In consulting practice, I often encounter salespeople and super salespeople who, with the confidence of having seen through the market and the well-meaning condescension of 'you theorists must not understand distributor psychology,' say to me: 'Distributors are purely profit-driven.'
Whenever I meet such 'naive rabbits,' I respond with equally 'well-meaning' questions: The profit that distributors seek has 108 forms, do you know them? For example, profit rate, total profit, as a tool for developing retail outlets—in short, 108 forms. How many do you know? You don't know, right? So, 'how much profit margin to give distributors' cannot be decided by you. Let's look at two cases first.
Case 1: Xifeng, Quanxing, Taibai. Five years ago, I followed a team as a consultant for Xifeng liquor. Through meetings with the sales department's major executives and visits to major operators, I learned the following: (1) Xifeng's sales were very large; (2) Xifeng had been losing money for a long time; (3) The original leader in the Northwest market was Quanxing. When Quanxing raised prices, several hundred distributors switched to Xifeng. Xifeng, despite losses, accepted them gladly; after Huazhi acquired Taibai and raised prices, Taibai's distributors flocked to Xifeng in large numbers, and Xifeng accepted them again—still at a loss. So Xifeng ranked first in sales but suffered losses.
Case 2: After Hengda Ice Spring lowered prices. Promotions at major supermarkets basically stopped—both distributors and the manufacturer had no room for promotions. Meanwhile, brands like Baishuishan and Nongfu Spring launched aggressive terminal activities. Consumers love bargains and follow promotions. Hengda lost out by lowering prices.
The surface problem for the four companies in the above two cases is: giving distributors high profits may lead to company losses; giving low profits may cause distributors to defect, or at least leave no room for promotions.
But this is only the surface. If we stop at such superficial analysis, marketing would be equated with sales, and marketing consultants would be reduced to general managers—ha ha (just joking).
Let me build a four-quadrant model: the horizontal axis is price, and the vertical axis is the change in distributor cohesion, capturing all phenomena and causes.
How much profit to give distributors?
Standing on the high ground, let's see how to choose 'how much profit to give distributors'!
(1) Lower profit rate, increase cohesion.
This is the opposite path from Quanxing and Taibai: when distributor profit rates are lower, loyalty actually increases, and channel cohesion strengthens.
Principle: Distributor profit rate is inversely proportional to consumer value, and the 'price-demand' elasticity is high; so distributor profit rate is inversely proportional to total distributor benefits. Therefore, lowering distributor profit rates actually increases distributor benefits.
Successful examples: P&G, Master Kong, and other international brands.
Mainland companies generally don't understand this principle—am I underestimating mainland companies?
(2) Lower profit rate, lower distributor cohesion.
Quanxing fell from the national second place overnight this way. The Shahe liquor I served also had such a tragedy.
Principle: Unwilling to slowly lose money, they gamble everything and are wiped out. If not slowly losing in silence, then perish together in resistance. Simply and crudely raising prices without knowing how to handle the consequences. A fight to the death. The vast snowfield is truly clean.
(3) Higher profit rate, but cohesion actually declines.
The most impressive case is Shi Yuzhu's last gamble in health products in his early years.
Concessions to mobilize enthusiasm.
Office managers and distributors interpreted it as 'the last supper' and 'Shi Yuzhu's residual value.'
Shi Yuzhu's last capital was squandered by channel partners.
In his later reflection article, Shi Yuzhu focused on this point. Later, his Zhengtu, Naobaijin, Huangjin Dapei, Huangjin Jiu, and all his products targeted the ugly side of human nature.
I think the shadow left by that last blow from channel partners must be one reason.
I set my heart on the moon, but the moon shines on the ditch.
The feeling of being betrayed is indeed unpleasant.
The essence of the problem is still core competence. When core competence is insufficient to unite distributors, concessions not only fail to turn the tide but also induce the 'last grab' of kicking someone when they're down.
(4) High profit rate, strong distributor cohesion.
This is the consensus of mainland Chinese companies. I want to remind that brands with high distributor profit rates can never be bestsellers or long-term sellers.
Finally, answer based on my 'model': How much should you give distributors?
