Distributors in the growth stage need to elevate their marketing management to a more refined level. In this process, product portfolio optimization should be the top priority. As a form of feed-forward control, optimizing the product portfolio can prevent many hidden management risks in areas such as channel management, cash flow management, team management, and even financial management.
How should distributors view product portfolio optimization from the perspectives of competition and sustainable development? This is an important topic for upgrading distributor marketing management. When optimizing their product portfolio, distributors must comprehensively consider the following aspects:
Enhancing Internal Management
- When distributors represent multiple brands, each manufacturer's marketing model and operational procedures are often distinct, which directly reduces the distributor's operational efficiency. For example, Coca-Cola requires distributors to operate according to 22 channel types, while Uni-President requires a channel structure based on four major categories: wholesale, retail, HBR, and KA. The job positions supporting these two operational models are quite different. If a distributor tries to meet both requirements, it will inevitably lead to unclear responsibilities for sales staff, ineffective internal division of labor, and difficulty in ensuring professional market operations.
To resolve the internal diseconomies caused by a crude product portfolio, distributors must first be more cautious in selecting manufacturers. The operational models of different manufacturers should be roughly similar, avoiding the situation where internal staff take on too many roles or face blurred role boundaries, ultimately leading to a lack of responsibility among marketing personnel due to unclear duties.
- Another way to enhance the professionalism of channel management is to increase the overlap of sales channels among the represented brands, i.e., the compatibility between products. For example, Huiyuan and Sunny Delight, or Taizinai and Bright Dairy, may seem like similar products, but their sales channels are quite different. The former focuses on the catering channel, while the latter goes through traditional channels. Trying to cover both would stretch the distributor's resources thin and reduce operational efficiency.
If a distributor combines Huiyuan with Taizinai, or Sunny Delight with Bright Dairy, the channel compatibility would be higher, which is more conducive to improving logistics and distribution capabilities and enhancing service capabilities. The more focused the distributor, the easier it is to achieve specialization.
- Internal management improvement is largely a result of continuous learning. Distributors' internal management enhancement often relies on introducing mature operational methods and ideas. Therefore, the represented brands should include well-known brands or promising company brands. Such companies have comprehensive strength in marketing, management, and finance, allowing distributors to share resources directly with manufacturers and gain opportunities for learning and training. For distributors in the growth stage, learning the mature processes of established companies is a top priority, helping to avoid detours and shorten the exploration process.
Moreover, well-known brands often attract customers. Distributors can use these products to "drive sales" (带货). In the product portfolio, brand products with high visibility and price sensitivity can be used as traffic drivers to boost sales of non-brand products with larger profit margins.
- Products should ideally have some relevance, correlation, or complementarity, which is also an excellent product combination for "driving sales." For example, a distributor of alcoholic beverages can typically also represent tobacco products. As the saying goes, "Tobacco and alcohol are inseparable." During sales, two or more related products can mutually promote and boost sales. Selling alcohol to customers who order cigarettes is usually a sure win.
Moreover, focusing on a specific category of product portfolio essentially positions the distributor in a particular market segment, which helps build the distributor's own brand. For instance, a distributor who positions their development strategy as the "dried goods king" in a certain region will naturally be the first choice when customers think of dried goods.
Strengthening Financial Operations
- Generally, a distributor's product portfolio should be evenly distributed across the product life cycle. When mature products decline, growth-stage products enter the mature stage, forming a product growth ladder, thereby ensuring that business conditions do not fluctuate drastically. This is the optimal product portfolio in a mature market.
However, for distributors in the growth stage, upgrading to refined marketing inevitably requires channel flattening and adding more staff to manage the market. At this time, the product portfolio should also consist of brands that are mostly in the growth or mature stage. If most of the distributor's products are in the introduction stage and there are not enough growth-stage products, it is recommended to cut some "dogs" and even "problem products" while introducing or cultivating more "star products."
Because during the business upgrade to refined marketing, a clear sign is that the expense rate per transaction increases. If the market growth rate cannot outpace the expense growth with the help of refined marketing, it will usually worsen the distributor's financial situation and eventually lead to a cash flow crisis. This is a major hurdle that distributors must overcome during transformation.
- Optimizing the product portfolio by considering product seasonality can also improve corporate cash flow. For example, if the peak and off-seasons of two products are staggered, it ensures that total sales remain roughly stable and, from a capital perspective, the required cash flow can remain stable.
For instance, instant noodles and beverages have similar channels and can complement each other seasonally. Even complementary seasonality among similar products is common, such as white wine and red wine, beer, candy, and bulk candy, which can complement each other perfectly.
Some distributors initially represent fewer brands, but when initiating projects, they often face a dilemma in product selection. For example, when faced with two brands—one is a seasonal complementary brand and the other is a star brand—how to choose? It depends on the distributor's financial strength, financing ability, and financing costs. If financial strength is insufficient, it is recommended to choose the former, i.e., the brand with strong complementarity, as this product combination can significantly improve the efficiency of capital utilization.
Daily cash flow is important, but the main goal of operations is to achieve the optimal profit situation and relatively lowest risk through product combination. From the perspective of risk and return, according to the proportional relationship between the two, investment-type products with lower returns but stable growth can ensure the distributor's sustainable and steady operation. Such products are usually mature brand products, which help build and maintain a market network with high coverage. On the other hand, speculative products with higher returns but higher risks are undoubtedly a good source of profit. Combining investment-type and speculative products can, to a certain extent, balance risk and return, fully pursuing profit maximization and operational stability while avoiding and preventing risks.
At the same time, attention should be paid to the turnover speed of each product. Although the profit rate is determined by the ratio of profit amount to turnover speed, there are products with very large profit margins but also relatively slow sales. From a cash flow perspective, to keep cash flow stable, it is necessary to choose products with the shortest turnover cycles as much as possible, or at least ensure that the turnover cycles of various products are evenly distributed, to prevent the company from falling into a passive situation of insufficient short-term solvency due to insufficient cash flow.
Coordinating Channel Relationships
- The product portfolio should follow the principle of mutual exclusion, meaning that the sales of one product should not have a negative impact on another product. For example, Coca-Cola's Diet Coke and traditional carbonated beverages: the sugar-free Diet Coke is considered healthier, which directly affects the brand image and sales of its traditional sugary Coke.
Another example: many distributors want to "cover all" a certain category. For instance, some distributors represent both Coca-Cola and Pepsi, or both Uni-President and Master Kong, simultaneously representing two competing brands. Although this can reduce or avoid price competition, once a manufacturer implements a plan to increase market share, the distributor, fearing negative impacts on other brands, may distort the strategy execution or shelve it. Distributors may think they are benefiting from both sides, but in reality, they are reducing themselves to "middlemen" and "porters." In an environment without competition, the distributor's external market and internal management capabilities are difficult to grow, and it is also easy to trigger vertical channel conflicts. After all, manufacturers are very wary of such agency arrangements and may lose trust in the distributor's sincerity, which is also the root cause of non-cooperation between manufacturers and distributors.
- When making product portfolio decisions, distributors should not only weigh the above points comprehensively but also qualitatively consider market environment, personal relationships, and many other detailed factors. For example, if a distributor represents a certain brand, but one of their major clients already represents a competing brand, the two parties may become opposed due to direct competition between the two brands, even damaging their relationship. In such a case, the new product project is not worth the loss.
The above analysis is analytical. Distributors are limited by human, material, and financial resources. Product portfolio decisions must be made in a specific environment, combining new product projects with existing product categories, and then eliminating some products based on the above principles, so as to achieve the goal of enhancing the distributor's comprehensive competitiveness through the new product portfolio.
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