1. Lack of a Deep Ideological Foundation Traditional "emphasize agriculture, suppress commerce" state ideology and modern "emphasize industry, downplay commerce" political trends have left distributors without a clear origin or recognized status in secular consciousness from the start. Distributors are associated with a group of people who "do not engage in proper work" and are "restless," having "jumped into the sea" of business. Boss Wang's father was such a person; when he quit his teaching job, many people with secure jobs stood by waiting to see him fail! During operations, they faced discrimination and exclusion from relevant functional units influenced by such ideologies, leading to slow development and difficult primitive capital accumulation. Many entered the industry with a tragic mindset, as expressed in the ancient verse: "The wind sighs, the waters are cold; the brave man departs, never to return." Because state-owned shops extended even to villages, like an iron curtain, who would think there was hope?
  2. Weak Capital Base, Generally Small and Scattered Strength Compared to international players with turnovers in the hundreds of millions or billions of dollars, there are few domestic distributors that can compete. Many started with self-raised capital, with tens of thousands of yuan considered substantial. In a financial industry dominated by state-owned banks and immature social capital, financing for distributors is very difficult. Capital strength directly determines expansion capability and speed. Commerce relies on scale for efficiency; without efficiency, there is no business. Weak commercial forces easily fall into operational crises and are integrated or swallowed by foreign capital. Low personnel quality challenges sustainable development and scale operations. Many distributors relied on personal insight to start their businesses, but this model cannot support their increasingly large operations. Due to limited capabilities and learning ability, the distributor group that grew through decision-making models cannot transition to institutionalized and professional management, resulting in few cases of distributors growing big and strong. Boss-type companies cannot compete with international professional teams.
  3. Too Little Historical Experience, Too Narrow Information Exposure, Limited Group Innovation Due to the deep-rooted Confucian "suppress commerce" culture, commercial thought has rarely had independent inheritance. What little remains is mentioned only as a political tool, and many classic business experiences have been lost in the dust of history. With little historical background and only twenty years of development, it is impossible to complete the mission of data accumulation. Meanwhile, the distributor group's knowledge structure and receptivity need improvement, so learning from foreign experience is limited to a few. Many still operate with thinking from ten or even twenty years ago, unaware of the evolution of the distributor's function, causing many to remain stuck in old circles with few breakthroughs. There is a lack of ideological foundation for deep and broad integration of various resources, so domestic distributors remain relatively weak in profit models, unable to compete with foreign counterparts and even struggling against existing domestic competition. Low profitability and single-model operations are the biggest hidden concerns for the distributor group. In a borderless competitive landscape, domestic enterprises face dual pressures of scale and profitability. In the next 10 years, the primary mission for Chinese enterprises is survival; without profitability, there is no development strength. Therefore, profitability is the goal.
  1. The Survival Environment of Chinese Distributors The inherent deficiencies of distributors are related both to their own characteristics and their survival environment.
  1. Humanistic Environment The "suppress commerce" ideology is deeply entrenched and will not disappear in the short term. Although commerce has been fully recognized in national politics, the psychological imprint of thousands of years still manifests in various aspects of life. The most typical example is the standard for children's success. Facts have proven that both business and academics can develop one's talents and lead to success. However, the path of business success is rarely recognized; the idea that "only studying is the right path" still prevails. Parents may drive their children crazy, as long as they go to university.
  2. Low Degree of Market Economy, Regional Protection Severely Affects Distributors' Resource Allocation and Profit-Making Nature Lack of scale efficiency is the greatest harm to distributors, leading to "bad products driving out good products," or fostering private transactions and corruption. Immature market regulation mechanisms also cause industrial structure imbalances, low-level redundant construction, and widespread "small but complete" operations, seriously disrupting economic quality and causing distributors' profit-seeking nature to expand malignantly. Eventually, the distribution industry faces the danger of rectification, as exemplified by the Fuyang toxic milk powder incident. The social reality of insufficient market regulation levels and capabilities cannot improve in the short term, so distributors' survival environment will remain under the entanglement of blind action and rationality. In such an environment, some experiences and cases cannot enhance distributors' capabilities through exchange, so people naturally say, "Chinese affairs should be handled the Chinese way." Here, "China" is not specific; it could be a country, a province, a city, or even a county.
