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Introduction As commercial competition intensifies, after successive waves of advertising wars, promotion wars, CI wars, and price wars, channel construction and competition have become the new focal point in China's market. Some astute operators have recognized dramatic changes in China's distribution channels and have begun investing substantial human, material, and financial resources in channel building and competition. However, in the process of channel construction and management, operators often encounter a concept not found in marketing textbooks—yet one that frequently troubles sales personnel in practice: cross-regional selling (窜货), i.e., selling products outside one's designated territory. This is a common and stubborn marketing problem, also referred to as "dumping goods" or "channel conflict."
A popular view in the market holds: "Sales without cross-regional selling are not thriving; sales with massive cross-regional selling are dangerous." So, what forms does cross-regional selling take in the market? What impact does it have on sales, and how significant is that impact? Where does it originate? How should operators respond to and control it? Below, the author will analyze these questions one by one.
Main Forms of Cross-Regional Selling Cross-regional selling takes many forms. Distributors at different levels of the marketing channel may engage in it, driven by profit, and even branch offices or the company's sales headquarters may do so. Moreover, during the process, various methods are employed, making the manifestations of cross-regional selling increasingly diverse and colorful. In such a dazzling market, operators must see through the fog and clearly understand the forms of cross-regional selling to apply the right remedies.
Based on the different markets where it occurs, cross-regional selling can be divided into two categories: cross-regional selling within the same market and cross-regional selling between different markets.
Cross-regional selling within the same market. A company's marketing channel system is generally structured as manufacturer → general distributor (general agent) → secondary distributor → wholesaler → retailer → consumer, with layers expanding like a pyramid. This channel structure makes cross-regional selling within the same market possible. As long as there are two or more different secondary distributors or wholesalers under the general distributor, cross-regional selling can occur. In the same market, secondary wholesalers are the main culprits. Specific forms include one-way dumping, mutual dumping, and product outflow. For example, suppose there are two secondary distributors, A and B, under a general distributor in a market, with A having a lower-level wholesaler A1 and B having a lower-level wholesaler B1. One-way dumping means A dumps goods to B's downstream B1, or B dumps goods to A's downstream A1. Mutual dumping means A dumps goods to B1 and B dumps goods to A1. Product outflow means A, B, or both dump goods out of that market, allowing products to circulate in other markets.
Cross-regional selling between different markets. This refers to product outflow from one market to another. In different markets, as long as profit margins exist, cross-regional selling can occur. The main participants are general distributors and different branch offices of the same company. General distributors at the same level may dump goods to each other, and different branch offices or salespeople of the same company may also dump goods between markets. For example, suppose there are general distributors A and B in two markets, Region 1 and Region 2, with A having a secondary distributor A1 and B having a secondary distributor B1. The forms of cross-regional selling include: (1) A general distributor in one region dumps goods to a distributor in another region, such as A dumping to B1, which then distributes to B's other downstream, allowing products to circulate in B's market; or the reverse, from B's market to A's market. (2) Mutual dumping, such as A dumping to B1 and B dumping to A1, with the dumped products then distributed through A1 and B1, circulating in both markets. (3) General distributors from different markets dumping goods to each other, such as A dumping to B, or B dumping to A. (4) A general distributor in one market directly distributing to another market, such as A directly distributing to B1. (5) Branch offices or salespeople dumping goods to each other, such as A's branch office or salesperson dumping goods to B's market.
Additionally, due to lax management and the lure of huge profits, headquarters sales staff may also violate regional quota policies and engage in cross-regional selling.
The forms of cross-regional selling are varied, and the methods are also intricate. Common methods include price reductions, increased promotional efforts (such as discounts, gifts, etc.), home delivery, and bundling with popular products.
Types of Cross-Regional Selling Based on different motives and impacts on the market, cross-regional selling can be divided into three types:
Malignant cross-regional selling. This refers to distributors deliberately dumping products into markets outside their own territory to obtain abnormal profits. The most common method is price reduction, mainly selling to non-territory areas at prices lower than those set by the manufacturer. Malignant cross-regional selling causes great harm: it disrupts the entire distribution network's price system, easily triggers price wars, reduces channel profits, causes distributors to lose confidence and enthusiasm, and may eventually lead them to abandon the product. Chaotic prices also erode consumer trust and support for the product and brand.
