---
title: "Manufacturer-Dealer Rivalry: The Preservative for Distribution Channels!"
description: "The topics of distributor transformation, upgrading, and second-time entrepreneurship have been hot in the marketing world over the past two years. Distributors have long felt pressure from manufacturers' channel refinement and e-commerce's rise, which often aim to disintermediate them. This article explores the value of manufacturer-dealer conflicts through the story of Lao Song, a building materials distributor who attempted a second venture with a crowdfunding model, only to face challenges that highlight the importance of maintaining a balanced triangular relationship among manufacturers, dealers, and consumers."
author: "黄润霖"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2016-08-10"
language: "en"
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markdown: "https://xinjignxiao.com/en/articles/manufacturer-dealer-rivalry-the-preservative-for-distribution-channels-bfdb2015.md"
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# Manufacturer-Dealer Rivalry: The Preservative for Distribution Channels!

> The topics of distributor transformation, upgrading, and second-time entrepreneurship have been hot in the marketing world over the past two years. Distributors have long felt pressure from manufacturers' channel refinement and e-commerce's rise, which often aim to disintermediate them. This article explores the value of manufacturer-dealer conflicts through the story of Lao Song, a building materials distributor who attempted a second venture with a crowdfunding model, only to face challenges that highlight the importance of maintaining a balanced triangular relationship among manufacturers, dealers, and consumers.

The topics of distributor transformation, upgrading, and second-time entrepreneurship have been hot in the marketing world over the past two years.
Of course, distributors haven't just felt the pressure in the past two years. On one hand, manufacturers have been constantly refining their channels and pushing down distribution, and whenever their sales hit a snag, they either cut into distributors' margins or use them as scapegoats. On the other hand, whether it's the rise of hypermarkets or the explosion of e-commerce, every channel revolution, despite the dazzling new buzzwords, boils down to one thing: disintermediating distributors.
Distributors have become the "Tang Monk's flesh"—everyone wants a piece. Whether there's a revolution or innovation doesn't really matter; whenever manufacturers need, they like to drag distributors out, twist and squeeze them, to see if they can wring out a bit more water.
Old Song, who has been a distributor for over twenty years, has his own calculations. When he started as a distributor, like countless others, he honed his skills in demanding products, prices, and support from manufacturers. Of course, those days of haggling with manufacturers were exhausting, both physically and mentally. In Old Song's heart, manufacturers and distributors should be as close as "fish and water," so why do they often meet either with swords drawn or with "calling each other brothers to their faces while pulling out weapons behind their backs"?
Old Song has the capital to challenge manufacturers. As a building materials distributor with sales exceeding 100 million yuan, he has accumulated extensive channel and social resources over twenty years, not to mention his countless ideas. When the capital wave and O2O models swept the market, Old Song was so excited he couldn't sleep for several nights. I still clearly remember when I first received his call about his second venture; the excitement and urgency that spilled over the phone had completely shed the composure and maturity of a man in his fifties.
Admittedly, Old Song's entrepreneurial plan was a relatively "perfect" business model. In his design, the partner distributors mostly had annual sales exceeding 100 million yuan. By this calculation, excluding Hong Kong, Macao, and Taiwan, across the 31 provincial-level administrative regions in the country, they could quickly form a joint sales body of 3-4 billion yuan. Such a scale, at least in the building materials industry, would make them a significant player. "With just a 10% gross margin, I can rewrite the industry's supply and marketing landscape!" This was a phrase Old Song often repeated. With low margins and a crowdfunding model, a new type of company—a distributor alliance—was born.
**Brand Crowdfunding.** Leveraging the connections he had built over twenty years in the industry, Old Song bound building materials peers from various provinces and cities together through shares, making them all shareholders of the new brand.
**Product Crowdfunding.** The new company has no factories, only warehouses. All products come from OEM enterprises or original brands of brand owners. In fact, the new company is a product transit platform, operating both agency brands and its own brands.
**Channel Crowdfunding.** All shareholders are both investors and distributors. The existing networks of these distributors naturally become the ready-made channels for the new company, which is also an important resource to attract upstream factory cooperation.
**Capital Crowdfunding.** The company's startup and operating funds come from the share capital of the initial shareholders. Physical branch companies are set up in various regions. The headquarters, in principle, holds 51% of the shares through brand investment, while other equity is distributed based on the amount invested by local distributors.
This is a typical model design of leveraging small resources to control larger ones, with the core value being that distributors are brand shareholders, aligning the interests of manufacturers and merchants to some extent. This theoretically resolves the game-theory dilemma of traditional manufacturer-dealer relationships, because no one would dismantle their own stage.
**Every coin has two sides; the greatest strength of some business models is also their fatal flaw.** Traditional manufacturer-dealer rivalry exists because of interest divergence. If a "you're good, I'm good, everyone's good" utopia truly emerged, while divergence would be resolved, interests would also disappear, and with interests gone, motivation would vanish too.
1. The contradictions between manufacturers and dealers seem to disappear, but contradictions among shareholders come to the fore. Consumption varies greatly by region; what sells well in Changsha may not sell well in Chengdu. Shareholder A wants to make a product, but Shareholder B doesn't like it. It's hard to please everyone, and product categories keep expanding. Some partners also complain: "I've been working my tail off promoting the new brand in my regional market, but Old Wang from H Province, who originally had a larger scale than me, buys less from the company in a year than I do. The more I sell, the more I get diluted. It's unfair!"
