Channel crossing: Typically refers to distributors, in order to maximize profits, exploiting differences in market demand across different sales regions to sell products beyond their designated areas. Regional market channel crossing is a common marketing ailment, also known as 'dumping goods.' Because channel crossing can severely damage the existing sales network, many manufacturers are 'terrified' by it.
Forms of Channel Crossing Channel crossing can be categorized by region into: intra-regional cross-channel and cross-regional channel crossing; by cause into: natural and malicious channel crossing. Below are several forms:
Channel crossing between different channels within the same region: Taking Huainan as an example, Xuanjiu Liunian's hotel channel support is substantial, with rebates and hidden bonuses exceeding 60%. Many hotels and tobacco/alcohol stores collaborate to extract manufacturer market investments. In the surrounding areas of Huainan, Xuanjiu Wunian sells well, so Xuanjiu mainly suffers from severe intra-regional cross-channel dumping.
Cross-regional channel crossing: In Huainan, Gujing Gongjiu has a large sales base and high self-order rate, so hotel channel investment is relatively small, and channel gaps are not as wide as Xuanjiu's. Meanwhile, Hefei's policies are more generous, providing a breeding ground for regional channel crossing.
Special customized products (special policies) channel crossing: Enterprises with high liquor consumption (such as Huainan Mining Bureau system, power plant systems, and other enterprises/institutions) purchase liquor in bulk at lower prices to reduce procurement costs, leading to lower prices for these batches and significant price differences.
B2C and C2C website channel crossing: Online sales have begun to develop, with many liquor sales terminals appearing online. With convenient logistics, it is difficult to determine if it constitutes channel crossing, requiring a re-examination of this issue.
Deliberate channel crossing by distributors: When Xuanjiu Liunian was introduced to Huainan market in 2011 and 2012, it used malicious channel crossing as a strategy. Distributors encouraged salespeople to dump goods. Personally, I believe this is an effective method to boost sales in the short term, akin to tasting activities, increasing consumer interaction, and having a significant impact on brand and reputation. The theoretical support is 'water too clear has no fish; muddy water is good for catching fish'—only by disrupting the market can opportunities arise. Once product volume increases, the strategy should change, gradually stabilizing prices through price control models.
Causes of Channel Crossing Based on my understanding, the main causes are twofold: first, price differences exist, as there is no early rising without profit; second, the urgency to cash out. The following analyzes the causes based on these two points:
Regional price differences: When developing markets, manufacturers distinguish between core key markets and general markets. Investment in core key markets is certainly substantial, sometimes even regardless of cost in local key areas. Such operational policies lead to regional price differences, and if market control is inadequate, channel crossing is inevitable.
Cooperation models: OEM products and full-package cooperation models are basically sold to distributors at bottom prices, causing the company to lose control over distributors and their markets. If the branch office's control over distributors is inadequate, and there are significant price differences with other regions' products, distributors will engage in cross-regional dumping when their inventory and market stock are high.
Customer sales volume and policy support: During peak seasons, customer sales volume directly affects the company's market support policies. The level of policy support directly leads to price differences, resulting in channel crossing.
Off-peak and peak season policy support: During peak seasons, distributors stock up, and the company's policy support relatively expands. Distributors, to improve capital utilization, reduce prices to promote sales and recover funds, sacrificing price for volume.
Intra-regional channel price differences: The hotel 'plate-in-plate' model leads to larger hotel channel product policies. Hotels intercept hidden bonuses and rebates, then collaborate with tobacco/alcohol stores to sell bare bottles or products with damaged packaging to cash out, leading to intra-regional cross-channel dumping.
Special group purchase product channel crossing: Large units purchase liquor in bulk from enterprises, buying large custom orders with significant bargaining power, resulting in large price differences compared to market-circulating products. When units purchase more products, they are prone to low-price selling to cash out.
High inventory pressure: Distributors, to sprint for year-end rebates or rewards, stock up massively during peak seasons (especially Spring Festival), rushing to complete tasks and obtain manufacturer rebates or rewards. When stocking up too much, to reduce capital usage costs, they are eager to cash out, leading to malicious channel crossing.
End of cooperation: After distributors decide to terminate cooperation with the company, they are eager to cash out quickly, selling products at low prices in their own region or in regions with good sales (cross-regional dumping).
Governance of Channel Crossing In my view, enterprises need to control channel crossing from three dimensions: pre-event, during-event, and post-event. Establish a channel crossing management system and institutionalize the fight against it. Below are my personal views:
Set up a deposit system: Distributors pay a certain deposit when opening an account (based on the agency region and product unit price) to ensure market channel crossing is addressed.
Apply special coding to products shipped to distributors to control product flow (for branch offices or supervision departments to inspect). Especially for hotel channels with significant investment, policy products can have empty boxes (even inner packaging) recovered.
Manufacturers establish a supervision department to conduct irregular checks on market channel crossing issues. When investing in specific regions or channels, improve the branch office's execution and control capabilities, ensure supervision, and incorporate it into the company's supervision system to ensure resources are used reasonably and not intercepted.
Manufacturers deduct market bottle deposits from products. If channel crossing occurs, confiscate all bottle deposits for that batch, order the offending distributor to recover the dumped products at market prices, and penalize the distributor's deposit based on severity. If no logistics channel crossing issues exist in the market, return the deposit the following month as normal shipment for the distributor's goods.
Based on distributors' past sales volumes, manage distributor sales data well, understanding monthly, quarterly, and annual sales volumes. Prevent poor inventory by controlling shipment volumes.
Conduct distributor policy assessments, strengthen the market department's functions, and control the price system.
Control or prohibit distributors from developing their own products. If they do, introduce the 'Bottle Deposit Control System' and incorporate it into the company's overall channel crossing control system for unified management.
Participate in the formulation of distributor promotion policies, control and manage distributor promotional activities, and strictly prohibit price-reduction promotions (not convertible to cash).
When manufacturers set annual rebates or rewards, they must include inventory assessment, manage and control distributor market and warehouse inventory, ensure healthy inventory levels, and strictly prohibit volume-forcing stocking; otherwise, impose sanctions. Set reasonable and achievable distributor task targets to ensure branch offices and distributors do not maliciously stock up.
Market expenses invested by manufacturers (advertising, display, and other marketing expenses) must be operated by the branch office team and supervised by the supervision department. Prevent distributors from using this to lower product bottom prices.
For large custom orders, ship in small batches and high frequency to minimize channel crossing risks. Alternatively, implement a rebate system: if no malicious channel crossing occurs within a certain period after shipment, return a certain amount of rebate as a 'reward' to the customer.
For B2C and C2C online sales, Gaojujia Liquor has established a special team to search for products sold online and penalize distributors, stipulating that distributors are not allowed to engage in online channel sales. Personally, I believe the emergence of online sales means the definitions of distributors, sales regions, and channel crossing need to be overhauled, or even cease to exist. The development of modern logistics and wireless internet technology will promote the true establishment of a 'unified large market.' I will not elaborate on this issue here; it requires a dedicated new topic.
For distributors terminating cooperation, handle post-event inventory properly: recover or transfer inventory at reasonable prices to other distributors to prevent malicious cash-out behaviors that harm the market, achieving a good parting.
Branch offices should educate and guide distributors on market channel crossing behaviors, making distributors resist channel crossing from within.
The liquor industry is an ancient one. Due to the monopoly system in ancient and modern times, Chinese liquor enterprises' existing marketing and control methods are still underdeveloped. Many technological innovations have not truly been introduced into the liquor industry, and there is much we need to do...
Source: Yuanjing Consulting (ID: yjzixun) -END-