---
title: "Is the Deep Distribution Model About to Become a Thing of the Past?"
description: "This article, excerpted from Shi Wei's book 'Deep Distribution', discusses the concepts of interventionist and non-interventionist distribution, the conditions that gave rise to deep distribution in China, its operational key points, and the emerging equilibrium model between manufacturers and distributors in the post-deep-distribution era."
author: "施炜"
publisher: "New Distribution"
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published: "2018-12-16"
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# Is the Deep Distribution Model About to Become a Thing of the Past?

> This article, excerpted from Shi Wei's book 'Deep Distribution', discusses the concepts of interventionist and non-interventionist distribution, the conditions that gave rise to deep distribution in China, its operational key points, and the emerging equilibrium model between manufacturers and distributors in the post-deep-distribution era.

Excerpted from Shi Wei's book *Deep Distribution*

> **01 Interventionist and Non-Interventionist Distribution**

"Intervention" and "non-intervention" first refer to manufacturers. "Non-intervention" means that the manufacturer does not do what is "within the distributor's scope." "Intervention" refers to the manufacturer influencing the distribution channel. It has two forms: **First, participating in or undertaking functions that should belong to the distributor.**

According to the general principle of division of labor between manufacturers and distributors, manufacturers primarily conduct market promotion and product sales support, while distributors mainly engage in sales activities such as payment collection and logistics. However, in the case of "intervention," the manufacturer not only does "Marketing" but also "Sales"—doing a lot of work within the "sales" category, such as jointly formulating retailer stocking and payment plans with distributors, and even collecting payments from retailers. Second, it crosses the distribution level, establishing relationships with retailers and directly managing retail terminals.

Most companies that choose "interventionist" distribution are local enterprises. This is partly because sometimes there is an asymmetry in capabilities between manufacturers and distributors, and the quality of distributors does not meet the requirements of upstream manufacturers, forcing manufacturers to "intervene." On the other hand, channel push has particularly important strategic significance for local manufacturers, and only by "intervening" can they feel at ease. In addition, the harsh competitive reality tells manufacturers that without controlling retail terminals, they have no advantage, and even lack the basic conditions to compete.

From another perspective, "intervention" or "non-intervention" actually reflects different positioning of the role and function of distributors.

Clearly, if distributors are positioned as "supportive" and "intermediate," the manufacturer adopts "interventionist" distribution (of course, the degree of intervention varies); if distributors are positioned as "all-around," the manufacturer chooses "non-interventionist" distribution. Within the overall framework of distribution models, manufacturers have broad space and high flexibility in their specific choices and practices. This is why channel strategies that align with the external environment and internal characteristics of the enterprise have special and important significance.

"Intervention" and "non-intervention" also apply to distributors. **If distributors extend their service and management tentacles into the downstream retail field and integrate into downstream retail activities, they are "intervening"; otherwise, they are "not intervening."**

"Intervention" or "non-intervention" reflects the different strategic intentions of distributors and also reflects the level of operational connotation and service content of distributors. Taking the medical distribution industry as an example, most pharmaceutical distribution companies serve hospitals and retail pharmacies, merely having platform functions—payment collection and warehousing and distribution. A few pharmaceutical distribution companies, however, have begun to attempt deep cooperation with hospitals, such as managing hospital pharmacies.

> **02 The Soil for Deep Distribution**

Deep distribution is an effective marketing model for many well-known consumer goods companies and brands in China to develop the local market, and it is a powerful booster for the rapid growth of some emerging enterprises.

In recent years, due to problems such as high investment and difficult management exposed in practice, some friends have raised questions about whether these models are necessary, whether they can exist long-term, and whether they are suitable for small and medium-sized enterprises. In my view, deep distribution will still have vitality for a considerable period in the foreseeable future because it is a product of China's special market environment and a model of "Chinese-style" marketing based on national conditions.

