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In our surveys, we often hear distributors complain: "The market is too chaotic; our products are being suppressed; competitors' prices are even lower than our ex-factory price; supermarkets want special promotions, what should we do?" and so on. In the current market, instability is pervasive, and distributors are troubled by market instability without knowing its root cause.
A reasonable market price system not only satisfies the interests of channel members and stabilizes the market environment but also raises the price barrier for competitors entering the market. Stable prices help distributors establish a good image in the market and among consumers. Therefore, stable prices are the prerequisite for maintaining market order.
Manifestations of Unstable Terminal Price System
Many distributors face the problem of a chaotic price system. Let's look at the troubles of Manager Yang, a distributor from Shandong:
"During a market inspection two months ago, I was surprised to find that one of my terminal customers had set an ultra-low selling price. My product was supplied at 6 yuan per bag, but this supermarket, for its anniversary celebration, offered a 'grateful feedback' price of 5 yuan per bag. What's more frustrating was the food department manager, who, when I asked him to stop the low-price dumping, explained that they were using their store's money to build our brand image. This clearly intended to leave me with nothing, making it hard to explain to the manufacturer and other customers.
What troubles me most is that once one supermarket slashes prices, others react strongly and follow with even lower prices, questioning why one store should sell at such a low price. Meanwhile, small and medium supermarkets that don't run specials will unite in protest, demanding the same 'special price policy' from distributors, or they'll clear your products from their shelves. How important is price system management! But when supermarkets don't follow the company's price system for manufacturer products, how can distributors maintain normal retail prices in hypermarkets, protect their interests, and uphold product image? I really don't know what to do."
Although many distributors recognize the importance of a stable price system, market chaos still occurs, hindering their development. Our survey reveals that price system chaos manifests in four main ways:
Price Inversion As distribution channels lengthen, sales costs increase, and product prices should rise. However, due to various reasons, as products flow through distribution channels, prices may not follow an increasing trend; instead, second-tier wholesale prices may be lower than first-tier wholesale prices, and retail prices may be lower than wholesale prices, causing severe profit losses for distributors.
Cross-Regional Dumping In the market, most distributors are selected by enterprises based on regions. However, driven by sales targets, year-end rebates, channel policies, and other interests, some distributors sell products at prices lower than other regions' market prices, causing price imbalances and cross-regional dumping.
Price Wars With intensified market competition, leading brands use scale, brand, and management to impact second-tier and local brands. Local regional brands counter non-local brands with regional advantages, making it difficult for distributors of second-tier brands. They have to resort to price counterattacks.
Supermarket Low Prices Some hypermarkets and supermarkets adopt everyday low pricing or parity pricing policies, forcing distributors to supply at prices lower than circulation channel prices, or even at ex-factory prices lower than channel retail prices, causing market price chaos. Supermarkets' strong position requires distributors to pay high entry fees, shelf fees, display fees, barcode fees, promotion fees, anniversary fees, and many other charges. Moreover, the traffic, brand effect, and future retail trends these terminals bring make distributors lower supply prices or even enter with no profit.
Causes of Unstable Terminal Price System
For a product to survive and develop in the market, it must rely on cooperation between manufacturers and distributors. Manufacturers are market controllers, and distributors are their most powerful executors. Similarly, stabilizing the terminal price system requires joint efforts from both. Our survey identifies seven main causes of terminal price chaos:
Pressure from Manufacturer Stockpiling When new products don't sell well, manufacturers encourage distributors to buy large quantities of bestsellers and slow-moving new products; some short-sighted salespeople require distributors to stock up heavily; at month-end, quarter-end, and year-end, manufacturer salespeople often push inventory to meet targets; during off-seasons, manufacturers encourage bulk purchases to achieve 'no off-season' goals, hoping to use channel push to grab market share and occupy channel funds; salespeople who only want one-off deals with distributors push inventory aggressively. When products become unsellable in their warehouses, distributors often resort to price cuts to boost sales and clear inventory, leading to price system instability.
Insufficient Manufacturer Market Control Manufacturers' weak management, control, and punishment of cross-regional dumping indirectly condone it. Dumping undoubtedly harms distributors, causing vicious competition and contributing to price chaos in their regional markets. When manufacturers set price systems, they may leave large profit margins for distributors, who then operate arbitrarily, not following the manufacturer's specified wholesale prices, causing terminal price chaos. Also, if manufacturers' sales incentives are too transparent, distributors may incorporate discounts into first-tier wholesale prices to earn year-end rebates, making second-tier prices lower than normal first-tier prices, resulting in price inversion. Inadequate incentives for distributors, second-tier wholesalers, and retailers can cause dissatisfaction and deliberate price disruption.
Internal Manufacturer Inconsistency Conflicts between manufacturers' own sales organizations can lead to price conflicts. Departments may operate independently, compete for customers, and offer inconsistent prices and promotional policies. This internal competition disrupts normal market operations, reduces overall manufacturer profits, and erodes distributor trust, leaving opportunities for competitors.