Natural cross-regional selling. This refers to distributors inadvertently dumping products into markets outside their territory while earning normal profits. This type is inevitable in the market; as long as there is market segmentation, such dumping will occur. It mainly manifests as mutual dumping near the borders of adjacent territories, or in circulation-oriented markets, where products flow to other regions with logistics. If the volume is large, the regional channel price system may be affected, reducing channel profits and dampening the enthusiasm of secondary wholesalers, potentially escalating into malignant cross-regional selling among secondary wholesalers.
Benign cross-regional selling. This refers to a situation where, in the early stages of market development, a company intentionally or unintentionally selects distributors in highly circulation-oriented markets, causing products to flow to non-key or blank markets. In the early stages, benign cross-regional selling is beneficial to the company. On one hand, it increases brand awareness in blank markets without investment; on the other hand, it can increase sales volume and save transportation costs. However, companies should note that the price system in such blank markets is in a natural state, so when they later focus on these markets, they should integrate them again.
Root Causes of Cross-Regional Selling "All under heaven bustle about for profit; all under heaven hustle for gain." After in-depth analysis, it is clear that the causes of cross-regional selling are diverse, but "profit" runs through the entire process. Each member of the marketing channel, as an independent business entity, often disregards channel interests to pursue individual interests, resorting to unscrupulous sales tactics, leading to cross-regional selling. Below, the author will analyze the causes from the perspective of the 4Ps.
Price Price-related causes mainly manifest as a chaotic price system and poor price management.
Chaotic price system. An imperfect price system is one reason for distributors' "cross-territory sales." In business, profit is always the eternal goal of channel members; as long as there is profit, they will be drawn to it. "Three-tier wholesale pricing" is a traditional pricing method used by many enterprises. This price system is ladder-shaped, consisting of general distributor price (ex-factory price), first-tier, second-tier, third-tier prices, plus suggested retail price. Each tier has a certain discount ratio, and this discount becomes the source of profit. If a general distributor sells directly to end-users, they can enjoy the substantial profits from two tiers of discounts. The huge price differences created by this system provide the price space for profit-driven distributors to sell across regions.
Poor price management. Some companies neglect price management. When the company is small or developing new markets, special preferential prices may appear. If these preferential price policies are not well managed, profit-seeking distributors may run wild and dump goods everywhere.
Product Differences in product packaging, quality, and sales conditions also provide opportunities for cross-regional selling.
Product packaging. Uniform packaging for the same product facilitates cross-regional selling, and even if it occurs, it is difficult to distinguish the source, increasing management difficulty.
Dumping of defective and slow-moving goods. Some companies, due to poor after-sales service, accumulate inventory without accepting returns, leaving distributors to handle it themselves. To reduce losses, distributors may sell accumulated, expired, or even spoiled products in popular markets, or dump slow-moving goods from one region to another. Many distributors also use the strong sales force of discounted popular products to drive sales of less popular or high-margin products, leading to cross-regional selling.
Impact of competitive products. When competitive products invade the market, if the company does not respond effectively, distributors face increased difficulty. To maintain sales volume, they may lower prices in their own region and dump goods to other regions. Additionally, for competitive reasons, competing brands may buy off secondary wholesalers to dump their products at extremely low prices.
Distribution and Promotion Channel planning errors. Mistakes in marketing channel planning can cause distributors to be too close to each other or mistakenly create highly circulation-oriented markets, leading to cross-regional selling. Markets compete for more territory to increase sales and profits, resulting in cross-dumping. Also, when launching new markets, companies may let distributors control promotional funds, effectively lowering prices or offering preferential policies, creating price space and leading to cross-regional selling.
