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Success can sometimes be achieved through a single breakthrough, while failure can result from "a thousand-mile embankment collapsing due to an ant hole." Although no enterprise or distributor can cover every aspect in operations, we must grasp the key factors to adapt and thrive. Below, we examine the six key elements that a distributor must pay attention to for survival and development.
1. Product Structure Without matching products, it is extremely difficult for a distributor to develop. A well-matched product line or brand can enable a distributor to grow rapidly from weak to strong. Conversely, an ill-matched product line can quickly plunge the distributor into operational passivity or difficulties.
Whether operating a single brand or multiple brands, a distributor must distribute or create a super product that can build networks, maintain networks, and circulate quickly. Otherwise, no matter how strong your capital, how capable your team, or how advanced your concepts, you will remain stuck in stagnant anxiety.
Some say that distributors must operate multiple brands or categories. I neither affirm nor deny this. If operating a single brand, you must create a super single product. According to product structure rules, the ratio should be 1:3:6—that is, image products should account for only 1, high-profit products should not exceed 3, and fast-moving products should not be less than 6. This minimizes risk. If operating multiple brands or categories, the combination should roughly match the 2:3:5 rule: no more than 2 cultivation-type products/brands, no more than 3 growth-type products/brands, and no fewer than 5 mature-type products/brands. This brand combination model is the safest, ensuring that any internal or external changes will not cause severe damage to the enterprise.
Currently, many distributors, whether large or small, do not understand this principle. They treat profit products or self-developed products/brands as their lifeline, resulting in slow product circulation and slow brand growth. They are forced to constantly recruit/replace dealers, ultimately turning profit products into burdens rather than assets. We see many large distributors that appear large and glamorous on the surface, but their downstream customer quality is poor. Constant recruitment/replacement and volume growth have harmed countless small distributors.
2. Channel Network What is the distributor's responsibility? It is to cover the market's retail terminals with the products they distribute and serve them well. The sales network controlled by the distributor is the primary condition for enterprises to choose a distributor. The more complete and systematic the channel network within the distributor's operating area, the higher their status in the manufacturer's eyes, and the greater their sales potential.
When establishing their channel network, distributors should avoid the following four major pitfalls:
1. Is a larger area always better? Many distributors, just starting out, are eager to position themselves as general agents, completely ignoring their economic strength and operational capabilities. They think that expanding the distribution area increases sales opportunities. They believe that even if yields are low, they will still gain something. However, the actual results are often not as expected.
If the distribution area exceeds what you can control, first, it easily leads to waste of limited resources and low efficiency; second, it is difficult to achieve the targets set by the manufacturer, making it hard to gain strong manufacturer support; third, as the manufacturer's market operations advance, they may carve out the half-developed market you have worked on, leaving you to work for others' benefit.
2. Is a more comprehensive network always better? A distributor's distribution system generally falls into four types: modern channels (supermarket systems), traditional channels (circulation systems), catering channels, and special channels (or group buying).
Many distributors are accustomed to blooming in all areas, operating in all systems. But the effect is counterproductive.
The main reasons are threefold: first, insufficient capital reserves cause a shortage of working capital; second, the characteristics of the product structure determine that some channels have high operating costs, making them not worth the effort; third, distributors have different social public relations capabilities, and some channels require social resources that they lack.
3. Is thinner profit always better? Many distributors, in order to win over sub-distributors, reduce their own profits to very low levels, even breaking even, just earning manufacturer rebates. Their purposes are twofold: first, thin profit but high volume still makes money; second, this product doesn't make money, but sub-distributors help sell other profitable products.
However, in practice, this approach has many drawbacks: first, distributors should seize opportunities to earn what they should. For products on the rise, compressing distribution profits too much will miss profit opportunities; second, it trains sub-distributors to bargain and use price as leverage; third, it may cause manufacturer dissatisfaction. Disturbing product prices can lead to manufacturer penalties.
4. Is stronger control always better? Whether in the initial construction of the network or in the later maintenance phase, it is not that stronger control is better, but that it is more stable. Especially in the initial point placement stage, where each point falls is crucial. This requires the distributor to have a big-picture view. Points should be appropriately spaced, and lines should connect points. The network you cast out must be retrievable. This requires establishing stable cooperative relationships with each sales point.
Network control does not stem from strong coercive force, but from balanced distribution of outlets, product matching, profit distribution, and service quality.
The downstream network is simple: whoever offers higher profits, easier-to-sell products, and better customer relationships will be the one they continue with.
3. Capital Flow In business, a distributor must have two essential conditions: network and capital.
Distributors are the intermediate link between manufacturers and terminals. Currently, manufacturers generally require cash on delivery, with few credit lines. Retail terminals often have accounts receivable. The distributor's financial strength often determines their development scale. Maintaining smooth cash flow is essential to sustain normal operations. Distributors should pay attention to the following points to keep cash flow smooth:
Control the number of products operated. Many distributors have the habit of "wanting more," thinking that the more products they operate, the better. They believe that: (1) more products allow full utilization of customer resources; (2) distribution costs will decrease; (3) new sales opportunities will increase. However, too many varieties can disperse your operating funds and attention, weakening the advantages of core products. Distributors should operate a number of products that matches their capabilities. Sometimes 1+1 may not necessarily be greater than 2.
Selectively enter catering and supermarket systems with longer payment cycles. From the manufacturer's perspective, they hope their products enter all catering and supermarket systems in the distributor's operating area. However, distributors must evaluate each catering and supermarket system, examining their payment reputation, payment cycles, and operating conditions. Prioritize those with short payment cycles and good business. The number of entries should be determined based on your financial situation and risk coefficient, leaving room for yourself. When you have capital problems, manufacturers will not consider how much you have tied up in supermarkets.