  3. Government's Future Industrial Regulation Characteristics Are Also a Factor Affecting the Market China is in a state of high development, rapidly narrowing the gap with international standards. What took foreign countries a hundred years to perfect, we may only have a few years to adapt to, increasing uncertainty.
  4. The Path to Profitability for Chinese Distributors: Transition from Single Value to Full Value
  5. What Has Kept Chinese Distributors Going Until Now Yunfa Wholesale Company was established by Boss Wang's father. Initially, his father gave up the stable life of a high school teacher, ignored relatives' opposition and suspicion, and took unpaid leave. After much begging and borrowing, he managed to scrape together 30,000 yuan to open a wholesale store in the provincial capital's wholesale market. At that time, domestic FMCG products were at a low level both in concept and product. His father chose to sell biscuits from a Taiwanese food company. The manufacturer handled advertising, and the distributor sold goods. At that time, he was just a distributor; if there was stock, he got goods; if not, supply was cut off. Often, during peak season when profits were good, there was no stock, and during off-season when sales were slow, he was forced to take on excess inventory. Business was very passive. His father operated carefully step by step, not hiring help unless he couldn't manage alone. From a wholesale point to a wholesale department to a wholesale company, it gradually developed, eventually becoming the provincial exclusive agent for this Taiwanese company. With a guaranteed supply, business was quite good for a while. More downstream customers came to the wholesale department to pick up goods, including those from other cities. Transactions increased, and profits grew. But gradually, the manufacturer's policies began to change frequently. For strategic reasons, the manufacturer insisted on splitting off several main products that his father had worked hard to develop, giving them to others, leaving him with only a few products, claiming it was to fully cover the market. After the products were split, turnover declined. The split also took away downstream customers. For a while, relations with the manufacturer were tense, but business had to continue. By then, domestic FMCG manufacturers had developed, with more products, more competition, and more choices. New products came with strong policy support. Only then did they realize that the brands they had built through hard work in that generation didn't actually earn much money. Following the manufacturer's design and earning honestly didn't yield much; instead, cross-regional selling (channel stuffing) brought greater returns. But cross-regional selling was explicitly prohibited by manufacturers, so returns were not guaranteed. So they began to take on new products, which also carried risks. "Choosing the wrong product is like seeking death; not choosing a product is waiting for death," especially in the food industry. After paying for goods, if they didn't sell quickly, they would expire, creating enormous pressure. Therefore, the whole family devoted themselves to the business. At this time, supermarkets began to develop. Back then, the line between traditional wholesale and modern retail formats was clear. Everyone thought supermarkets were a good thing but had doubts: Can a wholesaler run a supermarket well? After all, that was a foreign game! At this time, the commercial sector was undergoing tremendous changes. "Where to go in the Central Plains? Zhengzhou Asia," and a large number of domestic terminal enterprises rose. Various phenomena, including pyramid schemes, stirred up the entire business environment. "The bolder the person, the more money they make." But good times didn't last. More new distribution methods began to take the Chinese stage, and international commercial giants entered China one after another. Their advanced management concepts, operational methods, and new, convenient shopping experiences for consumers left domestic peers at a loss, shouting, "The wolf is coming, the wolf is coming." There were both worriers and the confident. Soon, Asia fell, and a wave of pessimism enveloped the entire industry. Everyone in the wholesale market, shrouded in traditional concepts, was enveloped by the tragic sentiment that wholesale would soon perish. The ideological turmoil generally went through the following stages:
  6. No feeling, "competition is still far away"
  7. Blind optimism, "It's okay, I can handle it, no big deal"
  8. Helpless disappointment, "Damn, I didn't expect foreigners to be so powerful; we're finished"
  9. Going with the flow, "Forget it, everyone is the same, not just us"
  10. Observing, "Oh, so that's how it is; I can try too"
  11. Seeking a way out, based on breaking through wholesale restrictions in business thinking, attempting to create modern formats, typically by founding supermarkets, leading to the great development of supermarkets, stepping out of the wholesale market, establishing modern marketing companies, and continuing to open supermarkets or different-sized stores
  12. Recognizing collective strength, collectively resisting the encroachment and squeeze of international commercial giants
