---
title: "Practical Strategies for Small and Medium Distributors in Second- and Third-Tier Markets Operating in Retail Outlets"
description: "This article shares the successful experience of Lao Xiang, a distributor in a small southwestern city, who navigated the challenges of second- and third-tier markets by strategically selecting brands, negotiating favorable terms, and executing effective in-store promotions. His story highlights the importance of persistence, resource concentration, and targeted market penetration."
author: "王济保"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2016-12-22"
language: "en"
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# Practical Strategies for Small and Medium Distributors in Second- and Third-Tier Markets Operating in Retail Outlets

> This article shares the successful experience of Lao Xiang, a distributor in a small southwestern city, who navigated the challenges of second- and third-tier markets by strategically selecting brands, negotiating favorable terms, and executing effective in-store promotions. His story highlights the importance of persistence, resource concentration, and targeted market penetration.

First-tier markets such as Beijing, Shenzhen, Shanghai, and Hong Kong are fiercely competitive battlegrounds for companies and distributors, with extremely high costs, but if done well, the results are remarkably effective. However, for distributors in the vast second- and third-tier markets, the strategies used in first-tier cities are not practical.

Second- and third-tier markets have their own characteristics and peculiarities, but the market operation methods are basically similar. For small and medium distributors, what this article discusses is more practical. Let's take a look at the practical strategies for small and medium distributors in second- and third-tier markets operating in retail outlets:

Lao Xiang is a daily chemical distributor in a small city on the southwestern border. He started as a salesperson for manufacturers, and as he got older, he settled down and became a wholesaler. After several years of development, he transformed into a distributor for large supermarkets and registered his own company (because if he didn't transform, as a wholesaler, he would have been wiped out by the impact of large supermarkets locally). After years of hard work, his business finally began to improve. Let's analyze Lao Xiang's successful experience for your reference:

When Lao Xiang first started his business, he had no clue. He had no experience dealing with supermarkets and didn't know how to negotiate contracts. He basically signed whatever the supermarkets said. Initially, his company had no reputation or strength, so he couldn't get agency rights for larger brands, and smaller brands had little support. Lao Xiang found it very difficult, and his business was slow to take off. He even considered giving up. He was anxious every day, seeing only goods but no money. He fell into deep thought, thinking, "Why can others succeed and I can't? I must persist, or I'll be laughed at, and I won't be able to explain to my family." "That's it, I'll do it," he muttered to himself.

**Take a Step Back to Move Forward**

Lao Xiang decided to take a step back. He couldn't just stare at the existing products he was distributing; he needed to broaden his thinking and retreat in order to advance. One day, he began to implement his plan. Since he couldn't get agency rights for big brands and small brands had little support, he considered second- and third-tier brands. He could also consider manufacturers with strong support, and although small enterprises had less support, they had larger profit margins and higher market sales. After deciding on his strategy, Lao Xiang started running around looking for brand agencies.

Although Lao Xiang's company was not strong, he came from a sales background, so his professional knowledge and experience were his advantages. He used his network to find out which second- and third-tier daily chemical products were selling well in other places but had no local agent yet. He also looked for products with natural sales growth potential that had no local agent. Another option was to choose substitute competing products for small brands with market sales. Lao Xiang followed these three plans to select brands to represent.

**Product Agency Negotiation**

After two months of field research and study, Lao Xiang identified a third-tier brand company. The company was headquartered in Guangzhou, a hub for daily chemicals. The products had strong selling points, but their brand awareness was low, so larger cities were not very willing to cooperate. Because the company's strength was limited, it couldn't support the products entering the supermarket systems of big cities, but the products were very suitable for supermarket operations. Therefore, they were ideal for prefecture-level and county-level cities, as these areas had fewer supermarket systems, especially county-level cities, which typically had only 2-3 large supermarkets with lower costs. This made them very suitable for small city operations. Lao Xiang's location was a county town on the southwestern border, with only 2 county supermarkets and no more than 10 large supermarkets in the townships combined (actually, they were just large grocery stores), and many aspects were not very standardized.

