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Chapter 4: About Distributors
Selecting distributors is a required course for every market manager. Finding a suitable and ideal distributor is a dream goal for every manager. However, in practice, distributors can be both angels and devils, evoking deep love and hate.
The selection options for distributors are often proportional to brand strength. Strong brands have high standards for distributor selection, much like how a tall, rich, and handsome man might prefer a white, rich, and beautiful woman. Weak brands often have low entry barriers or even no choice. How to select an ideal distributor and which type is most suitable are fundamental skills that test a manager's market operation capabilities.
Distributors can be classified from various angles. Traditionally, we can categorize them into first-tier distributors, second-tier distributors, regional agents, brand-specific agents, exclusive distributors, large distributors, small distributors, and so on.
Classification 1
- Professional Type
Distributors in the same industry as the company are professional distributors. Their advantages include stable networks and customer relationships, ready to use. Their disadvantage is that most of them are distributors for competing products.
Weak brands entering a blank market lack market support, so without strong professional distributor support, business development is difficult. If you can leverage the competitor's channels to distribute your products, it's a shortcut with twice the results for half the effort.
How to use professional distributors to leverage channels and use competitor networks to achieve product distribution?
Seven Tactics for Channel Defection and Distribution
1: Find. Search for target distributors and establish detailed profiles of target distributors in the area to provide a map for channel defection.
2: Analyze. Analyze the operational capabilities and characteristics of these target distributors, including capital, warehousing, transportation, personnel, social relations, specialty channels, and price levels of products they handle. Classify these customers to find target channels that match your product.
3: Negotiate. Negotiations with target distributors should follow the principle of tackling the difficult first, and don't give up after one rejection. Prepare sufficient talking points before negotiations.
4: Entice. Distributors' profit desire is innate and unlimited, but they crave stable and safe profit methods. Professional distributors clearly know that high price differences for new products are a beautiful trap, so salespeople who simply tempt target distributors with price and margin prospects often fail.
Therefore, in a blank market, promotional activities should target the channel rather than bypass it to reach consumers. Market maturity requires channel maturity. What can make an ideal distributor's heart race is perceiving that your product is about to become popular. For example, increased distribution in core urban outlets, establishment of image stores and streets, and strong improvement in local areas.
5: Strike. Distributors' profits rely on outlets, so controlling outlets is their Achilles' heel. After listing the target distributor's subordinate outlets, launch planned attacks while negotiating.
6: Lock. Use a reverse approach to build channels, using personalized terminal policies to lock in terminals through stock pressure, display, volume commitment, and exclusive sales, thereby increasing your product's share in that distributor's sales, gradually shifting from mixed sales to main sales, exclusive sales, or even sole operation.
7: Exclusive. Stabilize customer profits, ensure price system integrity, and ensure only one supplier per store (or area), preventing cross-delivery.
- Non-Professional Type
Non-professional distributors are unfamiliar with the industry, commonly known as outsiders. These distributors are either rich but ignorant, like coal mine owners transitioning to liquor, with strong financial resources but no knowledge of the liquor market and management; or they are poor and ignorant, like teachers doing part-time liquor sales during holidays, with very limited capital.
Because these distributors are outsiders, they have a strong desire to find brands and high enthusiasm in the early stages of entrepreneurship. Finding non-professional distributors is easier and more likely. Once you find a "rich but ignorant" distributor, managers often feel like they've won the lottery, because the distributor's financial strength initially makes shipment volumes no problem. But after the initial burst, most of these distributors become disheartened, either because distribution is blocked, products don't move, sales are low, or they can't endure hardship or loneliness.
Finding a non-professional customer is not difficult; the challenge is how to help these distributors survive.
Classification 2:
- Couple Type
Two or three people, one or two vehicles—this is the real picture of this type of distributor. The entire team is the boss and his wife, with no finance, warehouse manager, or even accounting. Couple-type distributors are best suited as second-tier distributors. If they are fortunate enough to become first-tier distributors, they must undergo transformation and tempering from small to large. In this process, the roles of the boss and his wife are often subtle. Moon-type distributors, where the wife is the main character, have a much lower chance of growing big and strong than sun-type distributors, where the husband leads. Moon-type distributors only see "money" and are content with small profits; sun-type distributors focus on the "future," dare to invest, and are good at seizing opportunities, which helps them grow bigger and stronger.
Couple-type customers are convenient for multi-point development in the early market development stage, but they often become bottlenecks during market launch, facing constraints in vehicle and personnel allocation and service system support.