Now, let us briefly summarize the main characteristics of the local consumer goods market:

> Vast territory, large population; high consumer density;
>
> Market is multi-dimensional, with many levels from developed large cities to underdeveloped rural areas;
>
> Rich consumer segmentation; many consumers have low rationality and knowledge;
>
> Low concentration of retail and distribution; unstable distribution patterns; uneven channel quality;
>
> Over-competition; price wars are common; destructive competition emerges one after another;
>
> Many industries still have numerous brands, low industry concentration, and small brands rise and fall;
>
> Market order is chaotic; both manufacturers and distributors have non-standard market operations;
>
> Advertising bombardment, dense information, rich event marketing, and vigorous in-store promotions;
>
> Fierce terminal competition; terminal construction escalates; terminal investment remains high;
>
> Product "concepts" change rapidly, and industry imitation effects are significant.

These market characteristics force Chinese local enterprises to explore unique marketing strategy combinations that are effective in the local market. For example: they need to pay dual attention to "pull" and "push" for products; they need to develop and utilize high-quality channel resources and manage channels more effectively; they need to maintain market order and interest patterns, improve channel satisfaction and enthusiasm; they need to effectively control retail terminals, enhance terminal competitiveness, ensure effective "outflow" at the "small sluice gates," and block competitors; they need to be rooted at the grassroots level, extending control over channels (distribution and retail) and communication to third-, fourth-, and fifth-tier markets; in communication, they need to be close to and integrate with customers, conduct intensive communication, deepen relationships with customers, guide and influence customers; and so on.

> **03 Key Operational Points of Deep Distribution**

Deep distribution is a product of the times, an adaptation to the characteristics of local market competition, and a response to the requirements of local market competition—only by competing in this way can one win. Based on the above strategy combination, the key operational points of deep distribution are:

**First, divide into small distribution areas (moderately "small"):** In cooperation with social distributors, reduce the radiation radius of distributors (agents/dealers) to the prefecture and county level. In the mode of self-established or holding regional sales organizations, set up dense regional sales organizations (such as prefecture-level companies or business departments).

**Second, flatten the channel length, and adopt direct operation (direct supply) or semi-direct operation (direct supply) as much as possible.**

**Third, strategically determine the channel mix at both the distribution and retail levels to ensure and enhance the overall efficiency of the channel system.**

**Fourth, serve retailers, fully manage retail terminals; intercept customers at retail locations; continuously activate terminals to maintain terminal heat.**

**Fifth, reasonably arrange the combination of logistics, business flow, and information flow**; the circulation value chain operates in a pull mode based on retail terminal orders; according to terminal customer needs, deliver frequently and in small batches with agility; increase the speed of the circulation value chain.

**Sixth, dynamically adjust channel interests at each level and maintain a reasonable interest pattern**; by regulating market order, prevent vicious and disorderly competition from impacting channel interests.

**Seventh, deepen relationships with channels to form channel barriers**—blocking competitors from high-quality channels.

**Eighth, relying on retail terminals, following the concept of "marketing battles are decided outside the store," expand the scope of "the scene" to anywhere customer traffic flows (squares, communities, etc.), and through various proactive marketing activities and events, fully mine and divert traffic.** Such a structured, holistic market cultivation model has the following main characteristics: first, it emphasizes channel controllability and controls the circulation value chain. Second, it connects with consumers, and market operations touch the deep parts of the market. Third, it involves strict and detailed market management. Fourth, it is labor-intensive marketing with a large number of personnel.

From an operational perspective, deep distribution has many difficulties. Among them, there are two main challenges: First, deep distribution means intensive market development and operation, which will inevitably increase the difficulty of managing the marketing team. In other words, only enterprises that can build, manage, and control a large marketing team can implement deep distribution. Second, deep distribution requires significant resource investment, but if the investment does not bring corresponding output, it loses its meaning. That is, through market cultivation, one must produce results.

It is precisely because of these two difficulties that true practitioners of deep distribution are few; those who succeed often become market leaders.