2. Since distributors are shareholders, even the fraction of a cent in the purchase price of a screw must be discussed openly at the table. Distributors are both owners and downstream partners of the enterprise. Facing conflicts between long-term and short-term interests, filling one's visible pockets first is a more human choice. So, regarding the new company's product margins, the shareholders negotiated multiple times to retain a 10% gross margin. But when the company's scale hasn't undergone a qualitative change, 10% cannot sustain basic operating expenses like management, warehousing, and promotion. After three consecutive years of losses, the shareholders, seeing no hope of profit, discussed and decided to even give up the 10%, selling at cost to focus on sales volume.
3. The ultimate goal of building sales volume is to create data—for shareholders, the market, and suppliers, but mainly for the capital market and investors—to achieve the thrilling leap from data to cash. When the new company reaches a scale of several billion, it's great material for storytelling to the capital market. But in practice, the next step is to build volume data; to build data, you need systems; to implement systems, you have to expose all the partners' assets and put them in the open. These partners, who are already suspicious of each other, have been enjoying unclear, gray-area profits for years. Would they easily share their network and inventory data for a future listing dream?
Three years later, when Old Song and I revisited this topic, his eyes were full of exhaustion and forbearance. I know that over these three years, Old Song has transformed from a simple distributor into a complex entrepreneur, his dreams and passion sustained by his last belief in going public. "Every year I survive, my company is worth 10 million more. My top priority now is to stay alive!" **When I re-evaluated this business, besides lamenting the difficulty of distributor transformation, I gained new insights into the value of manufacturer-dealer conflicts and contradictions.**
1. The bargaining chips in manufacturer-dealer negotiations are based on each party's value. When chips disappear and one party becomes completely dependent on the other, the result is that neither provides value.
Are the interests of manufacturers and dealers aligned? Of course not. Both are sharing money from the channel's interest chain, which is to some extent a zero-sum game. Are their goals aligned? They must be. Both are partnering to take money from consumers' pockets; only by growing the market can both benefit. People often confuse goal alignment with interest alignment, or try to adjust divergent interests into aligned ones, only to shoot themselves in the foot. For example, production enterprises investing in direct-operated stores rarely succeed.
Cooperation without profit is like a sexless marriage—everything looks fine on the surface, but whether effort is truly made is known only to the parties involved.
2. Profitability in supply and marketing is the norm; non-profitability is abnormal. The consequences of abnormality are either the manufacturer swallowing the bitter pill or finding the next sucker to play hot potato, neither of which follows the logic of business itself.
If manufacturers squeeze merchants' space and merchants hollow out manufacturers, the result is either killing each other or cultivating a freak. Burning money, subsidies, and promotions, euphemistically called cultivating consumption habits, actually provide room for many "fake demands." If manufacturer-dealer relationships don't normalize—that is, become profitable—and instead rely on the last two dollars to win the lottery, that's worse than gamblers. Because when gamblers lose, they only ruin themselves; when companies die, they not only splatter blood on those around them but also give distributors illusions, damaging the entire manufacturer-dealer relationship positioning.
3. Solving distributors' pain points with distributors' thinking is like "protecting sheep by killing wolves": once the wolves that eat sheep are eliminated, the sheep lose survival pressure and eventually die comfortably.
The biggest risk for distributors extending upstream to become manufacturers is building a business model entirely around distributors' operational pain points. An enterprise's ultimate profit comes from consumers; distributors are just pipelines. Enterprises must not only balance distributors' interests but also consider consumers' rights to achieve a balanced production-supply-marketing cycle.
**Even from the most stable physical theory of triangles, manufacturers, merchants, and consumers should each play their roles.** When consumer and distributor interests conflict, manufacturers become a third-party check; when consumer and enterprise interests conflict, distributors can act as a balancing mediator; even when manufacturer and merchant interests conflict, consumer demand will force both sides to set aside differences and make money first. Manufacturers, merchants, and consumers form a perfect value chain model—coexistence means win-win, internal strife means triple loss.
Manufacturers' forward integration and distributors' backward integration both attempt to break the most stable triangular relationship. Once manufacturers and merchants collude, consumers become fish on the chopping block. Treating consumers as fish, in a free market, consumers will naturally vote with their feet.
At the request of many distributor friends, the fourth B-end e-commerce inspection class of this public platform will visit Nanjing and Hangzhou from August 15-18 to inspect two platforms: Qianmi Network and Alibaba Retail Link. Distributor friends interested in transformation can join us for on-site inspections:
Activity Schedule:
Time: August 15-18
> 15th: Check in at designated hotel in Nanjing; 16th: Inspect Qianmi Network, then take high-speed rail to Hangzhou in the afternoon; 17th: Participate in the "FMCG Distributor B2B Transformation Exchange Summit";
> 18th: Inspect Alibaba Retail Link in Hangzhou;
**Distributor friends interested in transformation are welcome to join us for understanding and on-site inspection**:
**Organization Format**
1. Company visit
2. Actual market case visit
3. On-site explanation
4. One-on-one communication
Participating distributor friends only need to pay a 200 yuan registration fee.
Other expenses are self-covered.
Note: This inspection is limited to distributors.
**Interested distributor friends can register by long-pressing the QR code below.**
**When adding, please note: "Fourth Class Registration".**
**Non-participants, please do not disturb**
**Previous Inspection Group Photos:**
**3rd B-end E-commerce Inspection Group Photo, from top to bottom: Yunbao Shangmeng, Weijie City Distribution, Wanshang Yizhan.**
**2nd B-end E-commerce Inspection Group Photo, from top to bottom: Jinhuobao, Caiba, Yishang.**
**1st B-end E-commerce Inspection Group Photo, from top to bottom: Piduoduo, Beiquan, Yishang.**
-END-
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