---
title: "Manufacturer-Dealer Conflicts? It's Your Business Cooperation Model That's the Problem!"
description: "Cooperation with dealers is an unavoidable part of business operations, and its importance directly relates to the transfer and realization of commercial interests. Despite the necessity of manufacturer-dealer cooperation, conflicts are common, stemming from mismatches in business models and values, which can be resolved through effective integration of both parties' business models."
author: "张戟"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2018-06-05"
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# Manufacturer-Dealer Conflicts? It's Your Business Cooperation Model That's the Problem!

> Cooperation with dealers is an unavoidable part of business operations, and its importance directly relates to the transfer and realization of commercial interests. Despite the necessity of manufacturer-dealer cooperation, conflicts are common, stemming from mismatches in business models and values, which can be resolved through effective integration of both parties' business models.

Source: Condiment Business Circle (ID: twpsq0909)

Cooperation with dealers is an unavoidable part of business operations. The importance of dealers to a company directly relates to the transfer and realization of commercial interests.

A company that finds the right dealer is halfway to success, while failing to find the right dealer often leads to failure, and vice versa for dealers.

Despite the necessity of manufacturer-dealer cooperation, conflicts are common in every partnership, leading to many ups and downs. Here, Condiment Jun aims to explain not the conflicts themselves, but where the conflicts between manufacturers and dealers lie, hoping to find the root causes and resolve them.

**1**
**The Divergence Points Behind Manufacturer-Dealer Conflicts**

To understand the root of manufacturer-dealer conflicts, it is necessary to understand the respective views and interests of both parties, thereby unraveling the crux:

**1. Companies' Views on Manufacturer-Dealer Conflicts**

**▶ 1. Dealers only ask for support from the company but are unwilling to invest their own resources:**

Companies cooperate with dealers mainly to leverage their resources and capabilities to expand the market. To maximize profits, most dealers continuously seek support policies from the company, thereby reducing their own investment risks.

What companies are dissatisfied with is not that dealers request support, but that after receiving support, they do not invest jointly. In the company's view, market expansion is a joint effort; if the manufacturer invests resources, the dealer should also invest. However, some dealers operate the market mainly with manufacturer-provided resources, unwilling to invest themselves, which weakens market expansion efforts and is unacceptable to the company.

**▶ 2. Dealers are short-sighted, directly converting obtained policies into price reductions:**

Many dealers have extensive but crude management styles, accustomed to attracting customers with low prices. When they receive support policies from the company, they often use them for price reductions rather than channel building.

Since companies typically provide support in the form of physical rebates, dealers can directly convert these rebates into price cuts to attract customers to stock up. However, this disrupts the company's pricing system, easily leading to cross-regional selling (channel stuffing), and leaves no resources for market expansion and maintenance, which is detrimental to the brand's healthy development.

Thus, companies view these dealers as short-sighted, focusing only on immediate gains, and not truly helping the company expand and maintain the market.

**▶ 3. Dealers rely on existing platforms and are unwilling to change for the company:**

When cooperating with dealers, companies usually hope for full cooperation, including not only resource investment but also strengthening and adjusting the dealer's capabilities and business model.

However, dealers typically operate based on existing experience and platforms. When companies ask them to strengthen capabilities or adjust business methods, dealers are often unwilling due to the significant changes and investments involved. This affects the company's market expansion, making companies resentful of dealers' lack of progress, yet helpless.

**▶ 4. Companies have limited resources and cannot invest too many personnel to assist dealers:**

Currently, in manufacturer-dealer cooperation, dealers understand that they cannot rely solely on themselves and need strong company support, including not only policies but also professional sales personnel. Some dealers even prefer to become pure logistics distributors, expecting the company's sales staff to handle market expansion and maintenance.

Companies are troubled because, with limited resources, most cannot allocate sufficient sales personnel to assist every dealer; otherwise, the sales team would be enormous, with disproportionate input-output and increased management difficulty.

Therefore, companies hope dealers will strengthen their own sales teams rather than overly rely on company-provided sales support, but often dealers cannot do so, leaving many companies inadequately supported in the market.

