Choosing a product is not just a technical task but a strategic decision for distributors.
Four Channel Power Models
When entering a market, every company chooses a different marketing model. Based on two dimensions—channel push and brand pull—these models can be roughly divided into four categories (see Figure 1).
Product Pull Model
A typical representative of the product pull model is Taiwan's Uni-President. Uni-President's marketing model can be summarized as "channel + product." Uni-President generally adopts a differentiated product strategy, but not entirely. Many of Uni-President's products are not developed by themselves; if a product sells well in the market, Uni-President immediately follows up. This not only saves R&D costs but also keeps up with market trends. Before launching a new product, Uni-President conducts rigorous market research to refine product taste and uses scale production to reduce costs. In terms of channel price difference design, they adopt a low-price-difference channel profit system. As a result, high-quality products at relatively lower prices naturally ensure Uni-President's product strength and sales power.
Uni-President believes that "the channel is the feet of the product." Therefore, Uni-President pays great attention to channel construction. Its marketing expenses are basically spent on channel maintenance, and channel customer resources are almost entirely controlled by Uni-President's marketing personnel. Distributors only need to stock and deliver goods. The profit distributors earn is only the warehouse and freight fees paid by Uni-President, plus interest on the goods.
Because of strong product strength and smooth channels, Uni-President's marketing model results in fast product turnover, high capital turnover for distributors, and thin margins but high volume, leading to a naturally high return on investment. This type of brand is the best investment for distributors.
Brand Pull Model
The typical representative of the brand pull model is Procter & Gamble. Its marketing approach is to use powerful advertising from all directions to quickly establish strong brand influence in consumers' minds, "occupying" their mental resources, and even subtly influencing consumers to turn brand consumption into habitual consumption. This brand influence pulls product turnover, thereby maintaining channel profits.
This marketing model has high brand building costs, and if not executed well, it can easily become sunk costs. This model is suitable for products with large market capacity, so that marketing expenses per unit product are relatively low. Ideally, the market capacity is large enough that average costs approach zero.
Price always returns to value. If the allocated costs are high, consumers will gradually abandon brands that are "not really cost-effective" once they become familiar with the product. For example, in the case of Qinchun, CCTV advertising created strong market influence, but consumers learned a fatal piece of information: in 1997, Qinchun had sales of less than 700 million yuan but had to pay 321.2 million yuan in CCTV advertising fees. The logical result is: does Qinchun's price match its value? The answer must be no.
Interest-Driven Model
The interest-driven model operates by reducing manufacturing costs by any means, but packaging is aligned with strong brands in the same category. By "sticking close" to well-known brands (placing products alongside them to leverage their brand halo for sales), they target similar products at the same price point, while attracting consumers with slightly lower prices. This low-cost, high-price marketing approach creates very high channel price differences, which extremely stimulates channel intermediaries. Therefore, many distributors spare no effort to promote such products. As a result, this type of product can enter the market very quickly, almost overnight spreading to every corner of the market.
This model is very suitable for weak brands to counter strong leading brands and enter the market. For example, in the FMCG industry, Future Cola's "trump card" against Coca-Cola was to exploit intermediaries' pursuit of profit, using interest-driven tactics to gain an advantage in second- and third-tier markets where Coca-Cola was weak.
Most of these products are suspected of being counterfeit, though some brands do adopt a follow-up or "borrowing momentum" marketing strategy. Many brands and products use this method to accumulate funds. They adopt a "hands-off" approach with distributors, allowing them to operate the market freely, and even prefer distributors to buy out the brand. The interest-driven model can be described as a typical one-off deal, but for distributors with speculative preferences, it's like Zhou Yu and Huang Gai—one is willing to give, the other is willing to take.
Dual-Driven Model
The dual-driven model can be seen as an evolution of the interest-driven model, most common in the health products industry. On one hand, it designs relatively high price difference spaces in the channel, even deploying strong promotion and distribution teams to create powerful channel push. On the other hand, it uses strong and intensive advertising to pull the market, often achieving immediate sales results.
However, this model also cannot last long. Because such huge marketing expenses must be allocated to individual products, the only way is to set terminal prices very high in the price system design. On one hand, it exploits consumers' psychology that "you get what you pay for." On the other hand, it creates an excellent concept. In the health products industry, such examples are everywhere: either exaggerating product efficacy or creating a "novel" new invention, high-tech concept, and then vigorously hyping the brand.
