---
title: "How Can Distributors Profit from the Lower-Tier Market of 1 Billion Consumers?"
description: "Many well-known brands are expanding into lower-tier markets to achieve new growth, while distributors face channel expansion demands. On February 20, several guests shared insights on how distributors should respond, focusing on cost challenges and role division between brands and distributors."
author: "New Distribution"
publisher: "New Distribution"
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published: "2023-02-25"
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# How Can Distributors Profit from the Lower-Tier Market of 1 Billion Consumers?

> Many well-known brands are expanding into lower-tier markets to achieve new growth, while distributors face channel expansion demands. On February 20, several guests shared insights on how distributors should respond, focusing on cost challenges and role division between brands and distributors.

Currently, many well-known brands are expanding into lower-tier markets to seek new breakthroughs in growth. At the same time, distributors are facing channel expansion requirements from these brands. How should distributors respond? On February 20, during the 'FMCG Fengtan' hosted by Li Feng, a mentor for distributor growth, several guests shared their views on the topic 'In 2023, major brands are expanding into lower-tier markets; how should distributors respond?' This article only summarizes some viewpoints. For detailed content, follow the [Li Feng New Distribution] video account to watch the replay. To not miss future content, you can also click the link below to reserve the next live broadcast.

**The hardest part of brand expansion is cost**
Undoubtedly, whether for brands or distributors, the primary challenge in expanding into lower-tier markets is cost, as cost accumulation leads to reduced profits. Gao Jingjing, General Manager of Beijing Guoyingjian Economic and Trade Co., Ltd., also highlighted cost as the first issue. Why can't brands 'sink' into lower-tier markets? She believes the key is cost: if costs cannot be covered, the market cannot be penetrated. Therefore, distributors and brands should carefully assess costs.

**First, the profit issue.** Distributors face high costs when serving terminal stores, including delivery, backend, and salesperson salaries. If brands can jointly calculate these costs with distributors, channel expansion is feasible. Currently, brands implement a nationwide unified strategy, but cities differ; brands should set different standards for different cities. On the consumer side, first-tier city consumers prefer top brands, but second-tier brands may not sell well even after expansion.

**Second, the fulfillment issue.** Currently, no brand distributor in Beijing achieves 100% fulfillment coverage of every terminal store because the average order value is low. With low profits, salesperson costs can eat up 30%-50% of profits. Add logistics and other costs, and fulfilling a single SKU to terminal stores becomes very expensive unless distributors handle multiple SKUs. To expand downward, cost issues must be addressed. How? Gao Jingjing offers some practical solutions from industry experience.

**First, clarify salesperson income.** Gao believes that in cities with high living costs, salespeople must be able to survive; this is a survival issue. If salespeople clearly know their earnings based on sales and basic actions, they will perform well.

**Second, dynamic incentives for delivery drivers.** Drivers on fixed salaries lack motivation; adopt a 'more work, more pay' incentive. When delivering, consider the value per box and the driver's daily route (e.g., starting at 8 AM, visiting 30 stores). Calculate fixed and variable wages based on cost, with no upper limit, ensuring drivers earn 20-30% above industry average.

**Third, establish a secondary distribution network.** This allows orders to be assigned to nearby distributors, solving the last-mile delivery problem and achieving channel expansion. But how to quickly deliver orders to terminal stores? Gao suggests focusing on the sales team's actions and salesperson performance assessments to improve logistics fulfillment speed. If the scale is large enough, the marketing team, operations team, and expenses must be aligned, which requires attention to price scale and team matching, avoiding blending channel and market strategies into the price system.

**Fourth, increase revenue and reduce costs, and improve efficiency.** Gao suggests that when SKU volume reaches a certain level, distributors can build a B2B platform to educate consumers to buy top brands and products, and have customers and store owners place orders on the B-side platform, reducing salesperson order-taking time and allowing them to focus on securing prime positions and new product launches. Salespeople can also use a combination approach, offering multi-brand products to stores, promoting online order maintenance, and maintaining profit-sharing between brands and salespeople, ultimately reducing costs and enhancing core competitiveness. Without a combination approach, single products depend on brand strength, sell-through rate, and price stability; if the gross margin for actual fulfillment to terminals is 15%-20%, the lower-tier market can be done well.

When discussing costs, Gao mentions facing market realities and returning to rationality, solving profit-sharing issues between distributors and brands without blame-shifting, and addressing profit-sharing for salespeople and basic staff.

**Play your respective roles**
In the new channel era, how to capture the market? Two key roles: brand and distributor. In this live discussion, Gao Jingjing and Su Danbing, Deputy General Manager of Xi'an Ice Peak Beverage Co., Ltd., both emphasized the importance of role division.

Gao believes that brands and distributors need multi-faceted cooperation and coordination. Both should play their roles well, jointly develop the market, expand regions, and spend money wisely, because the market is not driven by a single role but by joint efforts.

As distributors, control return rates and discrepancy rates, provide flexible solutions. For example, if a distributor wants to launch new products, take a series of actions to promote sales. Terminal stores and salespeople must ensure effective distribution of gross and excess profits, and avoid product expiration.

As bosses, give salespeople a certain income, and when sales exceed a threshold, allow them to share excess profits. Additionally, to help salespeople understand each store's situation, providing drivers with more resources is necessary. The benefits: first, drivers can supplement when salespeople have issues; second, drivers know the stores and are familiar with supply; third, drivers can participate in consolidation, splitting hundreds of stores into several routes to complete tasks faster, benefiting manufacturers, distributors, and drivers. This way, drivers and distributors get their due rewards. Also, drivers' work and income can be reasonably compensated based on daily capacity and workload.

Regarding the brand's role, Gao shares that brands should give distributors some leeway to achieve optimal market results. Su Danbing, as a brand, believes brands can conduct overall product analysis, such as identifying which channels have sales opportunities and which sales scenarios increase sales, then provide solutions and share them with distributors.

**Communication between brands and distributors is crucial.** Su believes that when distributors expand into lower-tier markets, maintaining communication with brands, especially marketing and brand departments, is very important. First, distributors can obtain information from brands; close communication can gain support in methods, cases, and resources. Second, good communication is a key channel to understand the company's development intentions, allowing distributors to participate in planning early and try forward-looking strategies to stay ahead in competition.

Su emphasizes that the end of the product is the consumer. Distributors should always pay attention to market changes and think about where opportunities lie and how to respond when channels and markets change.

**Final thoughts:** In the stock competition of first- and second-tier cities, FMCG industry growth and profits are slowing. Lower-tier markets have become the new market for the FMCG industry. With rural revitalization and the vast county-level market, it is both a challenge and an opportunity. When distributors and brands face lower-tier markets, the primary issue is cost. How to align personnel, logistics, and fulfillment is a key consideration and a must-solve problem for distributors.

At the same time, in a modern society with refined division of labor, cooperation and communication should be a consensus. Brands and distributors should communicate within their respective roles, allowing information to flow and problems to be solved, and calmly respond to the lower-tier market.


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