---
title: "The Deep Causes of Manufacturer-Dealer Conflicts and Solutions"
description: "Conflicts between manufacturers and dealers are an inevitable result of industrial development and channel transformation. To avoid conflicts and achieve healthy development, it is essential to integrate and adjust the value of both parties. This article analyzes the types, deep causes, and solutions for manufacturer-dealer conflicts."
author: "New Distribution"
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published: "2014-09-13"
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# The Deep Causes of Manufacturer-Dealer Conflicts and Solutions

> Conflicts between manufacturers and dealers are an inevitable result of industrial development and channel transformation. To avoid conflicts and achieve healthy development, it is essential to integrate and adjust the value of both parties. This article analyzes the types, deep causes, and solutions for manufacturer-dealer conflicts.

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Nowadays, conflicts between manufacturers and dealers are an inevitable result of industrial development and channel transformation. At this stage, to avoid conflicts and move towards healthy development, it is necessary to carry out integrated adjustment and transformation of manufacturer-dealer value.

**Types and Characteristics of Manufacturer-Dealer Conflicts**

There are many types of manufacturer-dealer conflicts, which can be roughly divided into the following categories:

**First: Competition for dominance and voice in channels and regional markets (striving for long-term competitive advantages).**

This is the most fundamental conflict, a strategic and survival model conflict. It manifests as manufacturers shrinking dealers' territories and weakening their functions. This type of conflict can be further divided into two categories: conflicts in terminal markets and conflicts in second- and third-tier markets.

In terminal markets (such as Beijing, Shanghai, Guangzhou, etc.), due to the increasing flattening, chainization, and intensification of terminals, manufacturers and terminals need to directly connect and communicate. For traditional dealers, this deprives them of the right to dialogue with KA stores. Because resources are concentrated in the hands of manufacturers, dealers lack resources, leading to traditional dealers being sidelined: they are reduced to logistics distributors, but they have no say in how products are sold, what categories are sold, or how pricing is set. Many dealers have started to retreat from terminal markets, but some do not understand or are unwilling to give up this market, so they engage in games and disputes with manufacturers.

Additionally, as various industry markets mature and competition intensifies, sales growth in many industries now comes not from first- and second-tier markets but from second- and third-tier markets, or even third- and fourth-tier markets, such as induction cookers, electric fans, and rice cookers. Many companies have realized that they need to intensively cultivate second- and third-tier markets rather than just expanding blindly. When manufacturers shift their focus to second- and third-tier markets, their requirements for dealers become higher: dealers must cooperate with manufacturers. If dealers cannot go deeper and cultivate intensively, manufacturers may shrink their territories or replace them, leading to conflicts.

**Second: Short-term operational interest conflicts.**

This is a conflict at the strategic level and in cooperation models. Dealers, in pursuit of short-term interests, may adopt improper sales methods such as price cuts, cross-regional dumping, and price chaos. There is a significant contradiction between these short-term interests and manufacturers' long-term interests. There are also conflicts caused by manufacturers' multi-channel strategies. In a region where a dealer was solely responsible for sales, if KA stores start a price war, the dealer's interests are damaged, and if the manufacturer does not manage it or manages it unfairly (dealers believe that manufacturers have no bargaining power with KA stores but do have bargaining power with them, so they squeeze them).

**Third: Conflicts in daily management.**

This is an operational-level conflict, mostly caused by inadequate management measures by manufacturers. For example, manufacturers have vague legal policies, require dealers to take inventory, demand payment before delivery, and then delay settlement. Sales representatives may have low quality, fabricate stories to deceive dealers, etc. Dealers may either overstock or run out of stock, and they do not understand or resist manufacturers' practices.

**Deep Causes of Manufacturer-Dealer Conflicts**

**First, strategic-level conflicts are inevitable in the process of China's channel transformation and are independent of human will.**

This is essentially a matter of repositioning in the industrial chain and shifting profit zones. In terms of profit zones, previously profits moved from manufacturers to the channel, but now they have shifted to the terminal. As the voice and profit distribution in the industrial chain adjust, the upstream-downstream relationships, voice, leadership, and profits across the entire chain need to be reconfigured and adjusted.