Lao Xiang formulated his negotiation strategy and called the manufacturer. Manufacturers are generally very willing to deal with such situations, and soon a sales manager, Manager Wang, was assigned to liaise with Lao Xiang. **Lao Xiang wanted to get the agency rights for the entire county, but the other party only wanted to give him the county seat agency. Lao Xiang used his professional sales knowledge and experience to communicate why he should get the entire county agency rights.** First, the county seat had only 2 supermarkets, which couldn't support an agent. Second, by making the 2 supermarkets in the county seat successful, they could establish the brand image, and the townships would follow suit and proactively stock the products, leading to market-wide success. Third, Lao Xiang guaranteed 100% market coverage. After analysis, the manufacturer's representative granted the agency rights to Lao Xiang. Then came the intense negotiation over the initial order amount. The other party wanted him to pay 50,000 yuan for the first order, but Lao Xiang wanted to pay only 10,000 yuan. Lao Xiang understood that as a salesperson, asking distributors to order more was natural, as he also came from a sales background and understood the significance of sales commissions. So, based on reality, he said, "Manager Wang, I understand your intention to have me order more, but you need to consider my actual situation. First, I'm only starting with 2 stores, so there's no need to stockpile so much. The initial order just needs to be enough to sell. Second, there are 20 SKUs in total, and I'll start with 10 SKUs. At 2 cases per SKU per store, that's 40 cases, which is 10,000 yuan worth of goods. Having more goods sitting in my warehouse is not a good idea. You salespeople calculate commissions, but if I order so much at once and they don't sell, the manufacturer will have to take them back, and I'll lose storage and freight costs. If I order 10,000 yuan worth of goods first, I can maintain the channels well without pressure, and the product dates will be fresh. Once they're sold, I can replenish promptly, creating a virtuous cycle, and sales will definitely go up." After several hours of communication, Lao Xiang finally made a concession (because he really wanted the agency rights, and Manager Wang had subtly hinted that there were other potential distributors for the product locally). They finally agreed on an initial order of 20,000 yuan, which was close to Lao Xiang's expectation. The extra 10,000 yuan could be quickly digested with timely display and promotions.

Finally, Lao Xiang signed a one-year agency contract with the manufacturer, with an annual task of 200,000 yuan, monthly and annual rebates, and the manufacturer covering the barcode fees. The contract also established terms for handling soon-to-expire products, product quality issues, barcode fee reimbursement methods, minimum order quantities, distribution prices, and penalties for cross-regional sales.

**Initial Entry into Retail Outlets**

Based on the product and local conditions, Lao Xiang determined that in addition to the 2 large supermarkets in the county seat and 10 large supermarkets in the townships, there were also 30 medium-sized supermarkets in the county seat that could sell the products, maximizing sales. Lao Xiang planned to proceed in three steps: first, enter the 2 largest hypermarkets in the county seat to create model stores, establish brand image, expand influence, and increase product awareness; second, enter the 10 large supermarkets in the townships; third, enter the medium-sized supermarkets for full market coverage.

For the first step, Lao Xiang decided to enter with 10 SKUs. The barcode fee was 200 yuan per SKU at market price, but Lao Xiang had prior cooperation and good relationships, so he negotiated it down to 100 yuan per SKU. Thus, for 2 stores, the barcode fee was 2,000 yuan. With an initial shipment of 20,000 yuan, the fee ratio was 10%, well below the estimated market fee ratio of 25 points or less. The rest of the budget was to be invested in product displays and promotions.

**Solid Basic Displays**

Product displays have an obvious contribution to sales, and Lao Xiang knew this well. Displays are the most basic work, but many people don't pay enough attention to them. Displays are about showing more product faces to consumers, making them visible, available, and desirable.

1. Display Position
Position prominence: Key brand products should be placed in the best first position, i.e., at eye level.

Selection of shelf display positions:
The same product in the same store can have vastly different sales depending on the shelf position. Shelves typically have several heights: eye level, direct view, arm's reach, and knee level. Different heights have different impacts on sales. Generally, positions that are easy for consumers to reach have the highest sales.

2. Display Face
Display face refers to the area of the product exposed horizontally and vertically on the shelf. Everyone knows that only with more product faces can consumers see the product, and only when they see it can they decide whether to buy. In stores, each SKU must maintain at least 2 faces, or the product's display face must be equal to or greater than that of competitors, for the product to have good sales.

Practice has proven that reducing shelf space from 4 to 2 positions decreases sales by 48%, and from 3 to 1 position decreases sales by 68%. Increasing shelf space from 2 to 4 positions increases sales by 40%. Moreover, the display area of a product is proportional to its market share.