- Company-Type Distributors
Company-type distributors have relatively standardized management but higher fixed costs. These distributors vary greatly in size, from annual turnover of hundreds of thousands to hundreds of millions, and quality varies widely.
Classification 3:
- Direct-Sales Type Distributors
Direct-sales distributors use salespeople to directly supply and deliver to outlets. For manufacturers, direct-supply distributors can provide a flattened channel, shorten management levels, ensure delivery service, and stabilize prices.
Disadvantage 1: Focus on market, neglect sales.
They can quickly distribute products using direct-supply outlet relationships, generating sell-through; but they are picky and selective, making high-density full coverage difficult. According to the 80/20 principle, these distributors can control the 20% small outlets beneficial for market cultivation, but they can't reach the high-volume large outlets.
Disadvantage 2: Focus on mid-to-high-end, neglect low-end.
For low-end products, such distributors struggle because direct-supply costs far exceed distribution costs, so they prefer mid-to-high-end products with larger price differences.
Disadvantage 3: Focus on cities, neglect rural areas.
Rural market outlets are scattered, delivery costs are high, and product prices are low, making direct supply difficult. Especially in third- and fourth-tier markets, the three-level structure of county, township, and village poses an insurmountable barrier for distributors skilled in urban direct supply.
- Distribution-Type Distributors
All sales are achieved through second-tier or even third-tier distributors.
Advantages: Can quickly organize second-tier distribution to amplify sales.
Disadvantages: Focus on volume over quality, old products over new, old markets over new. These customers are mostly aging, with rough management and unstable price systems. Markets rise and fall quickly.
- Direct-Distribution Type Distributors
Part of sales comes from direct supply by salespeople, and part from second- and third-tier distributors.
The key to managing such distributors is the direct-distribution layout.
Areas controlled by direct sales: core urban outlets, flagship stores, and image stores.
Areas controlled by distribution: township and village outlets, urban circulation, small and medium restaurants, special channels, etc.
Direct-distribution customers should follow the principle of using direct sales to build the market and distribution to increase sales, with a balance between direct and distribution. The allocation of outlet resources should be controlled by the manufacturer. Once distribution issues arise, direct supply forces can temporarily replace the distributor's delivery in that area.
Classification 4:
- Exclusive-Type Distributors
Distributors that exclusively operate your product and no other brands. These distributors can devote all their capital, personnel, and energy, avoiding "collision" during peak and off-peak seasons. This type is suitable for building channel barriers in base markets and represents the highest level of distributor management.
- Brand-Exclusive Type Distributors
Customers operate multiple brands and categories, but for a specific category, they only operate your brand. For example, a distributor handles liquor, beverages, and beer, but only your beer brand. This type is suitable for building channel barriers in base markets.
- Main-Selling Type Distributors
Customers operate multiple brands, but your product is the main one. This type is suitable for channel transformation in offensive markets.
- Mixed-Selling Type Distributors
Customers operate multiple brands and also sell your product.
Newly opened distributors or markets are mostly of this type.
Classification 5:
- Regional-Type Distributors:
Distributors that operate your product within a specific region.
Setting regional boundaries for distributors is a necessary condition for channel management; otherwise, it leads to price cutting, cross-regional dumping, and wasted resources. Many manufacturers use a checkerboard pattern to configure distributors and sub-distributors in small areas. The advantages are focused development, clear responsibilities, fast development, and easy outlet service and maintenance. The disadvantages are that these distributors must be all-around, capable of handling all types of outlets. Often, their weaknesses show: those good at small outlets can't support large ones; those good at hotel channels are not good at supermarkets, resulting in strong foodservice but weak circulation, like walking with a limp.
- Functional-Type Distributors:
Distributors with agency rights for a sub-brand, category, or specific special channel. For example, professional KA delivery distributors, nightclub delivery distributors, or professional night market food stall delivery distributors.
Functional distributors solve the problem of regional distributors being picky, providing professional services for specific channels or consumer segments. However, facing complex and diverse terminal outlets, not only do you need many functional distributors, but more importantly, their delivery routes are complex and overlapping, with either duplication or gaps in coverage, making management difficult.
There is no best distributor selection, only the most suitable. In different markets and at different times, the purpose of selecting distributors will differ. From the above classifications, we see that each type has its pros and cons. How to activate different types of distributors in different markets and periods, and how to organize or streamline channels, are the most basic skills that test a manager's market operation capabilities.
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