---
title: "How to Completely Eradicate the Chronic Problem of Channel Diversion?"
description: "Channel diversion is often described as a cancer or chronic disease affecting product sales and survival, with companies imposing heavy fines for violations. However, despite strict measures, diversion persists. This article categorizes diversion into three types and ten situations, and proposes principles and measures for distributors to control it, emphasizing understanding causes, turning blockage into guidance, and building strong market control."
author: "李红权"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2016-10-26"
language: "en"
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---

# How to Completely Eradicate the Chronic Problem of Channel Diversion?

> Channel diversion is often described as a cancer or chronic disease affecting product sales and survival, with companies imposing heavy fines for violations. However, despite strict measures, diversion persists. This article categorizes diversion into three types and ten situations, and proposes principles and measures for distributors to control it, emphasizing understanding causes, turning blockage into guidance, and building strong market control.

> **Introduction:**
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> It is often said that channel diversion is a cancer, a chronic disease, for product sales and even product survival. Every company places paramount importance on controlling diversion; some even impose fines as high as over one hundred thousand yuan per incident. But what is the result? No matter how strong the governance by any manufacturer, diversion still surrounds every company's products and never disappears.
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> **The Origin of the Chronic Disease**
When we talk about channel diversion, we cannot generalize; we must distinguish. Some diversion is unintentional and non-malicious, caused by low distribution coverage or untimely distribution by manufacturers and distributors. Sometimes it can even have unexpected effects, such as stirring up the market for a product through diversion. Of course, there is also the malicious diversion we deeply detest, such as erasing codes or altering dates, using every possible means, disrupting the normal sales chain. Based on actual conditions, channel diversion mainly falls into the following three types:
**1. Unintentional drifting goods, diversion in adjacent areas.**
1) Because in county-level markets, townships are adjacent to each other, natural economic circles form due to geographical reasons.
For example: In the Liaocheng area bordering Henan and Shandong, many county seats are deep in the hinterland of Puyang, Henan. Additionally, since Henan often holds temple fairs, people from Shandong habitually attend these fairs in neighboring Henan townships, leading to cross-regional product flow.
2) Bringing goods while purchasing, especially by terminal merchants and large wholesalers. To stabilize downstream customer relationships, they deliberately sell some big-brand products at low prices.
3) During festivals or manufacturer-led promotional bundles, such as buying alcohol and getting beverages free, due to the large discount or regional restrictions on alcohol differing from beverages, cross-regional diversion can occur.
However, these diversions are generally not large in volume, typically between 10 and 50 cases. Even if terminal merchants bring in diverted goods, they usually do not sell them at low prices. The impact on the product is relatively small and within controllable range.
**2. Manufacturer layout, product backflow trend;**
1) Manufacturer-led. In some underdeveloped or newly developed markets, manufacturers actively divert goods from better-performing surrounding markets to stir up the market and increase consumer attention to the product.
2) Excessive promotional activities by the manufacturer create large inventories for distributors, leading them to divert goods at low prices to clear stock.
3) High task pressure from the manufacturer leads salespeople to orchestrate goods diversion to boost performance.
**3. Malicious competition, price-cutting diversion.**
This is the most headache-inducing diversion for manufacturers and distributors, mainly divided into the following three types:
1) Diversion due to product price differences. For example, if the manufacturer's ex-factory price is not uniform between local and national markets, it easily causes diversion. Or if policy intensity is not uniform, and the price difference exceeds 2%, the profit from diversion becomes very attractive;
2) Manufacturer changes clients, or malicious diversion between clients. If the manufacturer manages strictly, they complain about each other, leaving the manufacturer unsure how to handle it. If the manufacturer's control is lax, they might even try to eat into each other's markets, causing chaos and unrest;
3) Diversion between secondary wholesalers. Due to conflicts with local distributors, they maliciously divert goods, often seen in code erasure, low-price sales, etc.
4) Diversion or dumping by competitors that violates sales principles is not discussed here.
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> **Principles for Treating the Chronic Disease**
For treating this chronic disease, we must grasp several principles, generally **from simple to complex**. First, distinguish the causes of diversion and tackle them one by one according to established methods; second, turn blockage into guidance, reasonably guide, and use it for our benefit. As distributors and manufacturers, we should know that our first priority is to make money, to earn profit, not to show off or make enemies. There are no permanent friends, only permanent interests; this saying is most apt for the relationship between terminal merchants and distributors in diversion. I have seen a distributor and a terminal merchant argue fiercely over diversion, but once the peak season arrives, the terminal merchant flatters the distributor with "brother" or "sister" to get some goods. Products sell well and are profitable; terminal merchants understand this better than anyone. The reason they divert your goods is that you don't offer enough profit or they want more conditions you haven't agreed to. In market business, there is always a "jianghu" (community with its own rules). Since it's a jianghu, there are jianghu rules. We don't need to be polite to terminal merchants who don't follow the rules.
