---
title: "Resisting Manufacturer Channel Flattening: How Distributors Can Counter Manufacturers"
description: "In the process of channel evolution, manufacturers and terminals have always been dominant, while distributors are passive and relatively weak. However, most distributors are unwilling to accept this role and strive to gain equal footing. This article provides practical advice from the distributor's perspective on how to avoid being bypassed by manufacturers through channel flattening, including managing distribution networks, building strong relationships with downstream clients, and increasing the cost of replacement for manufacturers."
author: "陆和平、 薛红伟"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2015-04-18"
language: "en"
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# Resisting Manufacturer Channel Flattening: How Distributors Can Counter Manufacturers

> In the process of channel evolution, manufacturers and terminals have always been dominant, while distributors are passive and relatively weak. However, most distributors are unwilling to accept this role and strive to gain equal footing. This article provides practical advice from the distributor's perspective on how to avoid being bypassed by manufacturers through channel flattening, including managing distribution networks, building strong relationships with downstream clients, and increasing the cost of replacement for manufacturers.

** Distributor Think Tank**
In the process of channel evolution, manufacturers and terminals have always been dominant, while distributors in between are passive and relatively weak. However, most distributors are unwilling to accept this role and strive to gain equal footing. Starting from this issue, we launch a series of articles titled "Distributor Think Tank," offering practical business development references from the distributor's perspective. We also hope readers will share their experiences or questions with us for broad exchange and mutual progress.

The theory of channel flattening has been popular for a while, seemingly a panacea for manufacturers' channel reforms. Manufacturers have been skipping first-tier distributors to deal directly with second-tier wholesalers, or even skipping second-tier wholesalers to deal directly with terminals. Traditional first-tier distributors accuse manufacturers of "burning bridges," feeling resentful that the markets they painstakingly built are easily taken away by manufacturers. Today, we stand from the distributor's perspective to discuss how to avoid such situations.

1. To avoid being affected by manufacturers' channel flattening, distributors should first flatten their own distribution networks. Some distributors have an unreasonable structure of downstream customers, where a few large customers account for a disproportionately large share of total downstream sales. Some distributors think that with a few good brands and a few large accounts, they can rest easy. However, second-tier wholesalers have low loyalty; they are not only targets for competitors but also potential development targets for manufacturers. Therefore, distributors should first flatten their own channels, develop a large number of small and medium-sized customers, and bring downstream as close to terminals as possible. Although this may increase service costs and complicate network management, being closer to the terminal market allows faster response and reduces operational risk (as sales risk is spread). Most importantly, manufacturers cannot afford to skip distributors and deal directly with so many small and medium customers because the service cost would be unbearable for any manufacturer.

2. The unreasonable structure of downstream customers also manifests in an excessive proportion of wholesale customers and too few end users. Wholesale customers are usually in the open market and easily noticed by manufacturers, while end users are in the shadows and have close relationships with distributors, making them less likely to switch. For example, distributors of industrial or building materials often have downstream customers consisting of retail customers, wholesalers, and decoration companies. Decoration companies are always their golden customers, while wholesalers are supplementary. Some distributors even claim they will never let second-tier wholesalers grow too big.

3. Distributors should establish two-way business relationships with downstream customers. For instance, if you are a regional distributor for Brand A, and your downstream customer might be a first-tier agent for Brand B, if the two brands do not compete, you can become cross-customers, with mutual interests interdependent. This makes it difficult for manufacturers to bypass distributors and directly develop downstream customers. This tactic is most effective with large downstream customers.

4. Establish personal leadership prestige and a position where you can rally others in the industry. Such distributors serve as role models for their downstream customers, who trust their judgment and business acumen. Basically, whatever brand they represent, their downstream customers will follow. Additionally, the distributor's character sometimes affects downstream customer loyalty. When visiting second-tier distributors, I sometimes hear them say: "Old Wu is a good person; he has never done anything to betray customers over the years. Following him is reassuring and worry-free." Think about it: if a manufacturer tries to bypass such a distributor to deal directly with downstream customers, it won't be easy.

5. Pay attention to the role of the distributor's capital platform and logistics platform. The capital platform, in simple terms, means bearing certain financial risks for the manufacturer, such as buying goods from the manufacturer with cash and then extending credit to second-tier wholesalers, or providing guarantees to obtain credit from the manufacturer to supply goods to second-tier wholesalers. Distributors with such financial strength greatly enhance their ability to resist manufacturers' channel flattening. The logistics platform works similarly.

Finally, distributors must face the reality of channel changes. Although protecting their own interests is important, if manufacturers change channel structures for strategic reasons, traditional distributors may find it hard to resist. Therefore, distributors should assess the situation, adjust their business methods to meet market competition needs, and protect their interests rationally rather than rigidly.

