Generally, channel joint ventures in the FMCG industry led by manufacturers follow a four-in-one model: manufacturer-distributor-sub-distributor-retailer. However, in market operations, there is also a more 'alternative' channel joint venture model led by channel members at various levels. How do they operate? Let's explore their specific operational models.

Channel Joint Venture Led by Primary Distributors This model is typically adopted by distributors of small and medium-sized enterprises that have weak market control. Due to the manufacturer's 'inability' to effectively combat cross-regional selling, product dumping, and low-price sales, some awakened primary distributors are forced to spontaneously unite to 'fight side by side' for maximum distribution profits.

For example, in a certain city in Shandong, five primary distributors of a beer manufacturer, after suffering from price chaos, product dumping, and cross-regional selling while the manufacturer failed to manage effectively, finally had to 'link up' and establish a 'Market Protection Alliance' with a pact. The pact stipulated that any cross-regional selling discovered would result in the confiscation of the offending party's products as a penalty. Through the alliance of these five primary distributors, not only was market order maintained, stabilizing channel price differences and profits, but when facing competitors' price wars and transparent secondary distributor prices with no profit, they decisively united to raise prices, increasing profit margins for secondary distributors and retailers. After a period of adjustment, product sales not only did not decline but also increased rapidly, satisfying all channel members and benefiting the manufacturer as well.

In a primary distributor-led joint venture, the following key elements are often essential:

  1. When the manufacturer cannot be relied upon, a primary distributor with certain influence must take the lead to 'form an alliance' to work together for the common interests of all.
  2. Teamwork to combat violations. For violations such as cross-regional selling and product dumping, a single market entity may find it difficult to manage effectively, but if primary distributors unite and 'act together', their power can be strong and serve as a deterrent.
  3. This alliance can be either loose or tight. A loose alliance often uses the manufacturer as a 'matchmaker', with deposits paid to the manufacturer to supervise whether members 'stray'. A tight alliance often involves primary distributors establishing an 'alliance' organization with fixed office locations and personnel, similar to a 'United Nations', conducting systematic market operations, patrolling the market, providing feedback, and combating violations to ensure healthy market development. A primary distributor-led channel joint venture sometimes resembles a chamber of commerce, not only maintaining market order but also uniting to increase bargaining power with the manufacturer, achieving two goals at once and maximizing benefits.

Channel Joint Venture Led by Sub-Distributors This model is increasingly widely used in the FMCG industry, especially in the food sector. Due to disorderly market competition and the advent of the micro-profit era, manufacturers have to compress channel links and 'flatten' market operations. As a result, some forward-thinking sub-distributors seeking rapid growth have adopted a 'grand alliance' development model to broaden their horizons, innovate profit models, and enhance profitability.

For example, a instant noodle manufacturer in a mature market not only set up primary distributors but also implemented a 'township agency system' to better penetrate the market and block competitors. Since the manufacturer's products were bestsellers, to prevent dumping and cross-regional selling, the manufacturer regularly organized sub-distributor symposiums or social gatherings. These sub-distributors, who often exchanged ideas and communicated, later had a brainstorm and decided to establish a 'Sub-Distributors Federation', electing a credible president to lead the work. The federation not only maintained market order and worked with the manufacturer to deepen and refine the market but also leveraged resource complementarity and horizontal cooperation. That is, they jointly promoted other products they represented through the federation, sharing a portion of the sales profits, thereby achieving a 'leveraging' effect.

Key points for operating a sub-distributor-led channel joint venture include:

  1. Distributors must ensure 'even-handed' treatment in terms of price, promotion, and channel policies, avoiding favoritism that could sow the seeds for cross-regional selling and dumping.
  2. Sub-distributors should consolidate their fragmented efforts to strengthen their collective power, combat violations, and deter individual non-compliant or speculative sub-distributors, leaving those who violate market order isolated and eventually forcing them to return to compliance.
  3. Emphasize teamwork and leveraging. If an individual sub-distributor violates the 'rules of the game', the alliance must mobilize everyone to 'attack collectively' and quickly eliminate negative impacts. Additionally, by leveraging team strength, sub-distributors can share information, exchange resources, sell products together, and share profits. In a sub-distributor-led channel joint venture, sub-distributors should learn to play two cards: the manufacturer card and their own card. Only by holding these two cards tightly can sub-distributors use the manufacturer card to build their image and their own card to make money.

Channel Joint Venture Led by Retailers Joint procurement is perhaps one of the most eye-catching business phenomena in recent years. In fact, joint procurement is also a form of terminal channel joint venture. A retailer-led channel joint venture is where, driven by interests, large supermarkets, KA stores, and other retailers 'network' together to secure the most favorable market position and maximum benefits.

For example, a large food store and two other large supermarkets in the same city jointly procured different product categories from a manufacturer, obtaining the most favorable prices and expanding their profit margins. At the same time, they also adopted unified pricing for regular bestsellers and jointly combated low-price selling, ultimately achieving a win-win situation for both the manufacturer and retailers and maintaining good market order.

Retailers are the end of the channel and the closest to consumers. Therefore, a retailer-led channel joint venture must pay attention to the following operational points:

  1. Joint negotiation is essential. A single tree does not make a forest, and one palm cannot clap. Strong alliances among retailers can enhance their bargaining power, pressure manufacturers when appropriate, reduce procurement costs, raise competitive barriers, and secure maximum preferential policies, ultimately achieving a 'group buying' effect that increases their profit levels.
  2. Joint action. Retailer alliances can not only unify selling prices but also adjust prices collectively, such as raising prices, and jointly combat bad market behaviors like low-price dumping, thereby protecting everyone's common interests.
  3. Differentiated operation. Retailer alliances also facilitate information sharing and mutual improvement, especially in differentiated operations. Through alliances, they can achieve staggered operations, avoiding falling into the quagmire or vicious cycle of price wars.

A distributor-led channel joint venture is essentially a horizontal alliance among channel members, aiming to protect common interests, combat violations, and achieve resource complementarity and channel sharing. In fact, no matter which type of channel joint venture, it must have common principles and treaties, as well as common standards and actions. Only then can the interests of the joint venture be guaranteed, and the joint venture can exist and develop sustainably.

Source: Cui Zisan Marketing Vision -END-