Conversely, how do dealers view companies' performance?

**2. Dealers' Views on Manufacturer-Dealer Conflicts**

**▶ 1. Companies always want dealers to invest more but lack subsidies:**

From the dealer's perspective, they already face significant pressure, with rising market operation costs and tight resources. Yet companies still want them to invest more, which is not their wish.

They believe market investment should primarily come from the company. If the company is conservative and relies mainly on dealers, the market cannot be done well.

Indeed, some dealers are very diligent in promoting manufacturer products because the company provides adequate expense subsidies, allowing them to focus on market expansion without worries.

**▶ 2. Companies do not provide dealers with sufficient professional support:**

As markets become increasingly complex, market operation difficulty rises. For dealers handling multiple brands, it is unrealistic to be highly professional in each brand, requiring professional support from the company's sales team.

What dissatisfies dealers is that many companies fail to provide professional sales guidance, including market strategy, product planning, channel planning, expense planning, and promotion plans, leaving dealers to rely on their own experience, which naturally yields poor results.

Therefore, many dealers pay close attention to the professional support a company can provide when taking on products. They are not afraid of spending more but fear being ignored by the company.

**▶ 3. The company's share in the dealer's turnover is too low to warrant much investment:**

Some dealers believe they cannot be fully committed to certain companies because their sales volume is too small, accounting for a low proportion of the dealer's total turnover. They are unwilling to invest too many resources and energy in these companies.

Dealers also have limited resources and seek maximum resource utilization efficiency. If a company's share in their total turnover and profit is low, it is hard to motivate them. Additionally, if the company itself lacks sufficient support and assistance, it becomes even harder to gain the dealer's attention.

**▶ 4. Dealers lack sufficient capability to help companies expand the market:**

Dealers come in different types, each with its own strengths in business models and capabilities. If a company's requirements do not align with their current business model, they are unwilling to change. For example, asking a wholesale-type dealer to expand into supermarket channels is difficult because wholesale-type dealers lack sufficient sales personnel and would need to invest heavily in building customer relationships and maintaining channels.

Moreover, operating supermarket channels requires professional capabilities. For a wholesale-type dealer to do so often means significant effort and resources for transformation, which most dealers shy away from.

From the above views of companies and dealers on manufacturer-dealer cooperation, it is clear that the mismatch in business values and business models is the root cause of conflicts. Both parties usually hope to expand the market according to their own ideas.

However, business cooperation is complex because each partner has different interests. Every manufacturer and dealer hopes to cooperate in a way that maximizes their own interests. In this context, finding the balance point of interests to the greatest extent determines the smoothness of cooperation. Without a balance point, conflicts are inevitable; the greater the imbalance, the greater the conflict. This requires both parties to consider issues from the other's perspective, not just their own needs. A thorough understanding of each other is key.

**2**
**The Root of Manufacturer-Dealer Conflicts Lies in Differences in Business Models**

In the business world, pursuing profit is natural, but the ways to obtain profit vary. The amount of profit is only superficial; the difference in business models is fundamental. Companies should not focus solely on the amount of profit dealers make but on how they make it.

Although every company guides dealers through profit, if the method is unreasonable, it will not produce the desired results. Therefore, companies must look beyond the surface of profit, delve into the dealer's business model, and uncover deeper interest needs.

Different dealer business models involve the company's distribution of interests and cooperation models. Only by recognizing this more deeply can companies avoid the trap of a "zero-sum game" between manufacturers and dealers.

**1. Types of Dealer Business Models**

When cooperating with dealers, companies often neglect studying the dealer's business model. Many conflicts arise from a lack of understanding of dealers. Therefore, companies need to analyze the characteristics of dealer business models to prescribe the right remedy.