This adjustment of voice is mainly reflected in two aspects: the rise of retail terminals and the concentration of brand resources. This weakens traditional dealers' voice in the industrial chain, changing the upstream-downstream structure. Upstream brands are becoming more concentrated, so manufacturers have higher requirements for dealers—coverage of second- and third-tier markets, activation of regional markets, terminal maintenance and service, timely distribution, etc. However, dealers' functions and development have not kept pace, leading to "big manufacturers bullying dealers"—requiring payment before delivery, distribution, channel coverage, etc., and if not achieved, cutting them off. Downstream retailers have also become chainized and concentrated, gaining bargaining power—"big stores bullying dealers." Only the middle channel is fragmented and weak, lacking bargaining power. Traditional dealers do not have an irreplaceable position in the distribution process, squeezed from both ends. In this macro industrial context, the voice in core markets is held by terminals, and in second- and third-tier markets by brand owners, leaving dealers unsure of their role. No one voluntarily exits the historical stage; they struggle, and struggle leads to conflict.

Why does this conflict appear only now and not before or in the future? In three to five years, this situation will not occur because by then the channel will be streamlined. Look at foreign countries where channel conflicts are rare. From a deep strategic perspective, this is an inevitable pain in the process of business format change and transformation. It is independent of human will. Rational dealers should see that the environment, time, and place have changed, and they must transform quickly; otherwise, they will be abandoned by the times and trends.

**Second, conflicts at the strategic and cooperation model level arise because manufacturers and dealers have not reached a strategic consensus.**

Issues such as profit rebates, responsibilities and rights, regional protection, and multi-channel conflicts are essentially caused by strategic factors. The superficial reason is that manufacturers need to raise requirements for dealers and adjust channel strategies and models, but manufacturers and dealers have not reached a strategic consensus during this adjustment process: it is not that manufacturers want dealers to do this, but that the market requires it. Some dealers think manufacturers are forcing, eliminating, or playing tricks on them, but in reality, market competition is eliminating dealers because some cannot keep up with the pace of competition. Few dealers understand this, which is a communication problem between manufacturers and dealers.

**There are two main problems in the lack of strategic consensus:**

First, manufacturers have not effectively communicated strategic and industry changes to dealers, nor have they educated and trained dealers well; dealers also need to assess the situation and transform, not stick to old ways.

Due to poor communication, manufacturers and dealers have not formed an industrial chain, leading to a game relationship. In fact, manufacturers and dealers should unite to compete with terminals and competitors, but instead, they are playing games internally.

Second, due to poor communication of concepts, both parties cannot understand each other's practices and cannot cooperate.

Manufacturers want intensive cultivation, volume, and multi-channel coverage; if they cannot cover, they let others in. Dealers, on the other hand, want to expand blindly, seek profit over volume, and have exclusive operations with high prices. When manufacturers compress dealers' territories or adopt multi-channel strategies without consensus, conflicts arise. Dealers should act according to their capabilities; expanding blindly may not have a profit model, while "doing one area thoroughly" can be profitable. Sometimes shrinking a dealer's territory may be a good strategic choice, but some dealers do not realize that transforming to intensive cultivation is inevitable and instead think manufacturers are forcing them. Thus, conflicts arise in strategic coordination and configuration.

In multi-channel conflicts, manufacturers bear significant responsibility. Their methods for handling such conflicts are too simplistic, with poor skills and foresight, and insufficient refined management and techniques. With one product and one price system, facing different types of terminals—some focus on volume and thin margins, others on high service and high pricing—how do you meet the needs of different channels? How do you consider regional differences and avoid simplistic handling? In channel conflicts, some vulnerable groups are impacted. When manufacturers comfort these groups, they do not give them enough time and opportunities to learn, improve, and transform, leading to sudden rejection. Manufacturers have not mastered good techniques in product strategy, pricing strategy, promotion strategy, etc., and have not implemented differentiated management based on dealer characteristics and regional differences, instead using a "one-size-fits-all" approach, leading to conflicts.