This marketing model is more suitable for second- and third-tier markets. These areas have relatively closed information, and consumers' learning ability (cognitive ability regarding brands and products) is weaker compared to first-tier markets. Many health products are easier to operate in second- and third-tier markets or underdeveloped areas, taking advantage of consumers' lack of awareness of the true benefits of products. Once consumers deepen their understanding of the product, the product or brand will soon come to an end. It is precisely this inherent drawback of the marketing model that makes it difficult for the health products industry to break through the "two to three years of glory" barrier. If we were to use two words to comment on this marketing model, "hype" might be a bit extreme, but for some health products, it hits the nail on the head!
There are also successful cases adopting this marketing model. For example, Zhuzhou Tailinai (太子奶). When entering the market, Tailinai designed very high channel price differences, with gross profit of about 50% at the distributor level alone, which greatly motivated distributors to promote the product. After opening up the market, Tailinai began to focus on brand building. In March 1996, product development was successful. In October of the following year, the group won the CCTV daily consumer goods "Bid King" with 88.88 million yuan and established a long-term strategic partnership with CCTV, starting its journey of brand influence marketing.
A Brand Is a Business Philosophy
Among the four marketing models, the latter two models can start channels relatively quickly, but they often "come fast and go fast." The interest-driven and dual-driven models have inherent deficiencies for the sustained growth of products and brands—such as high channel price differences, high unit marketing costs, and difficulty in improving product cost-performance (no selling point for consumers).
The reason can be best explained by the economic theory of price returning to value: First, in the early stages of market operation, due to fewer channel intermediaries, insufficient horizontal and vertical information flow in the channel, and less intense competition, the high price difference space in the channel can be "luckily" maintained. However, as the number of intermediaries increases, competition becomes more intense, and information becomes more transparent, leading to bargaining vertically and price cutting horizontally, reducing channel profits. On the other hand, as consumers gain experiential knowledge and deep participation, they will eventually realize the fact that product price deviates from value, lose trust in the product, and gradually switch to other brands.
It is precisely this inherent deficiency that causes many manufacturers adopting these two business models to put profit first from the beginning, even above the long-term sustainable development of the brand.
From the perspective of business philosophy, it is not difficult to understand that every time a distributor represents a brand, it is actually introducing a business philosophy. This marketing philosophy determines the limitations of the distributor's strategic formulation.
Imagine a distributor who originally wants to operate steadily and develop long-term but mainly represents a speculative brand. If the manufacturer just wants to make a quick profit and leave, while the distributor wants to build it into a strong brand, the more effort the distributor puts in, the greater the risk. In this specific environment, the distributor's business decisions must be based on adapting to the manufacturer's business philosophy, and their strategic thinking will be greatly restricted by the manufacturer's philosophy.
Moreover, if the manufacturer and distributor cannot agree on basic business philosophy, they will eventually part ways unhappily. For example, if a well-known brand finds a risk-preferring distributor, such distributors are naturally somewhat eager for quick success and instant profit, and they are more inclined to become "brand killers." A series of speculative operational methods (such as channel crossing, excessive promotion, and other predatory market tactics) will accelerate the product's life cycle.
Don't Choose the Best, Choose the Most Suitable
Each marketing model has different requirements for the distributor's human resources, material resources, financial resources, downstream network construction, and even risk preference. This also determines that not every brand is suitable for all distributors.
Distributors need to know which brand is most suitable for them to represent, and clearly understand the resource requirements of each marketing model, as well as which marketing model best matches their own resources and endowments.
For example, under the product pull model (as shown in Table 2), companies place great importance on the distributor's network foundation, followed by distribution capability and human resources. The pressure on the distributor's capital is not very high, and the business situation is relatively stable, making it suitable for channel intermediaries with insufficient cash flow and limited financing channels.
Interest-driven products or brands have larger profit margins, but turnover is slow, and capital occupation is serious. They are suitable for distributors with spare cash, especially those who want to accumulate initial capital through agency and are willing to take risks for speculative short-term operations.
In addition, from a strategic, or short-term strategic, perspective, representing different brands brings different added value to distributors. For example, for new distributors, the urgent task is to build their customer network. If they have sufficient funds, representing an interest-driven brand is more conducive to channel network construction, after all, profit space is the best means to win over downstream customers. Conversely, for distributors with insufficient financial strength and poor risk tolerance, it is best not to represent interest-driven brands, but rather product pull brands, to operate steadily and step by step.
For distributors who have been operating for a long time, have certain financial and scale strength, and have a low marginal growth rate, it is more suitable to represent brand pull brands. These brands are relatively stable in operation and are excellent market "defense" tools, helping to maintain their regional leading advantage.
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