This article is reprinted from the public account: Sugar Tobacco Weekly Food Edition What is a channel? A channel refers to the sales process in which a product flows from the manufacturer to the end consumer, commonly known as the distribution channel. Channel profit is the most important means to drive product flow Because distributors seek to maximize profit while hoping for minimal sales volume; manufacturers seek to maximize profit while hoping for maximum sales volume. The two are a contradictory community. From the distributor's perspective, low profit leads to a lack of enthusiasm for market development, which in turn affects the manufacturer's product market share growth. Therefore, enterprises need to set a reasonable profit distribution ratio to meet the profit needs of various channel environments with good market services. Only then can new product promotion proceed smoothly. Reasonable channel profit setting can solve the problem of whether customers "accept" the goods and whether they "actively" sell after accepting them. No matter how good the product's selling points are, if customers do not accept the goods, they will only rot in the enterprise's warehouse; if customers accept the goods but do not actively promote them, the product will be unsalable in the customer's warehouse. There are some empirical principles for setting channel profit:

  1. Generally speaking, when the channel profit of a new product is at least 1.5 times that of a best-selling product, channel customers have the enthusiasm to promote the new product. 2. Channel profit requirements vary by region. The per-unit profit requirement for first-tier distributors south of the Yangtze River is more than 1.5 times that of first-tier distributors north of the Yangtze River. 3. Profit requirements also differ by channel type. Special channels (schools, prisons, mining areas, etc.) have higher profit requirements than conventional channels due to their resource monopoly. 4. If your enterprise is a second-tier brand, then the channel profit set by the enterprise should be 1.5 times higher than that of first-tier brands. Only then will second-tier distributors have enthusiasm. Many enterprises make a mistake here: they survey and find that well-known brands allow second-tier distributors to earn 3 yuan, so they also let second-tier distributors earn 3 yuan. Is that okay? Absolutely not. Others are well-known brands, easy to promote, so there is no reason to promote your second-tier brand. To set channel profit, first determine two indicators: selling price and cost. After determining the selling price and cost, allocate the gross profit based on the length of the channel. The success of Master Kong's instant noodle business can be attributed to many reasons, but one important one is the reasonable setting of channel profit. To stabilize channel prices and protect channel customer profits, Master Kong has set a reasonable channel price system for its instant noodle business. _For example, for a box of Braised Beef Noodles, third-tier customers purchase from the factory at 24.5 yuan, and sell to second-tier at 24.5 yuan, but the company gives a rebate of 0.4 yuan per box; second-tier customers purchase from the factory or distributor at 24.5 yuan per box, and sell to first-tier at 25 yuan per box, with a per-box profit of 0.5 yuan; distributors and 2.5-tier distributors purchase from the factory at 24.5 yuan per box, and sell to second-tier at 24.5 yuan, but the company gives a rebate of 0.2 yuan per box; according to this price system, channel customers at all levels coexist peacefully and operate normally. _ _Under this channel profit guarantee, as of the end of December 2008, Master Kong had 552 sales offices and 84 warehouses nationwide, serving 5,872 distributors, 69,096 direct retail stores, and 970,000 retail outlets. _ However, when Master Kong promoted mineral water, there were obvious problems in channel profit setting, resulting in Master Kong being "first-tier brand, second-tier price, no channel profit" in that field. _Before 2013, Master Kong's mineral water had a national retail guide price of 1 yuan per bottle, with very low profit margins. Not long ago, I went to a province for research and found that Master Kong's mineral water, which had been in a monopoly position a few years ago, had withdrawn from the local market. The fundamental reason was that there was no channel profit, and it was abandoned by distributors and second-tier distributors. _ _With low gross profit and no money to be made, channel customers are unwilling to act as agents, and even if they do, no one is willing to actively promote. Without active promotion, the product will inevitably die in the channel merchant's warehouse. In such a situation, Master Kong adjusted product gross profit in the future, making the mineral water bottles thinner and thinner, so that when you hold them, the bottles feel soft. As a result, it took another "bad move," damaging the product image of Master Kong's mineral water, and still not solving the channel profit problem. Ultimately, this product did not contribute profits to Master Kong for several consecutive years. _ This is the trouble caused by unreasonable channel profit setting. On the contrary, I have observed that in recent years, a dark horse has emerged in the functional beverage market—Heika—which has done well in channel profit setting. _Objectively speaking, Heika's product is a follow-up and imitation of Red Bull. The only difference is that Heika's can is black, while Red Bull's can is red; Heika's price is also the same as Red Bull, with a terminal price of 6 yuan per can. However, because Heika's cost and sales expenses are lower than Red Bull's, the set channel profit is very high, so it was welcomed and sought after by many distributors upon launch. Driven by high channel profits, distributors, second-tier distributors, and even retailers were very enthusiastic, and all members of the entire channel worked hard to promote it. As a result, within one year, Heika entered large national supermarkets such as Walmart, Carrefour, and Hualian, and also appeared hot on shelves in county and township terminal markets, as well as special channels like internet cafes and game halls. _ _Thus, Heika's successful promotion naturally became a matter of course. _ To a large extent, an enterprise's channel control capability plays a decisive role in increasing product sales. Channel profit setting should not be too high or too low. If it is too high, a product worth 5 yuan is sold for 8 yuan, and consumers will not buy it; if it is too low, distributors will not be enthusiastic. This article is excerpted from the new book "Focus" by Wang Guanqun, President of Beijing Yingxiaoli Enterprise Consulting Management Co., Ltd. The book is on sale at Dangdang, Amazon, Taobao, and JD.com, as well as at major airports, high-speed rail stations, and bookstores nationwide. 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