**Third, conflicts at the execution level are mainly due to insufficient management by manufacturers and dealers' inability to match capabilities.**

First, many manufacturers have excessive requirements without considering feasibility and dealers' actual support. They commonly require dealers to have "inventory management systems" and help collect information, but dealers have neither training nor tools, or the tools are too complex. Some dealers have only primary school education and cannot handle these tasks; it is not that they are unwilling. Manufacturers' assessment of these indicators leads to conflicts.

Second, in managing sales representatives, manufacturers do not require them to act as customer consultants to help and guide dealers; instead, they often exploit and graft onto dealers' resources: sales reps fabricate stories to push inventory, then abandon dealers. In principle, sales reps should help dealers sell through and make money. This is a short-sighted, destructive behavior. In fact, sales reps also realize this is wrong, but manufacturers' incentive policies and management measures are inadequate—this is the manufacturer's problem. When manufacturers lack good incentive guidance, sales reps have poor quality and mentality, and dealers are tempted by short-term interests, conflicts arise.

In the end, manufacturers stimulate dealers with short-term incentives, dealers are not rational enough, and sales reps add fuel to the fire, engaging in short-term behavior. Manufacturers only exploit dealers' resources and squeeze market potential without cultivating channel resources and market potential.

Therefore, manufacturers should combine their regulations and policies with dealers' realities, provide corresponding publicity and training, and then connect with dealers. Incentives for dealers should include both short-term and long-term incentives. Management and service should include both incentives and services, giving pressure while helping sell products and find a way out.

**Ideas for Resolving Channel Conflicts**

**Resolving Strategic-Level Conflicts**

**First, adjust the concepts of manufacturers and dealers.** This conflict arises from overall changes in the industrial chain, requiring manufacturers to transform their understanding of channels and dealers to undergo strategic transformation. The relationship between manufacturers and dealers should not be a game but a value integration. We believe that competition in modern enterprises is not between dealers or manufacturers, but between one marketing value chain and another. This "chain" competition requires every link in the chain to be strong and coordinated, so the chain can be robust, powerful, and efficient, defeating loose chains (non-allies). Everyone should recognize that manufacturers need to build this chain, and dealers should strive to become part of it. Manufacturers must change their mindset: dealers are not transaction counterparts but cooperation partners, integral members of the chain, interdependent—one prospers together, one suffers together. Manage dealers with this philosophy, treating them as an extension of the organization. Besides providing good products and favorable policies, manufacturers should also export culture, concepts, talent, management, and information to dealers, jointly building strategic partnerships and helping dealers improve. Because in the process of transforming business and marketing models, it is impossible without dealers' cooperation.

**Second, manufacturers must have a concept of positioning in the industrial chain.** Previously, we started with "deep distribution." In the past, terminals were fragmented, channels were weak, and had no voice, but manufacturers were strong and had voice, so they could bypass channels and go directly to terminals. Now, manufacturers find that directly controlling terminals is no longer viable. Why? Efficiency is decreasing. Those in FMCG know that when your sales come from KA stores, you have no profit model. For example, Skyworth used 5,000 sales reps to sell color TVs and achieved 2 billion in sales, earning 400 million last year, but this year it lost money because it cannot support 5,000 sales reps. If you do not leverage dealers' resources and rely entirely on manufacturers' resources, you cannot do it. In the past, because manufacturers were weak, large-scale production lacked large-scale distribution support, forcing them to go deep into the distribution field to build their own distribution networks to ensure the release of upstream manufacturing efficiency.

