---
title: "The Dilemma: How to Handle Channel Dilemmas for Distributors"
description: "This article discusses the importance of channel planning and addresses common dilemmas faced by companies when planning their distributor channels, such as whether to focus on a regional strong brand or expand broadly, whether to start from rural or urban markets, and whether to use one distributor or multiple distributors for different products. It provides strategic considerations and practical advice for resolving these issues."
author: "李政权"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2015-03-14"
language: "en"
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# The Dilemma: How to Handle Channel Dilemmas for Distributors

> This article discusses the importance of channel planning and addresses common dilemmas faced by companies when planning their distributor channels, such as whether to focus on a regional strong brand or expand broadly, whether to start from rural or urban markets, and whether to use one distributor or multiple distributors for different products. It provides strategic considerations and practical advice for resolving these issues.

"Which channel to use?" "What are the channel costs and channel levels?" are topics we often discuss; dumping, transshipment, and channel output efficiency are also common channel problems we encounter and discuss. This shows the importance of channel planning.
On the other hand, many companies are still trapped in problems of insufficient attention to channel planning in advance, inadequate planning, and unreasonable planning.
For example, the direct manifestation is: insufficient research on consumer behavior, being removed from terminals where few people buy, and frequent stockouts in places with high-frequency consumption; eyes are fixed on "controlling" terminals and distributors, but slow to act on how to use second-tier distributors to reduce logistics and distribution costs, reduce distribution and replenishment problems, and conduct deep penetration.
Due to unreasonable planning for distributors, the existing distributor system and channel policies have even become the market structure and policy causes of channel chaos such as price cutting and transshipment; due to confusion about starting channel planning from distributors from top to bottom, the existing distributors' channel operation capabilities cannot cover the places that can generate sales on time, quality, quantity, and strategy...
Feeling the importance of channel planning and the complex and serious problems it contains, Li Zhengquan takes the liberty to first discuss several topics related to distributor planning.
**Should we first build a strong regional brand, or engage in long-term operations in a broad market?**
Correspondingly, should we first find partners to "borrow strength to build channels" in our own base, in a selected model market, in a relatively small area of a large regional market, or in all target regional markets and large regional markets we intend to enter at once?
This question seems simple, but in practice, many companies find it difficult.
For example, Tianle Company is a company that just entered the snack food industry with an investment of over 20 million yuan, and its brand is naturally an unknown small brand. But in the early stage of product launch, the general manager and sales manager argued over the above issue at many meetings.
The general manager believed that the high profit of their products could satisfy the "profit-seeking" appetite of distributors, so they might as well use relatively large profits to "recruit talents" in major provinces and cities across the country to quickly push the product nationwide; while the sales manager believed that they should first build a foundation in the local market and create a model, and after accumulating certain funds and experience, they could better find distributors who would work with them and ensure success. Otherwise, with their current strength, a bunch of brochures, posters, and advertising pens, it would be difficult to attract the attention of some better-conditioned distributors, and even if they eventually became partners, it would be hard for them to take their products seriously.
After democratic centralism, Tianle Company later adopted a compromise: first spread out in two key cities in the east and west of a large regional market. But the subsequent fact was: the large distributor in the east was not active in distribution and did not cooperate in promotions, while the relatively small distributor in the west had limited human resources and network foundation, and the market could not be opened. Due to the dilution and waste of limited marketing resources, even the base behind was greatly affected.
From the above case, it is not difficult to see that the reason why Tianle Company paid tuition for whether to do small first or big first is deeply related to a company's decision-making mechanism and the management's business philosophy and market awareness. So for us, how should we plan distributors in this situation?
**1. If our strength is limited, market promotion support is weak, and we cannot even talk about brand influence, we should wholeheartedly do market supervision and service for one distributor, and concentrate resources on one point to build the market.**
This point could be our base, or it could be a market we choose where consumption capacity is realistic, demand is formed, and competition is relatively weak. For example, Nao Baijin, which started from a prefecture-level market in Jiangsu, is a typical example.
But if it is the latter, the city we choose must pay attention to its ability to radiate to the surrounding areas and its model characteristics. That is, when we expand outward in the future, the operational experience of this market should have certain reference value, and it should also facilitate us to attract investment in surrounding markets in a larger area and more quickly, as well as start and serve (not excluding logistics and distribution) surrounding markets.
This process is applicable to a new company or a weak brand entering markets outside the province or large region.
**2. If we operate a product with strong innovation, but intellectual property protection is not in place, and the industry entry threshold is low (this may correspond to our short, flat, and fast operation approach for a certain product), or if we have enough strength to drive market consumption, then we should not avoid considering the issue of quickly starting a broader market and forming partnerships with distributors in corresponding markets.**
Of course, for the purpose of increasing the success rate of market expansion, we need to pay attention to two points in this process:
1. If we cannot afford the cost of driving consumption in a broad market, it is difficult to avoid relying on a sea of people tactics and the market start-up method of reverse channel building to solve the old and difficult problems of distributors not actively moving goods for a weak product.