Overall, dealer business models can be divided into the following types:

**1. Wholesale Distribution Type:**

The business model of wholesale distribution dealers has the following main characteristics:

> • Pursues short-term profits; every transaction must be profitable; unwilling to make long-term investments
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> • Low-price driven, fast turnover, pursuing quick in and out, immediate profit realization; not demanding high gross margins but requiring fast turnover
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> • Cross-regional sales to expand scale, even resorting to cross-regional selling (channel stuffing) to achieve goals
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> • Does not undertake market expansion functions; prefers to operate mature products
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> • Does not bear product operation risks and does not focus on sustainable operations
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> • Usually a family business, lacking corporate operational structure
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> • Lacks hardware for company operations, mostly transferring costs to customers
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> • Traditional and conservative mindset, unwilling to accept change
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At the same time, wholesale distribution dealers can be further divided into two types in practice:

**One is the sit-down wholesaler**, who sells products in bulk through the agglomeration effect of wholesale markets, using the wholesale market as the trading venue, not actively expanding the market, and not delivering goods to customers.

**The other is the traveling wholesaler**, who uses the agglomeration effect of wholesale markets to sell products in bulk, transacting by delivering goods to customers, but not actively expanding the market and lacking business expansion capabilities.

**2. Logistics Distribution Type:**

The business model of logistics distribution dealers has the following main characteristics:

> • Pursues stable operations, unwilling to bear significant risks
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> • Main business model is providing product distribution, warehousing, and fund settlement
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> • Not limited to the agglomeration effect of wholesale markets; actively expands customers
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> • Attracts customers through service and reasonable gross margins
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> • Operates within the local market, no cross-regional sales
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> • Pursues stable sales scale and gross margins
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> • Mostly operates mature products that can circulate naturally, not undertaking market expansion for the company
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> • Has necessary hardware facilities such as vehicles and warehouses
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> • Has some sales and delivery personnel, but corporate operation level is not high
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**3. Direct Terminal Supply Type:**

The business model of direct terminal supply dealers has the following main characteristics:

> • Directly faces end users or customers, without intermediate links
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> • Pursues high gross margins, with sufficient expense space to operate channels
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> • Does not face open commercial channels but targets channels and customers with special needs
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> • Expands business by building interpersonal relationships, with strong closure
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> • Pursues higher operating gross margins, not sales scale
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> • Focuses on risk control; limited market expansion capability beyond existing relationship channels
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> • Has some corporate operation capability
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**4. Channel Operation Type:**

The business model of channel operation dealers has the following main characteristics:

> • Pursues control over the channel market, able to exert significant influence on channels
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> • Has comprehensive operational functions, not just distribution and service, but also market expansion capabilities
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> • Has a relatively complete corporate operation structure and mechanisms, equipped with a strong professional team
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> • Has clear development plans and operating principles for company operations
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> • Values control over market operations and channel customers beyond direct profits
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> • Does not simply focus on product price differences but values the company's market operation ideas and support
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> • Has strong market expansion capabilities, able to help companies open markets
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> • Operates within the local market; dealers with strong operational strength may set up branches for cross-regional operations
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> • Has modern business concepts and can change as needed
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**2. Types of Company Business Models**

As companies, there are also several different business models when cooperating with dealers. Companies recognizing their own value orientation and business model characteristics is equally important for manufacturer-dealer cooperation.

**1. Profit Incentive Type**

> • This type of company has weak market expansion capabilities and relies more on dealer resources and capabilities
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> • The company mainly motivates dealers through sales policies, using policies instead of management
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> • Focuses on providing dealers with larger price difference spaces
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> • The company has fewer personnel in the market, only serving major dealers, not lower-level customers
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> • The company does not focus on the dealer's operational process, only on results
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**2. Operation Contracting Type**

> • This type of company has very weak market expansion capabilities and lacks sufficient resources
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> • Will use a bottom-price buyout method to completely hand over market operation rights to dealers
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> • The company lacks professional modern marketing operation capabilities and is more skilled in manufacturing
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**3. Market Dominant Type**

> • Market dominant companies have strong market expansion capabilities and seek more say in cooperation
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> • The company has abundant resources and can lead market expansion
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> • Besides focusing on results, also pays more attention to the entire market operation process
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> • Has more requirements for dealers in market expansion, especially in capital and warehousing
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> • Will proactively invest resources to expand the market and provide full support to dealers
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> • Focuses on controlling the dealer's power scope, unwilling to overly strengthen the dealer's strength
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> • Provides dealers with a small price difference space but bears the risk of market expansion itself
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**4. Channel Control Type**