Now the situation is different. A group of dealers has developed. After more than a decade, dealers have completed primitive capital accumulation and started operating as enterprises. Many industries have seen dealers with annual sales of several billion yuan. They do terminals better and more efficiently than manufacturers. At this point, manufacturers bypassing dealers to do terminals goes against industrial positioning. Additionally, the market has changed. Previously, China's market growth potential came from first- and second-tier markets, where populations are concentrated and consumption density is high, so manufacturers could operate directly with a profit model. Now, growth comes from small towns (third- and fourth-tier markets), which are vast with sparse customers. Although total volume is large, demand density is low. If manufacturers abandon dealers and operate directly, it is meaningless and impossible. Therefore, because "dealers have grown up" and "manufacturers cannot directly control terminals," manufacturers must rethink the value and resource utilization of channels and let dealers play the leading role.

**Resolving Strategic and Operational-Level Conflicts**

**Manufacturers and dealers must reach consensus on concepts and coordinate well.** Besides providing products and preferential policies, manufacturers should also provide management, talent, and information. Dealers should promptly change their concepts, develop capabilities, and use manufacturers' training, management, service, and organizational platforms to develop their own organizational capabilities, such as regional market coverage, network maintenance, market promotion, logistics distribution, and human resource management, to undergo enterprise transformation and strengthen themselves.

**In the process of turning conflicts into coordination, manufacturers and dealers should guide according to circumstances, proceed step by step, avoid "one-size-fits-all," and give dealers enough growth space and transformation time.** Manufacturers can first create a template, cooperate with dealers who are more advanced in concept and willing to cooperate, make a model, and let dealers see that "transformation can bring visible benefits," eliminating their concerns, so they can accept it.

Moreover, **manufacturers should have a gradual progression in positioning the manufacturer-dealer relationship.** Piling all market operation pressure and responsibility onto dealers at once will overwhelm them. Make a plan and gradually peel off: first hand over daily transactional work to dealers, then gradually transfer promotional and important work, step by step, transferring marketing expenses and resources to dealers, and cultivate dealers' capabilities so they can handle it. Manufacturers should position themselves reasonably, gradually withdraw, and become dealers' consultants, trainers, and market managers, while dealers become market operators and managers. Manufacturers should have such a guidance and assistance process.

Of course, **to prevent the dealers they cultivate from biting back, manufacturers need to transfer resources and cultivate dealer capabilities while strengthening concept communication, cultural construction, and long-term incentives (such as exchanging equity for further penetration).** Currently, we reward dealers year by year, and our management is all short-term incentives. In fact, foreign practices are different—if you complete tasks for three consecutive years, you get additional shares or bigger rewards, using cumulative rewards to gradually increase dealers' switching costs. Management of dealers should change from command-style, deceptive, short-term incentives to rational communication, mutual coordination, and long-term incentives. This change in cooperation model will bring changes in manufacturers' management models, including qualification review, cooperation methods, incentive methods, and control means. Strengthen cultural construction and communication between manufacturers and dealers, align processes and management norms, and achieve organizational integration (in P&G's words, boundaryless marketing) and value integration. Once integrated, switching becomes difficult. A good domestic example is BBK, which does very well with provincial agents. BBK's marketing department has only about 60 people but sells several billion yuan, mostly through provincial agents operating the market directly. The company's marketing department acts like a "special forces" team, inspecting and guiding the market. While handing over marketing functions to agents, it also strengthens penetration by giving agents shares.

Resolving manufacturer-dealer conflicts involves a process: from short-term incentives to medium- and long-term incentives, from simple transaction services to comprehensive services, including culture, human resources, organization, process alignment, and norm alignment, gradually achieving value integration. Only through such solutions can manufacturer-dealer conflicts be fundamentally resolved. In specific operational details, improve the quality of sales reps, cultivate their abilities so they can guide and help dealers, and assess sales reps based on medium- and long-term market development. Additionally, strengthen channel management and market maintenance to protect dealers' rights and interests. It is not about manufacturers transferring risks to dealers or dealers transferring risks to manufacturers, but about working together to reduce overall risk. We should adjust our management thinking, methods, and incentive tools with this approach, which is key to resolving manufacturer-dealer conflicts at the concept, strategy, and operational levels.

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