2. We should strive to have people stay with distributors to implement the execution of manpower, distribution, shelf stocking, replenishment, and limited promotional activities. Of course, negotiation, communication, and strong supervision are indispensable.
**Should we surround the city from the countryside, or radiate from the city to the countryside?**
When Wahaha just launched Future Cola, there was a prediction in the industry that "Future Cola, must die" (a pun), but the fact now is that Future Cola has captured 11% of the carbonated beverage market share.
Analyzing the success of Future Cola, the reasons mainly lie in two points: first, Future Cola entered the weak territory that Coca-Cola and Pepsi have always ignored, namely the rural market; second, Future Cola surrounded the city from the countryside, effectively borrowing Wahaha's strong sales channels that had been painstakingly built over many years in the vast second- and third-tier markets.
The enemy's weakness is our strength; the enemy's shortcoming is our advantage.
Combining Wahaha Future Cola's experience of avoiding strong competitors and taking another market path, **our choice between rural and urban markets is often based on considerations of leveraging strengths and avoiding weaknesses, and seizing opportunities where the enemy is weak.**
Correspondingly: if our target consumer group is not highly educated or high-income; if our competitors are mainly crowded in the urban market and do not actually pay attention to, radiate, or penetrate the rural market; if our product positioning cannot differentiate from these competitors and does not have the ability to re-segment consumption space; if our marketing resources are not strong enough to compete with numerous competitors in the urban consumer market where brand awareness is high, information is explosive, and marketing interference factors are excessive, then surrounding the city from the countryside should be what we need to consider.
In this case, we not only need to cultivate our distributor network in second-, third-, or even fourth-tier markets, but also, even in these markets and some central cities, the distributors we choose may be difficult to separate from merchants in wholesale markets.
That is, many of these distributors are transformed from traditional wholesalers, and they often have strong distribution capabilities and the ability to radiate and penetrate to county-level, township-level markets.
But Li Zhengquan believes that what we need to pay attention to is that this type of distributor, whether they are more "sitting" (waiting for customers) or "walking" (actively selling), is usually also a tumor of transshipment.
Therefore, **our various rebate and incentive measures must be more based on the sales process and less on sales results; we must improve our prevention and handling measures for behaviors such as transshipment and low-price volume, and strengthen supervision and system execution from channel management personnel, sales personnel to distributors.**
**Finding distributors around the weak points of competitors and carrying out more targeted marketing actions is an important rule for the weak to grow "wings".**
But it also needs to be clear that the "encirclement" in surrounding the city from the countryside is more about tempering and enriching the company's strength, profitability, and practical market experience; it usually cannot have the brand influence on consumers in second-, third-, and fourth-tier markets that brands grown from central cities radiating to the countryside have.
That is, such brands often have obvious limitations of urban-rural characteristics. For example, Future Cola also has such a situation.
However, if we have the ability to make a major transformation and re-creation in brand positioning, this situation can also be greatly improved. But no matter what, going to the city or going to the countryside is like the metaphor of the white cat and black cat; for most companies, "catching the mouse" (achieving results) is more about accumulating capital and seizing market share, which is the hard truth.
**Should one distributor handle everything, or should different merchants operate separately?**
Almost all companies are constantly launching new product items according to different raw materials, formulas, tastes, packaging, sizes, price levels, target audiences, etc.
In such cases, many companies inevitably have the following confusion: should they hand it over to one distributor to handle everything, or to different merchants to operate separately? If the original distributor's market has been lukewarm or even declining, the idea of "not hanging from one tree" is even more inevitable.
**1. Several reasons to consider when handing different product items to different distributors.**
Jiumei Wine Company is a non-grape fruit wine company that originally built a distributor network. However, based on its previous experience of launching new product items, Jiumei Wine Company found that because one or two old product items had been widely accepted by the market and the price system was well maintained, with relatively stable sales volume and profit guarantees, many of its distributors often had the problem of not paying enough attention to new products and lacking enthusiasm.
If the company also invested little in new product promotion awards, publicity, and promotions, and it was difficult to start the market and cultivate consumption in the short term, this situation would be even more obvious.
How to avoid these phenomena as much as possible and better ensure the success of new product items? After conceiving a product specifically for nightclubs, the sales management of Jiumei Wine Company once again put this topic on the table. Ultimately, it found some distributors with good nightclub operation capabilities in some regional markets, which was also a capability that many of its previous distributors did not have.
In fact, in addition to the two reasons mentioned above about distributors not paying attention to new products and channel advantages not adapting, there are other factors that force us to consider this. For example:
1. The original distributor does not agree with the concept of launching new product items and is not optimistic about their prospects.