Zeng's Price Strategy
The basis of pricing is the four 'strategies' illustrated in my model.
Some companies give distributors 10%, and merchants are overjoyed; others give 40%, and merchants are passive or even betray. Why?
If 'low price means waiting to die, raising price means immediate death,' how should you respond?
In the Shaanxi market back then, Quanxing and Taibai forcibly raised prices, resulting in a total collapse and immediate suffocation.
When Xu Lao took over Xifeng, his unshakable principle was to raise prices. In his first month, he raised the minimum wage of frontline workers from 300 to 900. The townspeople felt亲切 when they heard our Sichuan dialect—'You Sichuan people are good, workers' wages are higher'—merchants' business improved—then he turned to distributors to 'make up the difference.'
Why did Xifeng's distributors, who had defected from Quanxing and Taibai due to price increases, not defect again because of Xifeng's price increases? Was it just because the increases were gradual and not painful? Or did Xifeng have a 'brand power escort' mechanism?
Luzhou Laojiao Tequ rose from 48 to 228, non-stop, with so little resistance. What happened to the distributors?
Who has seen the 'cannon fodder group' around Laojiao Tequ? What contribution did they make to Laojiao's 'price breakthrough'?
Moutai and Wuliangye are good at building advantages through price increases. Their major pillar distributors are eager for Moutai and Wuliangye to raise prices, as their interests are closely tied, and price increases do not affect their benefits. But where is the ceiling?
One manifestation of 'brand power' is 'premium pricing ability.' If brand power is limited, there is a ceiling to price increases.
The responsibility of a company's flagship product is to 'create space for the cannon fodder group.' If raising prices sacrifices sales volume, one must calculate the trade-off of 'losing at sunrise, gaining at sunset.'
Master Kong is good at building advantages without raising prices. Over the past 30 years, prices have changed slowly, the industry balance point has shifted gradually, dragging competitors to death, ensuring its 'evergreen foundation.'
Why can both raising prices and not raising prices succeed?
Or is raising prices seeking death, and not raising prices waiting to die slowly?
What is the logic behind it?
Answer: The different principles of the four quadrants.
Hot Discussion
@Li Xuecheng: What is a reasonable profit rate for distributors, sub-distributors, and terminal retailers? Professor, continue your in-depth research. What is a reasonable ratio for reference? Some merchants say 30% is not enough to survive, while others are satisfied with 10%. There is no standard. I remember Kazuo Inamori mentioned a business management principle about reasonable profit. It seems to be 15% net profit. More is excessive profit, less means the company cannot sustain development. Gross profit depends on the company's management level. Companies with high management levels have low operating costs, which translates to reasonable markup space in the market, giving them market competitiveness.
@Guo Ye: I agree with @Li Xuecheng. Companies are like people, all different; no two companies are exactly alike. So strategies must be tailored to individual circumstances. In this era, there are very few universal laws.
@Wang Wenqiang: The same brand has different products for different distributors and consumer groups; it's no longer one product conquering the world. It's also about product segmentation, channel segmentation, consumer segmentation, and interestingly, distributor and sub-distributor segmentation—not to mention pricing. 15% is an average range, a general statement, not targeted. Coverage products can achieve 5% profit, profit-support products can achieve 10% to 20%, brand spearhead products can control profit at a minimum of 15% and a maximum of 25%, and for high-brand products, 30% is not high. The overall combination forms a price ladder, which is a guiding behavior model in applied consumer behavior. Additionally, high value-added, high-profit products achieve intervention effects on target groups. This dual penetration of consumer minds completes the consumer behavior.
@Zeng Xiangwen—Marketing Management Consulting: Everyone is discussing phenomena; my model is about principles. Some companies give 10% and merchants are overjoyed; others give 40% and merchants betray. The same low price—loss. Why did Xifeng's gradual price increases succeed, while Quanxing and Taibai collapsed when they raised prices? What systematic support does a price increase require? How to evaluate Xifeng's initial loss-making takeover and then systematic support for price increases? Moutai and Wuliangye are good at building advantages through price increases, while Master Kong is good at building advantages without raising prices. The underlying 'industry—business format—core competence.'
Source: Liquor Marketing (ID: jlyx9999)
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