, how to allocate resources, how to manage sales staff, warehousing, and delivery, what rules to follow for pricing and regional markets, and on what criteria to place advertising and promotion support—all fall within this scope.
Whether we can achieve philosophical convergence in these areas affects whether we and the distributor can move in step and work together.
3. Profit Philosophy Mismatch.
The price increase mentioned in the previous example is just one aspect of profit philosophy mismatch. Price cuts, cross-region sales, and other behaviors that disrupt market order; withholding market support expenses, defrauding preferential policies for big customers, thinking only about squeezing money from the manufacturer rather than earning from the market; only thinking about shipping goods without market maintenance, doing one-shot deals; sitting back and doing business with outdated concepts; only thinking about using other brands to drive sales without actively promoting—these all affect our rise and fall, even life and death, in a regional market.
Beware of Junk Stocks
Friends interested in stock investment are familiar with three concepts: junk stocks, blue-chip stocks, and growth stocks. Among these, the former refers to stocks of companies with poor industry prospects, poor management, and poor performance; the middle refers to stocks of companies with high investment returns and value, and good performance; the latter refers to stocks of large companies that occupy an important position in their industry, have good performance, active trading, and generous dividends.
For us, whether finding a partner or developing distributors, we should try to avoid junk stocks. Indeed, in the 2008 New Year film 'If You Are the One,' Ge You, playing the male lead Qin Fen, had a conversation with stock woman Hu Ke during a blind date:
Hu Ke: 'Actually, I think blind dating is like stock trading. You can watch several stocks at the same time, and finally decide which to buy based on their performance and calm analysis. For example, appearance, figure, personality, education, economic conditions, family background, and so on...'
Ge You: 'Then what kind of stock should I be in terms of performance?'
Hu Ke: 'From the perspective of age and appearance, you should be the kind that has fallen below the issue price!'
The implication was that Hu Ke thought Ge You was somewhat 'junk.' Of course, Ge You was not a junk stock; he eventually won the beauty.
For us, we must avoid being a junk stock in the eyes of distributors, and also avoid getting entangled with junk stock distributors, to avoid being 'trapped' and having market failure and chaos.
So, we should remind ourselves here: Don't look for distributors with 'eight lacks' because they are more likely to be associated with junk stocks.
- Lack of People.
With just a few guns, they have to fight both the east and the west, leaving no guns or bullets to fight with us to build the market.
- Lack of Facilities.
No warehouse, no cold chain or other product-related storage and transportation facilities, no delivery vehicles—how can they guarantee to build the market well?
- Lack of Money.
No money to hire people, no money to purchase facilities, unable to make necessary investments to build the market, and accounts payable are delayed. How much return can you expect from such a distributor?
- Lack of Experience.
They don't know how to manage warehousing, personnel, channel partners; don't know how to negotiate with supermarkets; don't know how to display at the terminal; don't know how to plan the market. Cooperating with such a distributor will take more detours and make it harder to achieve goals.
- Lack of Network.
We originally wanted to put our product car on someone else's highway, but they have no road, and we need to build the road. When will our car get on the road and maintain a certain speed?
- Lack of Integrity.
They say they'll make our product a main push but don't; they say they'll achieve a certain shelf presence in target outlets within two months but don't; they say they'll pay within three days but don't. What they can do is make us step into a mud pit and sink deeper.
- Lack of Confidence.
They initially considered taking our product with a trial attitude. After taking it, due to lack of confidence, they are timid, slow, and invest little. Our product and market cannot withstand such tossing.
- Lack of Attitude.
We send dedicated personnel to help these distributors build teams and do distribution; we fulfill our advertising and promotion support and show our attitude, but they remain indifferent and unconcerned about our product. If this continues, the young girl will become an old woman.
Of course, in reality, many distributors look like blue-chip or growth stocks, but behind the appearance are junk stocks. We need to discern based on the content mentioned earlier.
Testing the 'Quality' of Distributors
So what kind of distributors are more likely to build the market with us? It's not just about not choosing the types mentioned earlier; that's actually an elimination method, telling us that if we form a marriage with the aforementioned distributors, we are more likely to become playthings and enemies, and the chance of market failure is much greater.
Therefore, we need to combine the relevant content mentioned earlier to select our distributors. For those already developed and cooperating, we can also review them to see how they affect the rise and fall of our market.
Distributor Type Testing Model
Problem Distributor Type | Judgment (Yes/No) | Remarks 'Three Most' | Richest | Largest in Scale | Most Experienced | 'Three Many' | Many Industrial Expansions | Many Debt Disputes | Many Competing Products | 'Three Mismatches' | Brand Identity Philosophy Mismatch | Market Operation Philosophy Mismatch | Profit Philosophy Mismatch | 'Eight Lacks' | Lack of People | Lack of Facilities | Lack of Money | Lack of Experience | Lack of Network | Lack of Integrity | Lack of Confidence | Lack of Attitude | (Distributor Type and Quality Testing Table)
For most companies, especially SMEs, if our distributor is related to one or more of these items, our product, brand, and market can be said to be in danger. The more items involved, the less hope.
Therefore, don't seek the biggest or pick the smallest; a medium-sized or well-matched one is just right!
Listen to Distributors' Opinions
We don't choose distributors like an emperor choosing a son-in-law, picking whoever we want. Whether the distributor we finally find is strong or weak, big or small, to make them value us and actively promote our product, we also need to standardize and improve ourselves to meet the 'parental home' standards in distributors' minds.
Below, a distributor that holds big brands like Wahaha, Yili, and Guangming, along with several small brands, has standards for selecting and accepting new products that may give us some insight:
- Does this product conflict with my existing product structure? Is it suitable for me to do?
If it conflicts but cannot replace the original product, I absolutely won't take it.
- Profit and sales volume must be balanced.
No matter how high the profit, if the prospects are bleak and the chance of success is less than 50%, I absolutely won't take it; some brands have low profit but sell quickly and in large volumes, and I'll take those.
'The wool comes from the sheep's back.' I'm not the sheep; the consumer is. So I don't consider products just because the manufacturer offers various preferential conditions.
I absolutely won't cooperate with manufacturers with poor reputation, irregular operations, or no management rules.
The manufacturer's salesperson's ability must meet my requirements.
Their ability is shown during communication with me. If problems arise in the market, their ability will directly determine whether they can effectively solve them.
- I won't easily refuse, nor will I easily make a decision.
The sincerity of the manufacturer and the salesperson I deal with is very important in changing the final outcome.
- You don't need to say much about how good your product is, because that's not my main concern. What matters most is what your product can bring me, the resources and capabilities needed to bring those things, and the ways to achieve them.
This article is from the WeChat public account Business Trends (ID: lizhengquan02), by Li Zhengquan. To make business and marketing success more controllable in an uncertain business environment and future, it is recommended to read the 'golden partner' books: 'From Trends to Action: The New Business Ecosystem in the Next Decade + Enterprise Transformation and Change' and 'Foresight: Predicting and Judging Marketing Success'.
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