> **04 Manufacturer-Distributor Equilibrium in the Post-Deep-Distribution Era**

In recent years, successful domestic manufacturers in the fast-moving consumer goods and consumer electronics fields almost all share a common feature: they penetrate and extend into the distribution field, conducting market operations and management autonomously. They either set up regional sales organizations broadly and deeply, replacing social agents, directly supplying retailers and managing retail terminals; or they limit the functions of agents to a certain scope (such as as capital and logistics platforms), directly controlling and serving retail terminals.

At the same time, they divide market operation and management areas into smaller units, build large-scale marketing organizations and teams, and conduct meticulous market development. This is the deep distribution analyzed earlier in this chapter, which is well-known to people.

Deep intervention in the distribution field is a powerful weapon for domestic manufacturers to rapidly increase their market share advantages, a source of their marketing advantages, and a Chinese skill that many foreign enterprises cannot match. It is premised on the asymmetry of capabilities between manufacturers and channels, relying on the manufacturer's strong channel network management capabilities, human resource management capabilities, and corporate culture integration capabilities.

However, judging from the recent experiences of some domestic enterprises in industries such as home appliances, mobile phones, daily chemicals, and food, the deep distribution model has encountered many problems:

First, as competition intensifies and product prices decrease, manufacturers find it difficult to sustain high sales expenses over the long term;

Second, as channel scale expands and capabilities improve, the efficiency of manufacturers' own marketing organizations often cannot match that of professional distribution enterprises;

Third, the huge scale of marketing personnel almost exceeds the boundary of manufacturers' management capabilities.

For more mature enterprises that have reached a certain sales scale and market share, "deep distribution" may still be effective (some costs have already been amortized in the previous high-profit era), but it is difficult for new entrants and small and medium-sized enterprises with limited resources to continue using it.

Currently, besides deep distribution, the manufacturer-distributor equilibrium division of labor model shows certain advantages. Its main features are:

**First, carefully grasp the width of direct supply.** Adapt to the evolution and structural adjustment of the distribution industry, especially the retail industry, and conduct direct supply transactions with some retail giants; but at the same time, carefully determine the width of direct supply, with a large number of retailers and outlets still covered and managed by dealers (agents). At the same time, the manufacturer's business personnel still maintain effective management and provide appropriate services to major retail terminals.

**Second, cultivate channel partners.** Manufacturers and channel partners cooperate in a balanced manner, and manufacturers no longer undertake excessive distribution functions; what dealers/agents can do well is left to them; if social resources can be utilized, do not overstep. Correspondingly, do not blindly reduce the scale and operating area of dealers/agents, and do not weaken the functions of dealers/agents. On the one hand, re-emphasize cooperation with large dealers/agents (under the previous "deep distribution" model, manufacturers usually cooperated with small and medium-sized dealers or agents in small areas); on the other hand, commit to professional training and guidance for channel members.

**Third, build a professional and relatively lean team.** The manufacturer's regional market management institutions and personnel scale are controlled within a certain range; it is not about quantity but quality, striving to build a professional, high-quality, and relatively lean marketing team. Through a high-quality team, coupled with policy levers and management tools, manufacturers effectively drive sales.

**Fourth, maintain flexibility in market operation models.** The manufacturer-distributor equilibrium division of labor model is characterized by the ability to advance or retreat. "Advancing" means extending to deep distribution, while "retreating" means adhering to the division of labor between manufacturers and distributors. When and where to "advance" or "retreat" can be determined based on objective market environment, competitive requirements, and the manufacturer's own resource conditions. The problem with deep distribution is that it is easy to "advance" but difficult to "retreat"; once personnel are reduced and positions are contracted, it is likely to affect sales momentum and existing advantages.

It should be pointed out that the manufacturer-distributor equilibrium division of labor model cannot be considered a transcendence of deep distribution. To some extent, it is an evolution of deep distribution: achieving the same effect but utilizing more social resources. For many small and medium-sized enterprises, it is a suboptimal choice because they are unable to implement deep distribution due to capability limitations. Overall, the manufacturer-distributor equilibrium division of labor model is more suitable for foreign brands with strong product strength.

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