> • Channel control companies fully recognize the role of dealers and hope to leverage dealer resources and capabilities
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> • The company has certain market expansion capabilities and resources
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> • The company focuses on input-output ratio and controls fixed expense investment
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> • The company focuses not only on results but also on the process
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> • The company gives dealers reasonable price difference spaces and certain policy incentives
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> • The company provides dealers with certain personnel support to serve some key lower-level customers
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**3**
**Effective Manufacturer-Dealer Cooperation Must Organically Integrate Both Business Models**

Resolving manufacturer-dealer conflicts and channel control hinges on the effective integration of business models between the two parties, i.e., docking or restructuring.

So-called business model docking means that the business models of the company and dealer are generally compatible and do not need change, but need to be connected in planning, policies, processes, and systems to achieve integrated operations.

Business model integration, on the other hand, means that the business models of the company and dealer have significant differences and are incompatible, requiring one party to change according to the other's business model to achieve good docking.

The integration of business models between manufacturers and dealers always exists in business cooperation. Through conflicts and磨合 in cooperation, each party continuously adjusts its business model, promoting mutual development. Here we will focus on the overall evolution of dealer business models.

**1. Elements for Docking and Restructuring Business Models**

Since the business models of both parties involve complex operational value chains, integrating business models is not easy and requires a certain method. The author believes that to achieve integration, the following four aspects must be clearly defined and planned.

**▶ 1. Role Definition: What are the roles of the manufacturer and different channel members?**

Role definition is the first step in integrating business models. All parties must clarify their roles in the channel operation value chain. The company should first determine the channel structure based on product positioning, including channel length (levels), width (types), and density (quantity). Different product positioning requires different channel structures to match.

Simply put, high-value product positioning requires shorter channel levels, narrower channel types, and fewer channel numbers, while low-value product positioning is the opposite.

For different channel types at different levels, companies can use a capability-resource two-factor model to define the roles of each party in the channel operation value chain. Taking the company's role definition as an example, it can be divided into the following:

> • **Strong capability - Many resources:** Suitable for a market dominant role, able to lead the entire channel value chain more forcefully
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> • **Strong capability - Few resources:** Suitable for a channel control role, using professional capabilities to integrate channel member resources to control the channel value chain
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> • **Weak capability - Many resources:** Suitable for a profit incentive role, mainly adjusting channel member enthusiasm through resource investment
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> • **Weak capability - Few resources:** Suitable for a profit incentive or operation contracting role, attracting channel members through appropriate resource investment and more room for maneuver
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Overall, in short channel levels, the company can undertake more functions, while in long channel levels, channel members undertake more functions.

**▶ 2. Channel Functions: What functions should the manufacturer and different channel members undertake?**

After clarifying the roles of each party, the next step is to determine what functions each party should undertake in each link of the channel operation value chain. For ease of explanation, we will use a channel control role company as an example to define the functions that different members should undertake in the channel operation value chain.

In each link of the manufacturer-dealer cooperation value chain, it includes: who leads, who assists, who participates, who executes, and who supervises. These are the functional roles that each party needs to undertake. For example:

> • **Market Planning:**
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> Need to clarify who formulates the plan, including business objectives, policies, models, etc., and who participates in plan formulation, undertaking specific functions such as information provision and policy discussion.
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> • **Channel Expansion:**
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> Need to clarify who leads channel expansion, who assists, who executes, who supervises, and through what methods.
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> • **Channel Management:**
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> Need to clarify who leads, assists, executes, and supervises resource investment during continuous channel operations.
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Through the above definition of channel operation functions, the company needs to clarify how many resources each party should invest and in what manner.

**▶ 3. Benefit Distribution: How much benefit should the manufacturer and different channel members receive?**

Based on different channel levels, roles, and functional positioning, the company should reasonably formulate the benefit distribution amounts and forms for all members in the entire channel value chain.

Generally, channel member benefits can be divided into front-end gross profit and back-end gross profit. The former is product price differences, and the latter is the expense space for market operations.

