Introduction **Relying on intuition to conclude that eliminating middlemen leads to better deals is highly unreliable; People's cognitive misconceptions are exploited by those with ulterior motives, causing many to fall into the trap of "channel flattening"; Acknowledging the value of middlemen, establishing a matching channel system, and scientific top-level marketing design are the correct paths for channel operation. Recently, a heavily advertised campaign made Lao Miao feel disheartened. "Guazi Used Car Network: Individual car owners sell directly to individual buyers, with no middleman earning the difference." This advertisement exploits people's intuitive perception, leading consumers to believe that without dealers earning a margin, sellers can get more money and buyers can buy cheaper. It positions "middlemen" as adversaries, implying that middlemen are "vampires" who only take profits without providing value. Remove them, and buyers and sellers meet directly, benefiting both parties—"good for him, good for me." Similar logic is prevalent in multi-level marketing: "We are direct sales, no dealer markup, so it's very affordable." Many people intuitively think this makes sense, and you've likely been pitched this before. Years ago, when large retail terminals rose, Carrefour and Walmart also advocated for manufacturers to bypass dealers and supply retail terminals directly. They called for "channel flattening," claiming it would yield more profits or more resources for promotion. Many manufacturers fell for it. Influenced by this trend, many companies and some "senior" professional managers launched channel flattening campaigns, full of enthusiasm but leaving behind a mess. In recent years, e-commerce has risen and started the same pitch: remove intermediate links, manufacturers sell directly online, consumers get deals, and manufacturers gain more profit. Even small clothing and shoe shops near vegetable markets often put up big signs reading "Factory Direct Sales," attracting crowds. What are middlemen? Peddlers, agents, brokers, pimps, middlemen. For thousands of years, the role of middlemen has been undervalued, even despised and vilified. In the traditional hierarchy of scholars, farmers, artisans, and merchants, merchants ranked last, sometimes even as outcasts; merchants' children couldn't take the imperial exams. In our tradition, middlemen have always been associated with speculation, hoarding, and profiteering. People acknowledge the production cost of a product but not its distribution cost, display cost, brand cost, or trust cost. Often at dinner tables, a "knowledgeable" person says: "This bottle of liquor costs 300 yuan, of which 100 is for advertising, 20 for packaging, dealers and restaurants take another 100, the manufacturer earns 50, and the actual cost is only 30 yuan." Listeners sigh and condemn unscrupulous merchants. Lao Miao always feels a tightness in his chest and an urge to smash the bottle over their heads. Without dealers and restaurants, would you go directly to the distillery to fetch liquor? Without packaging, could you serve this liquor to guests? Would you even dare to buy it? Our market economy has been running for over twenty years (some say over thirty), yet many people's understanding of middlemen remains stuck in an agrarian society. It's blatant anti-intellectualism. The status and value of middlemen have never been fully recognized by the market, and dealers' self-worth perception is also insufficient. Many dealers have grown large but still feel inferior, believing they must own a manufacturing entity to be called "entrepreneurs," otherwise they remain "merchants," "businessmen," or "traders." Let's first cover the basics about dealers. Open Kotler's "Marketing Management" to the chapter on channel management, and you'll see a diagram that brings tears to middlemen's eyes: "We are not speculators or parasites; we create value!" Let's remember the name of this diagram: "Distribution Channel Economic Effects." The diagram shows that using intermediaries is a major source of economic efficiency. Part A shows three producers, each using direct distribution to reach three customers, requiring 9 transaction contacts. Part B shows three producers using one distributor to reach three customers, requiring only 6 transaction contacts. Thus, due to the existence of intermediaries, the amount of work required is reduced. Moreover, the more customers and producers, the greater the value of intermediaries. Any standard classic marketing textbook begins its channel section with this diagram. Folks, this is the fundamental value of channels! In complex market environments, due to intermediaries, the number of transactions is reduced, not increased. Transaction costs are lowered, not raised. In other words, if you strip away reasonable intermediate links, the price consumers pay will only be higher, not lower. This is counterintuitive but is marketing common sense. That's why direct sales (MLM) products are always exorbitantly priced, as seen with Amway and Tiens. Apples cost 5 yuan per jin in Shanghai, but 0.5 yuan per jin at the orchard in my hometown in Shandong. If you had the Shandong fruit farmers pick apples and sell them in Shanghai, they might cost 50 yuan per jin, and they'd still lose money. You might say they could sell online and it would be cheaper, benefiting both sides. Clearly, they've been fooled by e-commerce. Let Lao Miao tear apart e-commerce's channel flattening. In recent years, the hottest food e-commerce players are Three Squirrels, Baicaowei, and Liangpin Shop. Since 2013, their annual sales have grown by hundreds of millions, with growth rates once exceeding 460%. But Three Squirrels' losses are as famous as its rapid growth, with no sign of profitability. Recently, a major event: Baicaowei was acquired by "Haoxiangni." In this first major M&A in the snack e-commerce sector, the audit reports disclosed Baicaowei's