Channel incentives. To motivate distributors to sell more and increase market share, companies often offer incentives such as year-end rebates, high commissions, special rewards, and distribution rights. Profit from selling products is the direct and eternal motivation for distributors. Incentive measures are usually based on distributors achieving certain sales targets; the higher the percentage of overachievement, the greater the rewards and profits. This widens the profit space in the original price system. Many distributors, driven by profit, fight for the company. To achieve sales targets and earn high rewards, they may resort to any means to increase sales, such as large distributors selling at cost to undercut smaller distributors who want some profit. Unethical distributors may even sell at a loss to "conquer" other markets, disrupting the orderly market, while they pocket huge rewards and then part ways with the company.
Additionally, some companies blindly set hard sales targets for distributors without considering local market absorption. When the sales task exceeds the market's capacity, distributors consider cross-regional selling. Some companies, to ensure annual targets, push high-performing distributors to increase quotas regardless of their capacity, forcing them to "release water" or even "flood" neighboring markets, causing other distributors to suffer and retaliate, leading to disorderly sales across the market.
Sales Management and Salesperson Professional Ethics Poor sales management. First, some companies suffer from "marketing myopia," focusing only on sales volume and taking short-term actions, neglecting cross-regional selling, failing to detect it in time, and only realizing when it has spread like wildfire. Or they may not deal strictly with offending customers, merely warning, criticizing, or imposing symbolic fines, or even abetting them. This attitude indirectly encourages distributors to engage in cross-regional selling. Second, companies may fail to manage branch office salespeople properly. Some branch offices and salespeople, to meet sales targets, sell products at low prices to adjacent markets. Internal management deficiencies also allow some salespeople to dump goods for personal gain. For example, in many companies, salespeople's income is tied to sales performance, so to earn more bonuses, some salespeople or market representatives may encourage distributors to violate rules and ship goods to other regions.
Salesperson professional ethics. Many cross-regional selling incidents are caused by unethical behavior. For instance, some salespeople, jealous of colleagues' higher bonuses, may secretly encourage distributors to dump goods into those regions to disrupt normal sales order, causing complaints, reduced enthusiasm, and lower sales. Others, planning to switch jobs, may collude with distributors to obtain company support and then dump goods to other regions, causing regional conflicts.
Additionally, distributors' capital shortages and market retaliation can also cause cross-regional selling. Products with strong brand awareness often have strict payment terms; when distributors face cash flow pressure, they may dump goods to other regions to collect payments without disrupting their local price system. Market retaliation is purely destructive and one of the most barbaric acts. For example, if a distributor's interests are harmed for some reason, they may use cross-regional selling to damage the other party's market, especially when changing distributors.
Controlling Cross-Regional Selling In summary, cross-regional selling is harmful and has diverse causes. To solve this stubborn problem, companies can adopt strategies based on the causes to effectively curb it.
Product Strategy Regional differentiation in packaging. Using different packaging for the same product in different regional markets can help control cross-regional selling to some extent. Measures include: (1) Product code system: print a unique code on both inner and outer packaging for each sales region. In 1997, Gree implemented barcodes to restrict regional sales and control product flow. (2) Color differentiation of trademarks: use different colors for the same product's trademark in different regions while keeping other identifiers unchanged. (3) Text labeling: print "Exclusively for sale in [region]" on the outer packaging. Packaging differentiation allows accurate tracking of product flow, making distributors hesitant to dump goods, and even if it occurs, the company can trace the source, providing evidence for handling incidents. Thus, packaging differentiation gives manufacturers the initiative in monitoring and solving cross-regional selling.
Allow returns and share risks with distributors. To prevent distributors from dumping slow-moving or accumulated goods at low prices, companies should establish a risk-sharing system that allows returns under certain conditions.
Price Strategy Companies should establish a complete and fair price system. A chaotic and incomplete price system is a major source of cross-regional selling. When setting prices, companies can classify distributors into general distributors, secondary wholesalers, and tertiary retailers, and set corresponding prices: general distributor price, ex-factory price, wholesale price, group wholesale price, and retail price. While ensuring each level earns appropriate profits, companies should set strict prices based on the distributor's sales targets and control profit margins at each level to prevent distributors from bypassing certain levels and engaging in cross-regional selling.
Promotion Strategy Set realistic marketing goals. When promoting, companies should set realistic goals and maintain a steady business style. After researching the market and assessing resources, set achievable goals, avoiding shortcuts like huge prizes, mass sales tactics, or advertising blitzes.