**1. Distinguish causes and break them down according to principles;**
Combining the origins of the chronic disease above, whether manufacturer or distributor, when handling diversion, the three types and ten situations listed above must be addressed. Be sure to grasp the following three principles, distinguishing causes and treating them differently.
1) Iron fist, compassionate heart; Whether manufacturer or distributor, when handling diversion by first-tier merchants or second-tier wholesalers or terminal merchants, you must understand: we are running a business, not politics. So no matter how decisive the measures, communication and explanation must be thorough, so that the diverting first-tier merchants, second-tier wholesalers, and terminal merchants fully understand;
2) Cut the Gordian knot quickly; better to resolve than to prolong enmity. Many things are not unclear, but the parties are unwilling to resolve them clearly, complicating matters through delay, waiting, and reliance. They drag in irrelevant issues like low profits, unredeemed rebates, insufficient policies. At this point, whether manufacturer or distributor, stay calm, understand the real reasons, handle quickly, and provide a solution. Don't get entangled; entanglement only delays the market and misses opportunities;
3) Publicize small matters widely, handle big matters quietly. Handle diversion that manufacturers and distributors can control seriously and announce it widely so that everyone in the channel knows diversion is not allowed. The core is that manufacturers and distributors can control the situation; you are indeed facing a small matter. For big matters, handle quietly; large-scale diversion of thousands of cases cannot be solved by simply canceling accounts or fines, nor should it be widely announced. Only cold treatment can turn big matters into small ones, and small ones into nothing, because big diversion must have reasons. Manufacturers and distributors should reflect on whether their products and policies are adequate.
**2. Turn blockage into guidance, reasonably guide, and use it for our benefit;**
We have heard some teachers often say, "Execute immediately," and for diversion, it must be executed immediately. I believe in actual market operations, this can be said but never done. The result of immediate execution is not solving the problem but intensifying conflict. For manufacturers, eliminating a distributor or second-tier wholesaler might not be a problem, but for a distributor, daring to cut off a second-tier wholesaler or terminal is like bringing fire to oneself. The correct method should be to turn blockage into guidance, find the root cause of diversion, prescribe the right remedy, and guide reasonably. Customers who divert goods often have large sales volumes or wide distribution channels. We can solve this by dividing products, allocating channels, etc., rather than just executing immediately. Simple and crude problem-solving will be reciprocated with simple and crude market results: withdrawal from the market.
**3. Diversion also has its jianghu; in jianghu, follow jianghu rules.**
The currently airing TV drama "Chinese-Style Relationships" well illustrates jianghu. In domestic FMCG business, there is jianghu. Even abroad, where systems and regulations are very clear, there is jianghu; you can refer to "House of Cards." I remember management guru Peter Drucker said in an interview: China's problems are best solved by the Chinese themselves; no matter how profound Western management is, it cannot solve Chinese guanxi (relationships) and relationship studies. If we analyze carefully, why do terminal merchants dare to divert your goods? It must be because your channels are not extensive enough, your control is weak, you lack supervision mechanisms, and your momentum is not strong, with limited product lines and insufficient bargaining power. So the jianghu rule is that the boss is the boss; the boss must have high sales and lead the pack. The boss must have good sales service and personnel maintenance; otherwise, you are not following jianghu rules, and naturally things become more complicated.
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> **Build High Walls, Dig Deep Moats, and Stockpile Grain (Distributor's Control Measures)**
I remember a common saying on TV: "It's not that our army is incompetent, but the enemy's firepower is too fierce." This is a big joke; the key to testing our army is precisely whether we can withstand the enemy's fierce firepower. If everything could be defended without improvement, why would we need salespeople? Therefore, as distributors, regarding diversion, we must: first, build fences and walls; second, dig deep moats and lay lines; third, stockpile grain, and the key is to compete with strength!
**1. Build fences and walls to cut off the hands of diversion;**
When I visit markets, many distributors ask me how to cut off the hands of diversion. My answer is simple: the reason for diversion is not others but yourself; flies don't bite seamless eggs. Also, don't view diversion pessimistically; diversion indicates the product has a hot-selling trend, profit, and selling points. What hot topic does a product no one cares about have? Who would divert your goods? Therefore, build your fences well, ensure reasonable channel profits, maintain personnel and customer relationships, and keep network files and inventory records clear. No one will easily divert your goods because everything is under your control.
**2. Dig deep moats and lay lines so diversion has no return;**
Many diversions occur because our channel penetration is insufficient. If others have no goods to sell without diversion, why wouldn't they divert? This reminds me of Wahaha's joint sales system back then, where each township had a high-quality core terminal partner. This partner not only maximized distribution using their local network but also played a role in industry monitoring. Information such as which manufacturer introduced new policies, which terminal was about to dump goods, where temple fairs were happening, etc., flowed continuously back to the first-tier distributor and the manufacturer, leaving no blind spots. This was one of the reasons Wahaha rapidly expanded and became successful.
**3. Stockpile grain; only through strength comparison can we know who is king.**
Controlling the market ultimately comes down to strength. If you are weak and rely on the manufacturer to stand up for you; if the manufacturer is weak and rely on the association to stand up for you; those are hopeless. Only by becoming strong yourself, with ample grain in the barn and sufficient funds in the accounts, can you handle diversion easily, whether it's the three types and ten situations.
-END-
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