2. The original distributor not only does not pay attention to the new product items launched, but also other products are in a relatively ignored and neglected position at the original distributor.
3. The original distributor has significant limitations in human resources, logistics and distribution, and related management resources and capabilities, and cannot adapt to operating more product items.
In addition, it may also include the original distributor's compliance in terms of transshipment, dumping, etc., creditworthiness in payment and other credit issues, and strength in marketing plan execution.
It is precisely because of these various reasons, coupled with the fact that handing suitable items to suitable distributors is conducive to maximizing the channel output value of each specific product item, that we sometimes have to be proactive and realistic about whether to find another distributor. However, there are also some details that cannot be ignored.
**2. Two details of "separation".**
Combining the above content, if we need to "separate" different product items to different distributors, in Li Zhengquan's view, the following points need attention:
1. In principle, the new and old items handed to different distributors should try to overlap as little as possible in the same gender, age, and income target consumer group. Even if they overlap, the new and old items should satisfy and reproduce different specific consumption needs, such as the difference between instant noodles and instant rice noodles.
That is, direct competition should be avoided as much as possible between new and old distributors in products with the same raw materials, formula, efficacy, grade, packaging, etc.
But this does not exclude that A operates the item that B distributes, but A can only enjoy second-tier profit returns on that item.
2. If the new and old product items constitute a certain degree of direct competition, our "new partner" and the original distributor should try to form a separation in their respective main channels, and not constitute direct competition in main channel advantages and directions.
For example, if our previous distributor focused on traditional and modern retail channels, then our new distributor's area of expertise might be channels such as catering, nightclubs, or group buying. It can also be seen from this that if new and old distributors operate products that directly compete with each other, it is not excluded that channel advantages can complement each other.
This is also a focus for many companies that find another "partner" and consider "separating" different product items to different distributors. But one thing to remember is that we should prevent and avoid "separating" the same product item (or products with very similar raw materials, formulas, efficacy, and grade).
Otherwise, no matter how perfect your price protection and no-transshipment policies are, and no matter whether you divide the same regional market into zones, it is highly likely to fall into the dilemma of "internal strife" among distributors disrupting market order and sharply shortening the product life cycle.
In fact, the situation in this section of dividing and governing by different product items or by different channel advantages of distributors is not only in the stage of channel segmentation, integration, and new product item launch. We will discuss these separately later.
**Should we choose merchants without competing products, or merchants with strong competing products?**
Whether there is sales experience with similar products has become a reference condition for many companies when selecting distributors. However, despite this, in most cases, a company will not choose a merchant that also operates competing products as its general distributor.
Correspondingly, many companies use exclusive agreements, exclusive awards, and other methods to maintain their position in the brand system operated by distributors and to snipe at competing products.
But this idea of not finding merchants that operate competing products as distributors is not suitable in all cases. For example, in the early stage of a product launch, if you want it to enter the market faster, more broadly, and more deeply, and open up sales, finding some merchants that operate strong competing products (some of which may inevitably be strong channel merchants cultivated by powerful competitors) as your general distributors in certain regions may be a shortcut worth considering.
Let's look at the case of Bawang shampoo "borrowing strength to build channels" from P&G.
Between 1999 and 2000, Bawang shampoo, a newcomer that had just entered the shampoo market, sold very well. Looking back at its process of becoming the leader of Guangdong daily chemical companies and a leading brand in some regional markets, one important reason was that many of the distributors recruited by Bawang shampoo were channel members of P&G.
Of course, it was not easy to get these distributors with complete channels, strong capital, and advanced concepts to join their team. At that time, Bawang first had to ensure the excellent quality of its products, let these P&G channel partners recognize the prospects of its products, and secondly give these distributors generous support and returns. For example, price difference profits much higher than P&G, high rebates, promises to provide shelf stocking, and fully bear all terminal sales costs.
It was through these efforts that the "big shots" in the daily chemical distribution channel flocked to Bawang.
It was also this and other related reasons that accelerated P&G's channel reform in 2005 to carry out distributor transformation and require "focus and exclusive operation". Of course, this is a digression from this chapter.
From the above case, it can be seen that although finding merchants that operate strong competing products as distributors is a way to achieve rapid product launch and open up sales, we must also have: 1. high product quality, 2. high profit returns, 3. high stimulation of additional promotions, 4. high support for market operations, 5. high market monitoring capability, 6. high standardization of marketing operations, 7. high turnover of distributor funds and inventory, etc., all of which are indispensable.
Otherwise, this path may be difficult for us.
At the same time, if we finally "attach ourselves" to these distribution "big shots" in the industry, we must also pay attention to maintaining the balance of channel policies, rather than promising unreasonable purchase discounts, rebates, and other policies among different distributors.