3. Display Hygiene
a. Keep it clean: Ensure the displayed products are neat, clean, and undamaged; keep shelves clean, undamaged, and rust-free; keep price tags neat, clean, and undamaged; keep promotional materials (such as shelf stickers, promotional posters) neat, clean, and undamaged.
b. Replace damaged products promptly: Damaged products do not increase sales; they harm the company and brand image, so they must be replaced promptly.

4. Display Freshness
Product freshness refers to the production date. Generally, the closer the product date is to the manufacturing date, the better the product is selling, and consumers are willing to buy fresh products. Imagine how many consumers would buy a product with only a few days left before expiration (unless it's a deep discount). Managing product freshness is important not only to promote purchases but also because if a product passes one-third of its shelf life, stores will refuse to accept it, leading to out-of-stock situations with barcodes but no products to deliver.

5. Display Assortment
Full assortment display unity: Full assortment display means displaying as many of a company's products as possible in a categorized manner on a regular shelf. This meets the needs of different consumers, increases sales, and enhances the company's image and product influence. Unity means that the overall style and tone of the product display should be consistent, and promotional materials should also be unified. However, full assortment display is limited by the number of barcodes, and unity requires a unified standard. Additionally, full assortment unified display applies only to shelves.

6. Display Formats
1. End cap display
a. Must display promotional product specifications with clear promotional information signs, such as "Special Price" or "Prize".
b. Products on the end cap should be kept full. Each end cap should display at most two SKUs, preferably one.
2. Floor stack display
a. Choose a location on the most frequented consumer path.
b. Stacked box display method: Pay attention to the stability of the base. You can use a cross-stacking method. POP and product packaging fronts should face consumers, with appropriate height for easy access.
Cut-case display method: When there are no fixed or custom floor stands or display racks, cut the full cases according to the box structure and label printing format, usually cutting the front into a trapezoid down to the lower waist. This allows full product display and uses the box for simple display.

7. Follow the FIFO Principle
Fast-moving consumer goods must follow the FIFO (First In, First Out) principle. Products with earlier manufacturing dates must be placed at the front of the shelf to be sold first, avoiding them becoming soon-to-expire items.

**Promotion and Marketing**

When planning promotions, to concentrate resources, Lao Xiang planned to run a promotion in one store first, and once successful, replicate it elsewhere.

In-store:
1. Stack and personnel: In the store, Lao Xiang hired a temporary sales promoter for 70 yuan per day for a 15-day period. He purchased a large floor stack in the best main aisle position for 300 yuan, which was supported by the company. Lao Xiang used the company's promotional materials, such as aprons, to decorate the stack, making it very eye-catching. The promoter was also trained in advance and had strong communication skills. This was the second step of Lao Xiang's promotional campaign. Some might ask, "What about the first step?" Don't worry; let's move from in-store to out-of-store.

Out-of-store:
1. Free sample distribution: Outside the store, we spent 500 yuan to rent a space, set up 2 umbrellas, placed 4 promotional tables, and stationed 2 of Lao Xiang's staff. They first distributed free samples to target customers for product promotion.
2. Trade-in activity: Additionally, near the supermarket service desk, close to the checkout exit, a promotional table was set up for a trade-in activity. Customers who spent over 58 yuan in the supermarket could add 1 yuan to get a 10-yuan beauty and skincare product for free.

Through these in-store and out-of-store promotional activities and interactions, they conducted terminal interception, maximizing promotional efficiency. **In the end, Lao Xiang made a big splash. Within less than 2 weeks, the entire county knew about the product. During the promotion period, he placed an additional order of 10,000 yuan with the manufacturer. The market heated up quickly, and product sell-through accelerated. Subsequently, Lao Xiang struck while the iron was hot and stocked all remaining stores, with 90% of them selling well.** By the third month, Lao Xiang began to make a profit. The manufacturer's fee ratio dropped to 20%, but that was enough for Lao Xiang because the products were already in all stores, so there were no more barcode fees, only promotional expenses. Moreover, after the initial market warm-up, the product could sell well without large-scale promotions.

**A careful analysis of Lao Xiang's ultimate success reveals the keys: persistence, discovery, and concentrating resources and efforts for targeted breakthroughs.**

Feel free to discuss your views and opinions with the author via email: wjb2002320130@163.com

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