**How Distributors Can Counter Manufacturers**
■ Xue Hongwei

After reading the title, don't think I'm giving distributors "crooked tricks." My intention is to help distributors do well in their regional markets, become irreplaceable in those markets, and make manufacturers dare not easily harm distributors' interests.

The importance of distributors in the eyes of manufacturers can be categorized as irreplaceable, high-cost to replace, low-cost to replace, and easily replaceable.

Due to the strong position of manufacturers, they often do not consider distributors' interests when replacing them. Distributors, in a relatively weak position, need to protect their own interests by increasing the cost of replacement for manufacturers. The higher the cost for manufacturers to replace distributors, the more stable the distributors' position in the manufacturers' eyes, and the more qualified they are to counter manufacturers.

Distributors can increase the cost of replacement for manufacturers in the following ways:

**1. Monopolize an industry in a local market**
A county-level pesticide distributor in Shandong achieved a 70% market share locally. Any manufacturer wanting to develop that county market must first approach him, and sales policies must be made with his input. If they don't let him distribute, it means exiting that county market. A county-level instant noodle distributor in Hubei monopolized the distribution rights of major national brands. When second-tier wholesalers or terminals need to stock up, it's most convenient to get goods from this distributor, so any manufacturer must respect his opinions. Some strong manufacturers who don't respect strong distributors and seek other distributors have never succeeded in that market.

When a distributor monopolizes an industry or holds an absolute advantage in a local market, they are a "local strongman," and even powerful manufacturers understand the saying "the mighty dragon cannot crush the local snake."

**2. Lower the center of gravity and downsize customers**
"Lowering the market center of gravity" and "downsizing customers" were once tactics used by manufacturers against distributors. Distributors can completely "pay back in kind." The methods are:

First, before manufacturers lower their market center of gravity, distributors should lower theirs first. For example, before manufacturers shift their focus from city level to county level, distributors should first go down to county markets and gradually control them, so manufacturers have no need to continue lowering. Currently, manufacturers' market focus is trending from county to township, so distributors should take the lead and seize advantageous positions.

Second, before manufacturers downsize customers, distributors should downsize their customers first. A distributor in a city in Jiangsu has an important experience: "Never have a large customer." Manufacturers cannot deal with numerous small customers. Therefore, the smaller the customer scale, the more stable the distributor's market position.

**3. Maintain steady market growth**
As long as a distributor's sales volume maintains steady growth, any proposal to replace the distributor will be questioned—manufacturers can hardly bear the risk of market fluctuations.

How to ensure steady sales growth? One method is to continuously expand the market; another is to maintain a reasonable growth pace. A reasonable growth pace requires distributors not to fill the market space all at once, leaving room for future growth, and certainly not to overdraw future sales.

Manufacturers often have the habit of "whipping the fast ox." If a distributor's growth rate is too high in a certain year, manufacturers usually do not think the market is mature and appropriately lower sales growth targets; instead, they assume there will be such large growth space in the future and set higher sales targets. If the distributor fails to meet the targets, the manufacturer will have a trust crisis. Therefore, growing every year but controlling not to have too large a growth each year makes the distributor's position most stable.

**4. Form a cross-agency structure**
If distributors in the same region cross-represent each other's products, forming a structure of mutual trust, manufacturers will find it very difficult to find replacements because the replacement might suffer losses. Cross-agency creates mutual protection among distributors.

**5. Form a unique product structure**
The era of single-product marketing is over; the era of product portfolio marketing has arrived. If a distributor forms a product sales structure with multiple brands and varieties that complement each other, any single brand or variety would find it hard to survive independently. In other words, if any manufacturer's product cannot sell well without the distributor's existing product sales structure, the distributor's position will be quite stable.

**6. Create a sales situation of multiple varieties and small batches**
Many distributors hope for a single product to "bloom alone," but in reality, large-volume sales of a single product are vulnerable to competitor attacks and easy for manufacturers to control. Multi-variety, small-batch product sales are the most complex; manufacturers find it hard to control, and other distributors also find it hard to control, so the distributor's position will be relatively stable.

**7. Redesign sales policies**
It is not wise for distributors to withhold manufacturers' sales policies or implement them exactly as they are. Distributors should learn to redesign sales policies according to their regional conditions. This has three major benefits: first, it is closer to market reality; second, it makes manufacturers realize that distributors have strong market control capabilities; third, it makes manufacturers aware of market uniqueness, increasing their trust and reliance on distributors.

**8. Establish the distributor's own marketing organization**
For distributors who rely solely on the boss or a few individuals to operate the market, manufacturers always think they are easy to replace. If a distributor builds a sales team and operates the market meticulously through the team, manufacturers will realize the complexity of replacing the distributor and the risk of the new distributor's operational capability, making them hesitant to replace.

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