  13. To adapt to the rapid changes in the business environment, almost all manufacturers frequently adjusted their marketing strategies, causing changes in the relationship between many distributors and manufacturers. When Boss Wang took over, channel refinement began. From channel dominance to terminal dominance, the market changed like a kaleidoscope, with model upgrades wave after wave. Distributors are actually at the downstream hub of the manufacturer's control chain: · Transfer of product inventory, reducing factory stock, accelerating goods flow and cash flow; · Pricing and shipping goods according to manufacturer requirements, and responsible for market development and increasing market share; Distributors' actual profits mainly come from: · Inventory subsidies · Free goods and rebates · Price differences · Market development rewards · Occasional damage subsidies · Occasional no-return subsidies · Occasional promotional support · Commission for entering stores, etc. The retail segment gains relatively more, such as entry fees or display and promotion fees, but price wars often make sales (transactions) themselves loss-making. At the same time, the company also supplies (services) several other stores in the city. If the manufacturer negotiated, it might cost hundreds of thousands, but if the company negotiated, it could be done for just tens of thousands, and the company could receive corresponding subsidies.
  14. What Has Changed in the World Distributors, oh distributors, the character "商" (business) has three directions: goods, opportunities, and wisdom. The last one, wisdom, is your ability to see business elements—whether you see value concepts or scattered unit concepts. Three levels of distributors: Enterprise development is like personal growth: there are accidental factors and inevitable laws. Niu Gensheng often said: "Treat ordinary things as extraordinary, and treat extraordinary things as ordinary; that is the starting point of success." Because when you deeply understand value content and consider correlations, you know from the beginning whether each business event will be profitable. In fact, the so-called intangible realm comes from the tangible world—value. The profound meanings contained in the three levels of merchants: The process of discovering value and designing profit models is to unhesitatingly overturn all habitual forces of single value.
  15. Are Kings and Generals Born? A Value Perspective on Chinese Business Fate Value is the essential reason for transactions. Many values determine distributor profitability, called full value. Profitability is determined by the degree of full value matching in the business process. According to the quality of matching, each industry can be divided into four profit zones: high profit, average profit, low profit, and no profit. By considering value migration costs, one can improve value matching, thereby raising one's value zone and increasing profitability. Around different matching degrees, there are four types of distributor fates. · Fourth-rate enterprises sell effort · Third-rate enterprises sell products · Second-rate enterprises sell technology · First-rate enterprises sell standards In China's distribution industry, four fates commonly exist. Effort is one thing, achievement is another. Profitability is determined by the degree of value matching among products, channels, human resources, brands, and consumers. In fact, from the essence of profitability, the four carriers of profit happen to be four types of profit models: The effort type belongs to the standard traditional or classic distribution model, which follows experiential transaction models. This is a path purely based on accumulation, not much related to opportunity or luck. It is a transition from natural economy to commodity economy, relying on the policy space of early socialist commercialization and circulating within the existing commercial system, typically like the supply and marketing cooperative system. Regional goods circulation was poor, with no concept of differentiation. The product/brand type is the path most distributors are currently taking. The path they follow is designed by manufacturers, a product of the shortage economy era under seller control, with obvious resource endowment characteristics. Most who started through circulation relied on courage and insight, selling whatever goods were scarce wherever they went. "It's not that you can't earn, but that you can't think of it." "New rich" was the typical manifestation of that era. This model's golden survival period was roughly from the reform and opening up to the early 1990s. Its profit model relied on large-scale transactions, etc. It is a dominant type. The network/service type is where some flexible distributors break through manufacturer restrictions, possess a certain ability for self-development and self-design, and have considerable initiative in dialogue with upstream customers, i.e., bargaining power. Being able to "bargain" means being able to "overflow," and premium indicates a significant upgrade in industrial form. Its profit model relies on seizing asymmetric opportunities, i.e., business opportunities. Currently, the mainstream direction in China is to pursue business opportunities. At this stage, due to the existence of network/service resources, value in circulation is redistributed and reaches consumers in the way the distributor designs. The home appliance retail chains in segmented markets are a good example. The standard/model type is where a very few enterprises at the top of the industry, through their industry influence and innovation, guide the entire industry in a major direction, keeping themselves at the top. The more members join the following ranks, the greater their industry influence. This huge influence makes many enterprises imitate them, allowing them to occupy the high end of profitability, while other followers are at the lower end of industry integration and more easily swallowed. Current profit models have fully broken all traditional ideological boundaries, pursuing the integration of all resources. Profit models are the essence of commercial form transformation. Failing to see this leads to learning only the surface, not the essence. Boss Wang's type is between effort and product/brand, in the low-profit and no-profit zones.
