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Rapid economic development has driven changes in the domestic channel system, creating the most complex channel environment in China. Therefore, companies and distributors must not only understand the current channel environment but also learn how to plan their channel layout comprehensively to achieve breakthrough growth. Currently, manufacturers often encounter the following four problems in channel operations:
1. Single-channel structure leads to underutilization of channels
The problem of channel simplification mainly manifests as structural simplification and model simplification. On one hand, there is channel structure simplification. "Channels reflect market consumption characteristics and retail formats," but many companies or distributors fail to truly understand this. For example, hypermarkets cater to one-stop shopping for families over a large area, meeting the needs of most customers with competitive prices and a wide range of food and non-food items, while convenience stores and chain supermarkets serve specific customer groups. Thus, for companies and distributors, a single-channel structure cannot meet consumer needs.
On the other hand, there is channel model simplification. Currently, domestic channel models include wholesale distribution, direct operation, deep distribution, tripartite joint sales, distribution alliance, brand chain franchising, and online direct sales. Because many manufacturers lack the capability to operate different channel models effectively, they end up with a single model, impacting overall profitability.
2. Fragmented channels fail to form competitive advantages
Companies and distributors often wonder: "Why have we done everything we should, but the results are still not obvious?" The main reason is that channel operations remain at an experiential stage, lacking strategic guidance, leading to fragmented channel operations that cannot form a competitive advantage through synergy to ignite the market. Currently, channel fragmentation manifests in four aspects: 1. Fragmented channel layout; 2. Fragmented channel expansion; 3. Fragmented channel policies; 4. Fragmented channel promotion.
3. Disconnected channels prevent manufacturers from maximizing benefits
We all hope for win-win cooperation between manufacturers and distributors, but in reality, the interests of channel members are often disconnected, with mismatched value orientations and benefit distribution, leading to dilemmas. A seasoning company in Shandong and a distributor in Shanghai were once a model of cooperation, but eventually parted ways due to unequal benefits.
Why is it that when everyone acts in their own self-interest, the results are not maximized? Why do channel conflicts (parallel imports) keep occurring? Distributors want to increase sales to get factory rebates, and other distributors think the same, leading to price erosion within three to four months. These are all manifestations of disconnected channel operations. Without channel control and a connected interest chain, it's easy to erode product benefits and eventually fail.
4. Extensive management fails to meet modern channel demands
Extensive channel operations manifest in benefit-driven natural development, such as using "sales targets, expense ratios, sales rebates, and performance appraisals" to stimulate sales. This approach worked in the early market, but as channels become more refined, lacking a standardized maintenance and management system for channels and terminals is no longer viable. Facing these problems, how should companies and distributors reform their channel systems?
First, shift from single channels to multi-channel diversification. Business sources should be based on channels where target consumer groups frequently appear. Therefore, transitioning from single to multiple channels is key to ensuring competitive advantage. On one hand, manufacturers should closely focus on target consumer groups, laying out and building sales channel systems in all aspects of social life to form a segmented, diversified channel structure, thereby establishing brand competitive advantages. On the other hand, food manufacturers should integrate different channels from a regional operational perspective, building a diversified channel model based on the operational characteristics of each channel.
Evidence shows that many well-known companies' single-channel models are facing challenges. For example, Coca-Cola's "101 model" has seen low enthusiasm and efficiency among 101 partners and wholesalers; Master Kong's deep distribution model once employed over 20,000 salespeople nationwide, but overall profitability was less than 5%; Wahaha's two-tier joint sales model faces significant challenges in expanding into central cities and modern KA systems.
Second, shift from fragmented channels to linked channels. First, manufacturers need to define the roles of different channels in the market to achieve overall synergy among channels. Second, manufacturers can strengthen channel coverage and influence while growing bigger and stronger. Third, companies need to leverage the linkage effects of multiple channel models to achieve more targeted channel operational results.
By integrating the functions of different channel models and linking them according to different market development stages, channel construction can be maximized. (Deep distribution model is applied in the early and middle stages of product launch and market development, proactively lowering the market operation center and starting the market from the terminal; distribution alliance model is mainly used in the development stage of products and market operations, fully utilizing channel resources to achieve efficient and low-cost channel operations; wholesale distribution model is applied in the middle and late stages of market development, using wholesale markets to rapidly expand channel influence after the product has gained momentum.)
Take Yili Group as an example: it uses multiple channel models, including exclusive distribution, second-tier joint sales, distribution station, distribution station + second-tier, direct distribution, and direct + distributor models. Among these, distributor consignment accounts for 2% of total sales, direct terminal distribution accounts for 5%-40%, exclusive second-tier accounts for 10%-40%, and managed second-tier accounts for 45%-20%.
Third, shift from disconnected channels to joint sales. How should manufacturers and distributors view their cooperation? Are they friends, lovers, or spouses? None of these; rather, they should build channel alliances, which is the long-term goal of manufacturer-distributor cooperation. Examples include Wahaha's two-tier joint sales, Coca-Cola's 101 project, and Yinlu's joint intensive cultivation.
Therefore, manufacturers and distributors should position their roles based on the channel value chain and establish strategic cooperative relationships with complementary advantages. A typical example of manufacturer-distributor joint sales is building a distribution alliance, dividing markets into urban, suburban, and county-town areas, and establishing alliance relationships through mutual organizational penetration. This relationship is more conducive to achieving common goals and enables coordinated operations through a sound cooperation mechanism.
Fourth, shift from extensive channel management to refined channel management. Channel refinement involves systematic and standardized management of channels, focusing on eight key areas: 1. Planning of regions, channels, and products; 2. Product mix and inventory management (purchase, sales, and stock); 3. Maintenance of channel price differences; 4. Execution and promotion of sales policies; 5. Distribution speed, item coverage, and regional coverage; 6. Terminal display and visibility; 7. Coordination of regional channel conflicts; 8. Cultivation of customer relationships with distributors and retailers. The significance lies in avoiding overemphasis on results while neglecting the construction of core channel competitiveness.
Currently, distributors often use "vehicle sales" (delivery with sales) to expand business. On one hand, "vehicle sales" is driven by competition among merchants; strong brands require distributors to directly control terminals and increase distribution rates. Distributors compete for customers by delivering goods proactively and offering various promotional and support policies. On the other hand, lower-level channel members have developed habits; county and township wholesalers and retailers face dozens of deliveries daily and have become accustomed to this convenience.
However, this "vehicle sales" model has significant problems in practice: 80% of time is spent on transactional work, and only 20% on business communication, due to unreasonable work patterns and unclear specialization of duties.
Therefore, companies and distributors should adjust the "vehicle sales" model to an "order pre-sale" model. This involves separating business, delivery, and collection into two lines, clarifying sales staff responsibilities, and improving their efficiency. Sales staff duties include new customer development, new product promotion and distribution, obtaining sales orders, and executing promotional activities. The order pre-sale model will drive an effective transformation of the distributor's business model. The future of distributors lies in building channel management platforms, not just logistics and delivery.
In summary, channel linkage is a complex project. Only by thoroughly understanding the characteristics of each channel can breakthroughs be made in channel system construction, thereby achieving rapid growth and development.
(This article is by Zhang Ji, General Manager of Shanghai Zhihui Marketing Consulting Co., Ltd., and a member of the expert advisory group of "Sugar & Tobacco Weekly".)