For front-end gross profit, it is necessary to determine the product price differences and gross profits at each channel link, including retailers, wholesalers, distributors, dealers, and the company itself.

In this process, the company first needs to determine the retail price to ensure it is acceptable to consumers and competitive. Under this premise, determine channel price differences based on each channel member's interest demands.

Generally, retailers pursue higher gross margins, wholesalers value higher gross margins, distributors need stable gross margins, and dealers themselves need necessary gross margins. The company must clearly understand these.

Finally, the company determines its gross margin based on its strategic plan and determines cost standards based on gross margin needs. This is a fully market-oriented benefit distribution method, not the traditional cost-oriented method, which is more conducive to the company's control over the overall market landscape.

For back-end gross profit, the focus is on determining expense types and policies. For the expense types needed in channel operations, they can be divided into market expenses and sales expenses by type, and fixed expenses and variable expenses by nature. For expense policies, it is necessary to clarify which expenses are borne by channel members themselves and which by the company.

By convention, generally fixed platform-type expenses are borne by channel members, such as account opening fees, logistics fees, customer relationship fees,导购员 wages, and return fees. For brand-specific operating expenses, the company should provide support, such as barcode fees, special display fees, DM fees, and dedicated promoters.

**▶ 4. Operational Support: What operational systems should different channel members build?**

After determining the roles, functions, and benefit distribution of channel parties, the company must also clarify what operational systems each party should adopt to ensure execution, including:

> • **Organizational Setup:**
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> Different roles and functions require corresponding organizational system setups; otherwise, functions cannot be fully realized. A profit incentive company and a channel control company have completely different organizational structure settings and functional positioning. The former is more extensive, while the latter requires certain professional standards. Channel operation dealers have the highest requirements for organizational construction, while wholesale distribution dealers have the lowest.
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> • **Personnel Allocation:**
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> Build corresponding team members based on organizational setup, including skill levels and numbers. Generally, operation contracting companies have the lowest personnel requirements and the most extensive operations, followed by profit incentive companies, while channel control and market dominant companies have higher personnel requirements, especially market dominant companies, which have the largest team scale and highest professional level. Similarly, channel operation dealers have the highest personnel requirements, followed by direct customer supply, then logistics distribution, and wholesale distribution lowest.
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> • **Hardware Configuration:**
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> Besides personnel, companies also need necessary hardware configurations to implement operational functions, including office conditions, warehousing conditions, and delivery vehicles. These are directly related to the above organizational setup and personnel allocation.
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> • **Management System:**
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> All parties in channel operations must dock and integrate management systems, thereby solidifying planning and functions through specific processes, systems, and assessments. The key lies in incentive systems and management systems. Whatever the incentive system or management system, it must match the company's overall strategic plan and business model, not be for incentive's sake or system's sake.
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> Some strategic models only need simple incentives and systems, while others require comprehensive incentive systems and standardized institutional systems. It must be adapted to local conditions, not one-size-fits-all.
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**2. Docking of Profit Incentive Companies with Various Dealer Business Models**

**▶ 1. Profit Incentive Company + Wholesale Distribution Dealer:**

Profit incentive companies should cooperate with wholesale distribution dealers in a limited manner. Since wholesale distribution dealers lack market expansion capabilities, coupled with excessive profit stimulation, it will lead to severe cross-regional selling. This cooperation is more suitable for unimportant market areas or the early stages of company development. For companies in growth and maturity stages, cooperation with wholesale distribution dealers must be avoided.

**▶ 2. Profit Incentive Company + Logistics Distribution Dealer:**

Profit incentive companies can promote product channel sinking and achieve stable sales growth by cooperating with logistics distribution dealers. However, logistics distribution dealers are more suitable during the company's growth period, not the introduction period, because they lack market expansion capabilities, which is unfavorable for early development. During the growth period, they can play a supplementary and penetrating role.

**▶ 3. Profit Incentive Company + Channel Operation Dealer:**

Profit incentive companies should cooperate with channel operation dealers to fully utilize their good operational capabilities. Combined with profit incentives, effective market expansion can be achieved. If the company has abundant resources, it can stimulate dealer enthusiasm through profit orientation.