Develop sound promotional policies. Promotional policies should provide sustained incentives to prevent the situation where dumping occurs during promotions and sales stop when promotions end. Policies should coordinate relationships between manufacturers and general distributors and among general distributors, creating an equal environment. Reward measures should consider reasonable promotional goals, moderate rewards, timing, strict redemption procedures, and market monitoring to ensure the entire promotion is under control.
Good after-sales service. As technology matures, product differentiation decreases, and service becomes a new competitive focus. Comprehensive after-sales service can enhance relationships among manufacturers, distributors, and customers, fostering distributors' sense of responsibility and loyalty. Such good relationships can help control cross-regional selling, as distributors are unlikely to damage these relationships through dumping.
Distribution Strategy Complete exclusive distribution policies. The key is legal completeness. Policies should clearly define cross-regional sales and include corresponding constraints with legal effect. Also, consider related price and rebate policies.
Exclusive distributor system and regional sales companies. Exclusive distributors sell only one brand. This system aligns distributor and manufacturer interests, increasing enthusiasm and loyalty, and facilitating market feedback. Guangzhou Liby Group's rapid product promotion and sales growth in Guangdong market benefited from its exclusive distributor system established in its early days. Regional sales companies are asset-linked, brand-based entities that bind manufacturers and distributors' interests to achieve price and service self-discipline. In 1997, Gree established the first Hubei Gree Sales Company in Wuhan, with Gree holding 200 million yuan (controlling stake) and four other distributors each investing 160 million yuan. This unique professional sales channel was later replicated in Hunan, Hebei, Chongqing, and Sichuan, stabilizing Gree's product prices, maintaining brand image, and steadily increasing market share.
Enforcement Strategies Agreements. Use contracts to constrain general distributors' market behavior. Since network managers and distributors are equal legal entities, management cannot be hierarchical; it must rely on "general distributor contracts." Include a "no cross-regional sales" clause to strictly limit distributors' sales to their own regions. Also, internal agreements among salespeople can prevent dumping.
Penalties. Impose penalties on general distributors who engage in cross-regional sales, ranging from warnings, suspension of advertising support, cancellation of year-end rebates, to revocation of distribution rights, depending on severity. This serves as a deterrent. Additionally, link performance evaluations to cross-regional selling incidents.
Establish trade associations. A trade association can be formed by all distributors in each region. Distributors pay membership fees (for association operations) and agree to mutual supervision, with reward and penalty measures that include cross-regional selling in evaluations. Liby and Gree have both adopted trade association systems to control and prevent cross-regional selling.
Sales Team Building and Management The sales team is the guarantee and foundation of marketing success. To prevent salespeople from engaging in cross-regional selling, strengthen team building and management. First, strictly implement recruitment, selection, and training systems. Select the best candidates and provide comprehensive training. Second, create a culture that fosters talent development, respecting, understanding, and caring for employees, and providing career development plans to enhance their sense of achievement and loyalty. Third, establish a fair performance evaluation and reward system to truly reward the diligent and punish the lazy. Fair evaluations increase fairness, and reasonable compensation controls costs while retaining talent. Finally, establish an effective elimination mechanism to weed out underperformers and identify true talent.
Conclusion From the classification of cross-regional selling, not all forms are harmful, and not all need to be controlled. In the early stages of development, when market share is low and a dominant brand controls the market, moderate cross-regional selling—i.e., under control—can help increase market share. For minor incidents, companies may simply monitor them without immediate action; sometimes problems resolve themselves, and overreacting may backfire. Two markets with poor sales dumping goods to each other may not be bad, as distributors in such situations often invest heavily and use various competitive means, potentially turning things around and increasing market share. However, it is crucial to maintain a "degree" and keep the situation fully under control; otherwise, the consequences may be undesirable.
For malignant cross-regional selling, the harm is enormous; in severe cases, it can destroy the marketing network built with great effort. Therefore, such incidents must be clearly understood, studied seriously, and handled promptly, using steady market operations to tame this wild horse.
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