Because excessive differences in channel policies are an important cause of channel chaos such as transshipment and low-price dumping. For example, the Bawang mentioned above, in its history of rapid rise and fall, this factor has recorded a heavy stroke.
However, it should be noted that the "big shot" distributors we find do not necessarily have to be channel members of strong competitors.
Those distributors that operate strong related products and highly overlap with us in channels can also be our choice. For example, if we are a company producing and selling MSG, the distributors we hope to partner with can be those merchants that operate strong brands of sauces, vinegar, chicken essence, etc.
It should be noted that the content here has many similarities with the choice of distributors: whether it is best to choose the strongest, or whether it is best to choose a suitable scale, so this chapter will not separately elaborate on the latter.
**Should we set up multiple distributors to compete with each other, or "only this one, no other branches"?**
A condiment company originally had only one first-tier distributor in Guiyang, but later found that a competing product, which was at the same brand influence level, had less distinctive packaging, and invested less in advertising and promotional activities, entered the Guiyang market at about the same time as them, but its sales during the same period were nearly one-third higher. After investigation, the company ultimately attributed the main problem to the distributor's incomplete channel chain, limited outlet numbers, and insufficient sales resources.
After negotiation, the original distributor agreed to the company recruiting another first-tier distributor in Guiyang, and they negotiated and limited the area for sales. Sales did indeed improve significantly. At the same time, the condiment company also learned from the Guiyang market experience and found two distributors at the same time when first entering Kunming market. However, problems such as price cutting, transshipment, customer poaching, and channel profit system becoming increasingly uncontrollable were exposed within about two months.
Facing these serious problems, the company had to take action to rectify the channel. But how should it be rectified?
Divide by channel? The channel directions of the distributors were consistent and intertwined, making it completely infeasible.
Divide by product item? Although they had several product series, first, many could constitute competition; second, this could lead to a direct increase in logistics and distribution costs; third, it separated brand synergy, and the distributors themselves were unwilling.
Finally, after repeated thinking and multi-party negotiation and weighing, the plan was: conduct a sales competition in each area within a two-month limit, under fair competition, the one with less sales collection, or the one that engaged in dumping and transshipment after verification during the sales competition, would be transferred to a second-tier distributor and be subordinate to the winner.
Combining this case, it can be seen that unlike the previous situation of handing different product items to different distributors, if we choose multiple distributors in the same regional market, they often operate the same product items, that is, there is direct competition among them.
Next, let's summarize the two common causes of this situation:
First, one distributor cannot complete the sales plan. If different product items are assigned to different distributors in the same region, it will cause an increase in logistics and transportation costs, management costs, etc.
Second, when first entering a market, in order to select a more suitable distributor partner, it is often necessary to determine the final local general distributor through competition among two or three "seed players". In the subsequent execution process, due to the above reasons, the distributor hierarchy is not timely regulated, forming a situation where multiple distributors coexist at the same level.
But regardless of the cause, it may become a market structural cause of channel chaos. In such a situation, the "Spring and Autumn Warring States" situation of multiple distributors will ultimately face the following four choices:
**1. Divide by area: But because it is limited to the sphere of influence that each distributor can reach, it still cannot fundamentally solve the problem.**
**2. Divide by channel: According to the channel advantages of each distributor, agree between distributors that A does channel A, B does channel B, but because from the beginning there is no planning for distributor recruitment based on different channel specialties, it is difficult to be operable among distributors who lack channel differences and cannot form actual channel separation.**
**3. Divide by product item: As mentioned in the relevant content above, the competition intensity between the divided items should be as small as possible, otherwise it is still difficult to escape the dilemma.**
**4. Let the weak, those with small comprehensive contribution indicators such as sales volume, collection, and profit, and those with poor compliance, execution, and cooperation ability enter the lower-level channel system.**
From the above, it can be seen that the latter two points are better solutions to the chaos of distributors that constitute direct competition. But for dividing by product item, this also puts forward some requirements for the company involved, such as the ability to enrich its product line and have a certain ability for product upgrade and innovation.
In fact, no matter what form of distributor planning is done, for the purpose of better controlling the market situation and maximizing channel output, a considerable number of companies still adopt a composite channel model combining self-operation and other-operation.
For example, doing one link of the terminal yourself, doing direct supply to some more downstream merchants, etc. This obviously requires us to make adaptive and dynamic planning and adjustments based on the entry threshold, cooperation risks, and actual operation of distributors and other channel members.
Finally, let's combine the content of this article to summarize the basic process and principles of channel planning. The following is expressed in the form of a chart, and it also serves as the end of this chapter.
This article is excerpted from Li Zhengquan's "Achieving Advantage Channels: How to Improve Channel Rationality, Control, Efficiency, and Competitiveness", 2005.
Source: WeChat public account [Business Trends] lizhengquan02
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