sales performance over the past three years. Its main cost expenditures were platform promotion fees, platform commissions, and express delivery fees, which together accounted for 69.8% of sales costs. Baicaowei mainly sold through JD.com, Tmall, and Yihaodian. Its revenues for 2013, 2014, and the first three quarters of 2015 were 229 million, 612 million, and 815 million yuan respectively; net profits were -104,700 yuan, -6.4579 million yuan, and 14.2353 million yuan. Ironically, Baicaowei closed all 140+ offline stores over 10 years to fully transition to e-commerce. After losing over 6 million in 2014, it began developing 40+ offline dealers and opened many physical stores, achieving profitability in 2015. (But with goods pushed into channels, calling it a successful transformation is premature.) This is the typical phenomenon of so-called e-commerce channel flattening. Moreover, if you're in a highly market-oriented industry, what redundant channel links are there to flatten? Companies are profit-driven; they wouldn't allow a channel member that creates no value to exist. Unless it's a monopoly, where I could sell to you directly but instead force you to buy from my brother-in-law. Every channel member has value; remove one, and costs increase. In reality, the role of intermediaries goes far beyond reducing transaction links. They often also provide: information collection and organization, promotional promotion, negotiation, ordering, inventory transfer, and even bearing financial risks. Why are intermediaries who provide so much value constantly denigrated and even vilified, with many companies eager to eliminate them? Consumers' intuitive perception is the fundamental reason, as discussed above. But the decisive factor is the intentional and unintentional "frauds" who exploit people's cognitive biases, smear middlemen, and pursue their own agendas. For MLM schemes, only by removing intermediate links can the model of downlines recruiting further downlines work, packaging a lowly marketing method as a "career" to lure daydreamers. Well, I hear these people have moved to WeChat business. Let me quote a friend's analysis. "The WeChat environment provides the best breeding ground for MLM," and WeChat business's "unsold inventory dilemma gives MLM opportunities," so "MLM's sales seminars become WeChat business training, MLM's 'successful people' become the wealth-flaunting lists in friend circles, and MLM's pyramid structure evolves into multi-level distribution in WeChat business systems." Now, look at the Guazi Used Car Direct Selling website mentioned at the beginning. This site that claims no middleman earns a difference—is it really without middlemen? The thief cries "stop thief," and they cover their noses when farting. They themselves are the middlemen! Just because you rename yourself a "platform," do we not recognize you? Charging a fee not called a "margin" but a "commission"—can you fool us? We've all been to elementary school! Years ago, Carrefour, Walmart, Metro, and other large retailers advocated channel flattening. Once their terminal sales took off, their true colors showed: various entry fees, barcode fees, display fees, DM fees, all increasing year by year. They've quieted down recently because a bigger "rogue" has emerged. Alibaba and other large e-commerce companies also call themselves platforms, claiming not to earn margins. In fact, they can't be bothered to earn superficial margins; that would be exhausting and require helping you sell. They earn far more than superficial margins, and they're guaranteed income: you pay to enter the platform; you pay for promotion; you pay for advertising; payments go through them. Whether you thrive or die on their platform is none of their business! Baicaowei is a bloody example. They don't earn margins but charge platform fees, making money in a way that's lucrative, clean, and stable—like a prostitute building a chastity arch. Compared to traditional middlemen, these platform-style middlemen impose heavier burdens on companies while providing less value. But due to platform monopolies, many companies can't bypass them and suffer greatly. Dealers should not underestimate themselves. You are the "main source of economic efficiency" (Kotler's words). You contribute genuine value to the market and will surely receive market returns and recognition. However, as the marketing environment changes, you need to adjust your methods. For brand owners to operate well, they must fully mobilize the resources and enthusiasm of intermediaries. It's not about simple intuition or whimsical channel flattening. Once channel confidence is damaged and the channel system is in chaos, recovery is difficult. Once you fall into the trap of flattening, it's hard to climb out. The correct approach is to establish a matching channel system and set up scientific top-level marketing design. How to do it? As usual, stay tuned for Lao Miao's next installment! Source: Lao Miao Tears Marketing (ID: yiheyingxiao) -END- The best FMCG dealer learning platform in China Dedicated to providing professional, practical, and actionable tutorials for companies and dealers Committed to helping Chinese FMCG dealers grow rapidly The most professional and practical knowledge base in the FMCG industry Reply with the red number below to get corresponding content Reply with number 1 to view the complete knowledge base | 001 Excellent article selection | 002 Dealer market operations | 003 Terminal visit management | 004 Sales supervisor skills | 005 Sales improvement techniques | 006 Channel expansion | 007 Managing dealers | 008 Dealer development | 009 Dealer internal operations management | 010 Team management | 011 Efficient distribution techniques | 012 Sales manager's eighteen skills | 013 KA operation methods and strategies | 014 First lesson for new salespeople | 015 Internet, brand | 016 Dealer B2B transformation | [Long press QR code to follow]