**3. Docking of Market Dominant Companies with Various Dealer Business Models**

**▶ 1. Market Dominant Company + Wholesale Distribution Dealer:**

Market dominant companies typically do not choose wholesale distribution dealers because they do not lack channel network coverage. For individual remote or underdeveloped areas, they can choose local wholesale dealers as a supplement.

**▶ 2. Market Dominant Company + Logistics Distribution Dealer:**

Logistics distribution dealers are the main partners for market dominant companies, thereby building a deep distribution channel model to achieve fine channel management.

**▶ 3. Market Dominant Company + Channel Operation Dealer:**

Channel operation dealers are a supplement to market dominant companies, playing a mutually reinforcing role. Generally, channel operation dealers have their own plans and directions, prefer to directly control the market, and are unwilling to let the company have too much say. If a channel operation dealer with good cooperation willingness can be found, market dominant companies can provide more comprehensive support, achieving a strong alliance.

**4. Docking of Operation Contracting Companies with Various Dealer Business Models**

**▶ 1. Operation Contracting Company + Wholesale Distribution Dealer:**

Operation contracting companies cannot cooperate with wholesale distribution dealers, as it usually causes market chaos. Operation contracting companies generally give dealers lower ex-factory prices, and market operations are entirely left to the dealer. Wholesale distribution dealers lack market expansion and operational capabilities, which is detrimental to the company's sustainable development.

**▶ 2. Operation Contracting Company + Logistics Distribution Dealer:**

Cooperation between operation contracting companies and logistics distribution dealers will not be very effective, usually in a state of natural development. The root cause is still the lack of market expansion capabilities of logistics distribution dealers, who rely more on existing network resources.

**▶ 3. Operation Contracting Company + Channel Operation Dealer:**

Operation contracting companies should choose channel operation dealers for cooperation, as they can obtain full expansion from the dealer. On one hand, the dealer has strong market operation capabilities; on the other hand, the company can provide the most favorable prices and maximum market operation space.

**5. Docking of Channel Control Companies with Various Dealer Business Models**

**▶ 1. Channel Control Company + Wholesale Distribution Dealer:**

Channel control companies can choose wholesale distribution dealers as a supplement. For less important areas or lower-level markets, they can use the radiation power of wholesale distribution dealers to supplement channel coverage.

**▶ 2. Channel Control Company + Logistics Distribution Dealer:**

Logistics distribution dealers are important partners for channel control companies, forming a deep distribution channel operation model. However, this model is not suitable for too wide an area, only for economically developed markets with convenient distribution; otherwise, company costs will be too high.

**▶ 3. Channel Control Company + Channel Operation Dealer:**

Cooperation between channel control companies and channel operation dealers can be described as a strong alliance and is the best choice. The two parties are closest in business philosophy and business model, both having certain professional capabilities and resources, and can achieve the best cooperation results. It should be noted that these two types of manufacturers and dealers must strengthen cooperation in planning and communication to avoid zero-sum games caused by equal strength.

As the Art of War says: "Know yourself and know your enemy, and you will never be defeated." Only by deeply understanding one's own and the other's business models can manufacturers and dealers achieve optimal cooperation.

Manufacturer-dealer cooperation reflects the most complex benefit distribution issue in business cooperation and is a key link that cannot be avoided.

If manufacturers and dealers can build a good cooperation model, they can leverage partners' strengths to rapidly expand the market, achieving twice the results with half the effort. If they lack a good cooperation model and rely solely on themselves, their development will inevitably be hindered.

In this regard, both manufacturers and dealers must think from a strategic height and handle conflicts in manufacturer-dealer cooperation with wisdom, forming alliances and integrating the value chain to achieve win-win outcomes.

About the author: Zhang Ji, senior strategic marketing and business model practical expert, founder of the "Chain Marketing" theory, general manager and chief consultant of Shanghai Zhihui Marketing Consulting Co., Ltd., author of "Igniting the Market" and "Deciphering the Success Code of Chinese Enterprise Strategic Transformation."

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