The deep distribution work that has long supported sales growth has, in the past two years, seemingly been reduced to just one task: pushing inventory. Whether it's the manufacturer's sales reps or the distributor's sales reps, their basic work revolves around pushing inventory. Push, push, and push again—the channel is on the verge of collapse, yet they keep pushing. If pushing inventory made some sense over a decade ago, now I must loudly declare: pushing inventory is a sin. The big companies that once thought their brand strength gave them the right to push inventory now have the biggest problems, because big brands push the hardest. Pushing inventory has three major sins: it erodes manufacturer and distributor profits; it deforms the channel; and it deforms sales work. If we don't break free from pushing inventory, manufacturers will eventually be crushed by it. 01 How did pushing inventory go from beneficial to harmful? The original purpose of pushing inventory was not sales, but to "squeeze the distributor's warehouse" and "occupy the distributor's funds." An expert once vividly said during training: "As long as distributors have spare cash, they will go and 'keep a mistress' (meaning take on a new brand)." It should be said that this approach was initially very effective, so much so that some said "sales are squeezed out," referring to the fact that pushing inventory can generate sales. Indeed, as long as there is incremental growth, pushing inventory is a highly efficient sales method, because other sales methods require time to accumulate, while pushing inventory delivers immediate results. The method initially used by manufacturers to push inventory onto distributors was later also used by distributors to push inventory onto retail stores. Manufacturers directly gave the same inventory-pushing policies to retail stores that they had previously given to distributors. As a result, the main target of pushing inventory shifted from distributors to retail stores. The turning point for pushing inventory was 2014, because in 2013, most FMCG industries reached their historical sales peak, and in 2014, overall sales declined. What was the most efficient means to rescue declining sales? Of course, it was promotional inventory pushing. However, 2014 was different from the past. In the past, pushing inventory did not involve returns or exchanges; the goods pushed to retail stores could basically be absorbed. After 2014, retail stores could no longer absorb the goods, and if returns and exchanges were not allowed, the goods simply couldn't be pushed. So manufacturers and distributors compromised and allowed returns and exchanges. As long as returns and exchanges were allowed, any amount of goods could be pushed down, because retail stores had no worries. At this point, pushing inventory truly changed for the worse, from beneficial to harmful. Therefore, we must view things from a historical perspective of change. 02 Pushing inventory erodes manufacturer and distributor profits Pushing inventory naturally requires policies to support it. Now a phenomenon has emerged: no push, no sales. In a month, several rounds of inventory are pushed, and retail stores place orders several times. Retail stores have already calculated that manufacturers will inevitably push inventory, and manufacturers are certainly more impatient than retail stores, because manufacturers have monthly sales assessments, while retail stores do not have this burden. As pushing inventory continues, the "taste" gets heavier and the policy intensity grows. Therefore, inventory-pushing policies erode profits. The biggest impact on merchant profits from pushing inventory is actually the price chaos that follows. Price chaos disrupts the channel price system, thereby reducing merchant profits. When the pushed inventory truly exceeds the merchant's sales capacity, some merchants will engage in "cross-region dumping" or sell at low prices. This has a huge impact on channel prices. Even if only a portion of the products are priced chaotically, it creates a ripple effect. The impact of price chaos from pushing inventory on merchant profits is even greater than the impact of policy expenditures. In the end, pushing inventory results in sales without profits. After two consecutive years without profits, many distributors simply quit. In the past, it was common for manufacturers to replace distributors; now it's common for distributors to replace manufacturers. 03 Pushing inventory creates a pile of derivative work For a decade, marketing has been advocating deep distribution. One characteristic of deep distribution is bypassing secondary wholesalers to reach the terminal directly. In the first half of 2016, during a market survey, I noticed a strange phenomenon: "secondary wholesalers" were making a comeback. I was very surprised by this issue. Why did secondary wholesalers make a comeback? Because the intensity of pushing inventory has been increasing, and the policies are all tiered. Who benefits from tiered policies? Large terminals and secondary wholesalers benefit, while small stores do not. Small stores, due to their small purchase volumes, cannot access the tiered policies, so it is more cost-effective for them to purchase from secondary wholesalers. Thus, "secondary wholesalers" made a comeback. This comeback rendered years of deep distribution work futile. A few years ago, the sales reps' terminal visit cycle was about one week; now it has extended to an average of more than half a month. Moreover, much of the deep distribution work that was previously done has now been abandoned. After pushing inventory, there are returns; after returns, there is a need to find channels and pay a price to handle the returns; handling returns also affects normal sales. These tasks did not exist before, but due to excessive inventory pushing, they have become the "new normal." There is a county chamber of commerce that was initially formed to unite merchants against terminals, but later found that its biggest use was "collective handling of returns," and the scale of handling returns has grown. Because the work generated by returns is rigid, especially for short-shelf-life products, these tasks squeeze out normal sales time. Currently, distributors are reducing staff, and because of returns caused by inventory pushing, a large amount of work has emerged, squeezing out the distributors' normal work. When normal work is squeezed out, sales are naturally affected. When sales are affected, in the short term, only inventory pushing can compensate, creating a vicious cycle. Another phenomenon of marketing work being deformed by inventory pushing is: sales reps' visits to terminals have changed from "sequential visits" to "skip visits." Sequential visits mean visiting every store without missing any terminal. Skip visits mean only visiting large stores, not small ones. The shift from sequential to skip visits is not only due to the time taken by returns and exchanges, but also because inventory pushing usually does not involve small stores.
04 Let sales work enter a new normal
How should normal channel sales work be conducted now? When we criticize inventory pushing, we must find solutions. Some believe it should be deep distribution with stricter management, for example, some companies use SaaS systems to manage sales reps more strictly and solve the issue of terminal sell-through. I can only partially agree with this approach, because deep distribution is a human-wave tactic with low efficiency. Now that labor costs have risen, returning to the human-wave deep distribution of the past is very difficult. The real solution, in my opinion, is to rebuild the marketing system, mainly in two aspects: First, sales targets. Shift from a focus on sales volume to a focus on value addition. Put main effort into promoting new mainstream products. Here's a case. A manufacturer has three generations of products: newly launched products being promoted, best-selling products, and old products being phased out. I asked which category is the most profitable? Surprisingly, it was the products about to be phased out that were the most profitable. New best-selling products have high added value, but low sales volume and high policy intensity, so they are not profitable; best-selling products need policies to ensure they remain best-sellers; the old products about to be phased out, whether they sell or not, have no policies, and are actually very profitable. This case tells us that the excessive intensity of inventory pushing is due to too much concern for and reliance on the sales of old products. Only by developing replacement products can we say goodbye to relying on pushing old inventory. Second, precision distribution. The key to distribution is not pushing inventory, but sell-through. Sell-through relies on policies and personnel. Personnel are too expensive, so they must be used precisely. The key to precision distribution is big data. "Sequential visits" are inefficient, "skip visits" reduce sales, and only "precision visits" can solve this problem. The premise of precision visits is big data. With the widespread use of the internet, precision distribution is no longer a problem. Some companies are already doing this. This is what I consider the new normal for channel sales. Source: Teacher Liu's New Marketing -END-