Operate more cash-on-delivery terminal stores. Many small and medium-sized retail stores in various regions operate on a cash-on-delivery basis. Operating more of these stores may increase transportation costs, but capital turnover is faster. As long as the distributor provides good service, the quantity can be large, and monthly sales can be considerable.
Manage inventory well. Distributor operations are not about hoarding; rapid capital turnover is sometimes more profitable than high margins. Therefore, to manage inventory well, distributors must classify inventory reasonably. Reasonable inventory is divided into three categories: first, products with fast turnover and low profit—fast-moving inventory; this type can be increased, as larger purchases yield higher profits; second, products with high profit and growth potential—growth inventory; this type should be moved in and out quickly, never hoarded; third, long-tail inventory with relatively high profit but slow turnover—this type should never be stocked, regardless of favorable policies.
Establish an effective accounts receivable management mechanism and a customer credit system to reduce business risk.
4. Manufacturer-Distributor Relationship A distributor's development cannot be separated from the enterprise. Establishing a good cooperative relationship with manufacturers is beneficial for performance improvement, profit returns, channel improvement, and self-development. The relationship between distributors and enterprises is both cooperative and competitive. Distributors should skillfully use this relationship to maximize benefits and progress in cooperation and negotiation with manufacturers.
Mutual understanding and communication are essential. Distributors' tactical execution must align with the enterprise's long-term planning, and they should leverage and integrate upstream manufacturers' resources to strengthen their terminal network building. In the context of emerging channel changes, manufacturers hope that distributors' operational thinking is highly coordinated with corporate philosophy and can cooperate in channels and terminals. Only then will manufacturers provide more support and investment. Therefore, distributors should maintain a positive attitude, cooperate closely with enterprises, and use their resource advantages to jointly manage and operate the network, achieving a true win-win situation.
Leveraging manufacturers, distributors should also build good relationships with manufacturers' local offices. Currently, manufacturers often use remote management for their local offices, which cannot cover every detail. Most manufacturers' monitoring systems are not comprehensive, making it impossible to check whether all local offices are precisely executing instructions. Distributors, however, can use their familiarity with local geography, customs, and habits to form good cooperation with local office personnel: providing maximum help and advice in formulating market strategies; closely cooperating in business execution. Since the initiative for policy execution basically lies with the local offices, and the interpretation of policies is also up to them, handling the relationship with local offices well can largely avoid conflicts with manufacturers and also gain maximum market benefits.
5. Team Management Management is often a weak point for distributors, but good management can greatly enhance a distributor's ability to resist risks. Systematic management includes terminal planning, terminal visits, terminal promotions, personnel management and assessment, information feedback, risk warning, and more.
The most important aspect is building an excellent team, which is the foundation of systematic management.
Personnel management is a recognized challenge for distributors. Common issues include: how to retain and effectively use old employees; how to manage well and improve team execution; how to conduct management training, supervision, and assessment; how to enhance team cohesion. Distributors must solve these problems one by one.
First, for old employees, address their concerns, such as purchasing pension insurance and medical insurance, and providing annual salary increases, giving employees new hope each year.
Second, review company systems, formulate practical systems and processes, and strictly implement them.
Third, have careful planning, and after execution, conduct assessments, rewards, and punishments with meticulous consideration.
Fourth, reduce the impact of human factors on the company by managing people through systems. This way, even if there is significant personnel turnover, it will not affect the distributor's development, and it avoids the impact of internal cliques on management execution.
Finally, respect your employees, treat them well, and listen to their voices, so they feel a sense of belonging and responsibility.
Of course, some management issues are difficult for distributors, and many currently lack the resources and capabilities to fully achieve them. But at least they can start with the easier aspects mentioned above and gradually improve and enhance. In short, as long as distributors maintain a good learning attitude and continuously strive for self-improvement and development, they can gradually complete systematic management.
6. Trends and Opportunities Those who follow trends win the world. Being adept at grasping trends and insightfully identifying opportunities and needs is also an indispensable key factor for a distributor's survival and development. The key point is whether the distributor can keenly perceive changes in consumer and customer needs. If they can seize opportunities, they often achieve breakthrough development.
Keen market insight. Be good at thinking and summarizing regular patterns. Changes in the industry environment, consumption environment, and the life cycles of your own products and competitive brands are all things distributors must pay attention to. Not only should you pull the cart, but you must also look up at the road.
Be good at promoting new products. Many distributors believe that product market promotion is the manufacturer's responsibility, and they just need to cooperate. This view is one-sided. The successful promotion of a new product is the result of mutual cooperation and joint efforts between the manufacturer and distributor. From the manufacturer's perspective, if the distributor has strong market promotion capabilities, the manufacturer will designate their operating area as a key promotion area, and investment will be tilted, increasing the success rate of new product promotion, benefiting both parties.
Be good at discovering new sales opportunities. Any opportunity arises from unmet needs or needs being "raped," giving birth to new opportunities. For example, a certain tobacco and alcohol chain discovered that customers not only need genuine wine but also convenience, so they launched a telephone sales path of "delivery for even two bottles," rapidly expanding their chain. Similarly, in Shandong, a liquor store found that the markup rate for beverages in catering terminals is usually as high as 100%, far higher than in supermarkets and liquor stores. So they accepted customer orders through an online website and telephone customer service, used densely distributed liquor stores for delivery, and promised to deliver wine to the designated location within 29 minutes.
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