What is channel diversion? It is a way for distributors to boost year-end performance; an abnormal means for secondary wholesalers to make profits; a malicious act by customers to retaliate against manufacturers; and a method some offices tolerate to develop new markets. In fact, the greatest harm is destroying the manufacturer's lifeline—the price system.
The highest level of curing disease is to treat it before it occurs. Therefore, companies should first establish a reasonable price system to ensure reasonable profits for distributors, sub-distributors, secondary wholesalers, circulation outlets, KA stores, restaurants, and special welfare points. Set your own game rules and make participants willing to accept them. At the same time, without rules, nothing can be accomplished. Defend these rules so that customers at all levels can steadily increase sales, earn reasonable profits, and build the brand together.
To manage channel diversion, first examine the manufacturer's own operations. Some channel-specific activities inadvertently become the driving force behind diversion. For example, offering escalating rewards for distributors' purchases of the same product encourages customers with strong capital and channel strength to buy in large quantities, gaining a larger profit margin than other regions, and then undercutting neighboring areas to gain more profits. Manufacturers should avoid such activities as much as possible, or change the gifts to other sub-brand products or non-market-circulating products.
When preparing for price increases or peak season stockpiling, manufacturers should scientifically set purchase limits for distributors based on the average monthly sales of the previous period, the same period last year, and this year's sales growth rate, to avoid customers blindly hoarding large quantities and then selling off inventory at low prices during the off-season. Pay attention to safe inventory levels for customers at all levels during peak and off-seasons. If abnormal purchasing occurs, analyze the reasons and manage dynamically to avoid triggers for diversion.
The sales pressure on office managers leads them to create differentiated channel activity intensity, thereby tolerating distributors' low-price attacks on neighboring areas for their own benefit. Company leaders should strictly review each region's activity plans, examine them from a global perspective, and coordinate to prevent such opportunities.
Distributors' unscientific management of secondary wholesalers often leads to violating the price system to secure large orders from them. The secondary wholesaler link is the weakest in maintaining the price system. They often operate as passive wholesalers with low costs, making it highly likely they will dump goods at low prices. Therefore, companies should guide distributors to scientifically manage secondary wholesalers, such as controlling their profits, raising supply prices, and providing periodic rebates for normal sales behavior to fully leverage their distribution role. Additionally, urban distributors should minimize reliance on secondary wholesalers, intensively cultivate terminal customers, and control the retail price system to ensure smooth product sales.
Terminal customer management should be based on the product's attributes for reasonable placement. Some products need to maintain a reasonable distance; if too close, price wars may occur. The frustrated party may proactively source goods from neighboring areas and engage in low-price competition. Company management must be swift and timely: quickly investigate the source of goods, seal off the upstream, communicate with local distributors to take back the goods, negotiate with both stores, and straighten out the price system. At the same time, provide support in various activities such as display rewards, storefront production, return and exchange support, and weekend promotional activities. This makes customers feel the strength and reliability of formal manufacturer and distributor management. Reinforce the rules, flexibly combine persuasion and enforcement, with the core being not to affect the overall situation, and highlight the strength and determination to maintain the price system.
During the peak season for gift-giving, the market is huge, and reciprocal gift-giving can cause some households' stock to exceed consumption for a certain period. Therefore, after the holiday, individuals may sell at low prices outside supermarkets, or terminal customers may take advantage to buy at low prices, creating hidden dangers to the market price system. The price system for the welfare channel should be set relatively high, generally close to retail prices in supermarkets, to widen the price difference for disposal, reduce the impact on the price system, and quickly recover individual products being sold off to maintain market stability.
Some manufacturers like to use their main products for bartering in raw material purchases or construction projects, which is extremely dangerous. The party receiving the goods will, beyond their own welfare, cash out by dumping the products at low prices to secondary wholesalers or terminal outlets, causing prices to collapse and the market to weaken. It is recommended that these manufacturers use non-market-specification products or second-tier brand products for bartering to avoid damaging the price system themselves.
For strong products, manufacturers should try to collect deposits from distributors to create a deterrent effect. In the distribution agreement, detailed regulations on channel diversion should be established, with varying degrees of punishment based on the quantity and maliciousness of diversion, up to termination of the contract. At the same time, guide distributors' thinking to operate the market healthily and earn stable, continuously increasing profits—that is the right path.
Regional markings and hidden codes on products are the first evidence for investigating diverted goods. Manufacturers should change hidden codes irregularly, and for those with high suspicion of diversion, mark them with special hidden codes to target management, strengthen control, and handle issues quickly to protect the stability of the price system.
When developing new markets, distributors should be separated. If confident in management, use mutual referrals among distributors to develop adjacent areas. In this way, if diversion occurs, they will resolve it amicably among themselves, and the manufacturer can pretend not to know. Subduing the enemy without fighting—advance customer layout can solve many diversion risks.
Rapid market development can easily cause early customers to fall behind and have their distribution areas reduced or contracts terminated. Manufacturers should appeal to emotion and reason, consider their self-esteem, and handle previous accounts reasonably and quickly. At the same time, be prepared for customers' low-price retaliation, quickly coordinate distributors to take back goods, and strictly order surrounding distributors to clear the field and prevent releasing goods.
Channel diversion management emphasizes the manufacturer's own standardized management, dynamic customer layout management, and quick and decisive problem handling. Only with strategy, planning, management, and execution can the price system remain stable and the market develop steadily in the long term!!
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