Improper Distributor Promotions Promotions are a double-edged sword: no promotion means waiting to die, but promotion can also be suicidal. This dilemma troubles all distributors. Currently, distributors' promotional methods are monotonous, always involving low prices, discounts, coupons, and endless price wars. Sales may be booming, but profits decline, promotion costs rise, and inventory piles up. The market price system becomes increasingly chaotic.
Vicious Competition Among Distributors Distributors' weak position makes manufacturers and supermarkets more aggressive. Sometimes, distributors are cut off. Some distributors who have worked hard for decades on a brand may face termination, intensifying conflicts. "If you don't let me do well in my region, I won't let you do well either." Thus, price dumping, vicious competition, and channel poaching become common. The result is a completely chaotic price system and mutual destruction.
Poor Terminal Relationship Maintenance Supermarkets are powerful, and distributors face immense pressure, not only paying high fees but also maintaining good relationships. If distributors fail to maintain relationships, supermarkets may force special prices, leaving distributors helpless and causing price chaos.
Low Distributor Execution Capability Some distributors don't know how to operate modern terminals, lack a unified market operation model, and neglect effective integration of modern and traditional channels. Inconsistencies in policies and prices between manufacturers and capable distributors also cause price chaos.
Six Strategies for Distributors to Stabilize Terminal Price System
Industry expert Wang Huanzhi, when discussing stabilizing the terminal price system, emphasized that distributors must recognize the importance of this issue and adopt necessary strategies. Based on surveys of mainstream distributors, we summarize six strategies:
Develop Strategies Based on Supermarket Price-Cutting Purposes Lu Yang, General Manager of Shenyang Sun Food Co., Ltd., stated that supermarket price-cutting is the 'most lethal killer' of the price system. Supermarkets primarily aim to attract in-store traffic through specials; as long as they draw customers, they can profit.
Therefore, instead of passively letting supermarkets attract traffic through price cuts, distributors should proactively conduct non-price promotions to help supermarkets increase foot traffic. Solving the traffic problem also solves the price-cutting issue. Distributors can use various promotional forms in supermarkets, such as value packs, gift promotions, and off-site performances. These promotions bring traffic and are welcomed by supermarkets, also serving as good relationship-building methods. Joint promotions and activities with supermarkets are also possible. For example, through media advertising, consumers who present newspaper ads or purchase within a limited time can get extra lottery chances or gifts, helping supermarkets attract additional traffic and being well-received.
Enhance Distributor Awareness Liu Caiqin, General Manager of Baoji Tianciyuan Trading Co., Ltd., said that most terminal price chaos should be attributed to distributors themselves. Currently, some distributors rarely go to the market themselves; they only go when manufacturer personnel drag them along. They don't implement manufacturer policies properly and fail to grasp the manufacturer's intentions. Distributors in supermarket channels rely entirely on supermarkets, lack their own opinions, and can't handle supermarket demands well. These issues stem from distributors' business awareness lagging behind market development.
Distributors should enhance proactive market awareness, go deep into the market, and understand it. Actively cooperate with manufacturers to control the market and provide constructive suggestions to supermarket systems. When distributors proactively take manufacturers to see the market and supermarkets proactively approach distributors to establish promotional policies, stabilizing the price system will no longer be a big problem.
Establish Incentive Systems for Second-Tier Wholesalers Qiu Xiaomin, General Manager of Shanghai Rongjin Company, said that distributors play an important role in stabilizing the terminal price system. Distributors maintaining the legitimate interests of sub-distributors is a prerequisite for channel stability. When sub-distributors are satisfied, they help maintain market order. When designing benefit distribution systems, besides reasonable price differentials, certain rewards should be given to effectively motivate their work. When establishing incentive systems, the key is to consider the 'degree'—what form, under what conditions, and how much reward to give, to avoid sub-distributors incorporating rewards into circulation prices, affecting price stability.
Control Terminals to Handle Promotions Expert Tang Daoming said that promotions are a major factor affecting the terminal price system. Distributors must grasp the characteristics of each terminal and conduct targeted promotions. A healthy promotion ensures our target customers' display, reasonable inventory, and relationship maintenance. Knowing this root, we can start from terminal control, analyze each outlet's basic situation, and find suitable promotional plans.
Additionally, controlling terminal stores requires distributors to conduct regular inspections and maintain good relationships. Controlling terminals is the foundation of a distributor's channel and the best guarantee for stabilizing the price system.
Rational Outlet Layout to Counter Vicious Competition Expert Wang Huanzhi said that vicious competition is the most common manifestation and root cause of price instability. To effectively curb it, distributors must strengthen their own capabilities.
We should classify our outlets reasonably based on product categories, scale, and store consumption characteristics. Classify according to flow speed, volume, direction, and geographical environment, and then distribute products accordingly. This can effectively control vicious competition.
Dynamic Adjustment to Handle Slow Sales Wang Xuzhong, General Manager of Suzhou Daming Express Sales Service Co., Ltd., said that when sub-distributors and terminals have slow-moving inventory, price chaos is likely because they may resort to price cuts or aggressive promotions to recover funds. Distributors should effectively identify such situations and create effective terminals. Some outlets or small shops that don't contribute to profits should be cut off. Most importantly, when launching new products, ensure customers can exchange goods to control slow sales.
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