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Intrusive and Non-Intrusive Distribution
"Intrusive" and "non-intrusive" first refer to manufacturers. "Non-intrusive" means the manufacturer does not do what is considered the distributor's "job." "Intrusive" means the manufacturer influences the distribution field. It has two forms: First, participating in or undertaking functions that should belong to the distributor.
According to the general division of labor between manufacturers and distributors, manufacturers mainly conduct market promotion and product sales support, while distributors mainly engage in sales activities such as payment collection and logistics. However, in the "intrusive" case, the manufacturer not only does "Marketing" but also "Sales"—doing a lot of work within the "sales" scope, such as jointly formulating retailer stocking and payment plans with distributors, and even collecting payments from retailers. Second, it crosses the distribution level, establishes relationships with retailers, and directly manages retail terminals.
Mostly local enterprises choose "intrusive" distribution. This is partly because sometimes the capabilities of manufacturers and merchants are asymmetric, 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; 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, or even lack the basic conditions to compete.
From another perspective, "intrusive" or "non-intrusive" actually reflects different positioning of the role and function of distributors.
Obviously, if distributors are positioned as "auxiliary" and "intermediate," the manufacturer adopts "intrusive" distribution (of course, with different degrees of intervention); if distributors are positioned as "all-round," the manufacturer chooses "non-intrusive" distribution. Under the overall framework of distribution models, manufacturers have broad space and high flexibility in specific choices and practices. Because of this, channel strategies that fit the external environment and internal characteristics of the enterprise have special and important significance.
"Intrusive" and "non-intrusive" also refer to distributors. If distributors extend their service and management tentacles into the downstream retail field and integrate into downstream retail activities, then they are "intrusive"; otherwise, they are "non-intrusive."
"Intrusive" or "non-intrusive" reflects the different strategic intentions of distributors and also reflects the level of business connotation and service content of distributors. Taking the medical distribution industry as an example, most pharmaceutical distribution companies face hospitals and retail pharmacies, having only platform functions—payment collection and warehousing and distribution—while a few pharmaceutical distribution companies have begun to try deep cooperation with hospitals, such as managing hospital pharmacies.
The Soil for Deep Distribution
Deep distribution is an effective marketing model for some famous consumer goods enterprises and brands in China to develop the local market, and it is a strong booster for the rapid growth of some emerging enterprises.
In recent years, because deep distribution has exposed problems such as high investment and difficult management in practice, some friends have raised questions about whether these models are necessary, whether they can exist for a long time, and whether they are suitable for small and medium-sized enterprises. In my view, deep distribution will still have vitality for a considerable period of time 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; relatively high consumer density;
Three-dimensional market, with many levels from developed big 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;
Excessive competition; price wars are common; "destructive" competition emerges one after another;
Many industries still have numerous brands, low industrial concentration, and small brands rise and fall;
Market order is chaotic, and both manufacturers and merchants have non-standard market operations;
Advertising bombardment, dense information, rich event marketing, and in-store "shows" are in full swing;
Fierce terminal competition; terminal construction escalates; terminal investment remains high;
Product "concepts" switch rapidly, and industry imitation effects are significant.
These market characteristics force local Chinese enterprises to explore unique marketing strategy combinations that are effective in the local market. For example: pay dual attention to product "pull" and "push"; need to develop and utilize high-quality channel resources and manage channels more effectively; maintain market order and interest patterns, improve channel satisfaction and enthusiasm; need to effectively control retail terminals, enhance terminal competitiveness, ensure effective "small sluice gates" discharge water, and block competing products; need to be rooted at the grassroots level, extending channel (distribution and retail) and communication control to third, fourth, and fifth-level markets; in communication, be close to and integrate with customers, conduct intensive communication, deepen relationships with customers, guide and influence customers; and so on.
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 this way can one win. Based on the above strategy combination, the key operational points of deep distribution are:
First, divide small distribution areas (moderately "small"): Under the cooperation model with social distributors, narrow the radiation radius of distributors (agents/dealers) to the prefecture and county level. Under the model of self-established or holding regional sales institutions, set up dense regional sales institutions (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 control 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 agile distribution; increase the speed of the circulation value chain.
Sixth, dynamically adjust the interests of each link in the channel to maintain a reasonable interest pattern; prevent vicious and disorderly competition from impacting channel interests by regulating market order.
Seventh, deepen relationships with channels to form channel barriers—shielding competing products from high-quality channels.
Eighth, relying on retail terminals, following the concept of "marketing battle is decided outside the store," expand the scope of "the scene" to anywhere customer traffic exists (squares, communities, etc.), and fully exploit and divert traffic through various proactive marketing activities and events. 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 has strict and detailed market management. Fourth, it is labor-intensive marketing with many 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, control, and manage a huge 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.
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 institutions 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 the areas for market operation and management into smaller units, build large-scale marketing organizations and teams, and conduct intensive cultivation of the market. 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, and relies 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, it is difficult for manufacturers to sustain high sales expenses for a long time;
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 forces and small and medium-sized enterprises with limited resources to continue using it.
Currently, besides deep distribution, the balanced division of labor model between manufacturers and distributors 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 sales personnel maintain effective management of major retail terminals and provide appropriate services.
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, let them do; what social resources can be used, 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 leverage and management tools, the manufacturer effectively drives sales.
Fourth, maintain flexibility in market operation models. The characteristic of the balanced division of labor model is that it can advance or retreat. "Advancing" means extending to deep distribution, and "retreating" means adhering to the division of labor between manufacturers and distributors. When to "advance" or "retreat," and where to "advance" or "retreat," can be determined based on factors such as the 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 balanced division of labor model cannot be considered as surpassing deep distribution. To some extent, it is an evolution of deep distribution: achieving the same effect but making more use of social resources. For many small and medium-sized enterprises, it is a second-best choice because they cannot implement deep distribution due to capability limitations. Overall, the balanced division of labor model is more suitable for foreign brands with strong product power.
Source: Teacher Shi Wei's book "Deep Distribution"
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