  16. Distributors' Misconceptions: External Expansion and Full Value Optimization Currently, domestic distributors' profit thinking is generally like this: This is an obvious binary profit thinking model, a non-this-then-that methodology that leads countless distributors to swing back and forth between traditional and modern channels. When wholesale fails, they complain about the coercion of supermarkets; when supermarkets lose money, they complain about wholesale's omnipresent, ruleless encroachment. Thinking determines the way out; in short, "business is hard." But the top-down coverage model poses enormous operational pressure for distributors. First, distribution; second, network management and maintenance; and third, regional communication. These require a sufficient transaction scale as a prerequisite, but the current fragmented demand challenges this. At the same time, manufacturers cannot provide enough price difference space, so this is a way to earn by effort, with very low profit margins. Boss Wang also has 8 supermarkets, which are actually not profitable. According to his current business thinking, the supermarkets' independent profit model has not been established. Having customers is simple, but truly making a profit requires careful study. This is why many supermarkets don't make money; supermarket profitability is related to many conditions, such as scale. But more importantly, it's the design of the profit model. Boss Wang's supermarkets are not independently operated; at best, they are the downstream network of his wholesale company. He lacks a clear role positioning. Chinese business thinking places more emphasis on fixed costs while ignoring marginal benefits, because when entering a new format, most people do not engage in strategic planning, investing based on experience and others' practices. Only with strategic planning can one fully understand the entire business process. From a fixed-cost perspective, measuring Walmart's three types of stores, many bosses would think it unreasonable and wasteful, but from later market operations, it proves the marginal benefits are significant. Additionally, "greed for bigness and completeness" is a thinking trait of many distributors. The order of doing big versus doing strong is worth deep consideration by all bosses present. Doing big is just one model of doing strong. If previously distributors were appendages of manufacturers and relied purely on the price difference set by manufacturers as the main profit foundation, then starting with Boss Wang, distributors' profit sources have quietly changed. Price differences have become too transparent and competitive, reducing their profitability. Instead, the scale benefits from large transactions formed by networks, plus various rewards from manufacturers based on scale, have become the main profit source. The value of the network is no longer controllable by manufacturers. However, many distributors still do not realize this, continuing to follow manufacturers' pricing game rules like good children, working hard for manufacturers. Manufacturers encourage distributors to intensively cultivate contract areas. This is the manufacturer's design—to increase market share. Distributors on this basis increase transaction volume to spread costs and improve profitability. Some distributors are dissatisfied with being led by the nose by manufacturers, so they start a revolution outside the wholesale market, learning from others to open supermarkets or malls, "trading a shotgun for a cannon," but the situation remains difficult. "Looks beautiful," but in reality, it's full of setbacks. It can be said that the development history of Yunfa Company is a microcosm of the entire Chinese distributor development history. Distributors use their initially accumulated capital for investment attempts, clashing in the rapidly changing economic tide. Most Chinese distributors still see two paths:
  17. Go to the countryside, engage in deep rural distribution
  18. Go to the city, open supermarkets and stores Few position their business formats; they just repeat others' old paths. But old paths are not necessarily safe. P&G, the originator of FMCG roadshows, once set off a distribution frenzy across China. Its model was advanced, its management meticulous, its personnel capable. But what was the result? Performance did not grow; instead, it declined sharply. Its full value matching must have been very poor for a certain period. External expansion cannot fundamentally solve the problem of enterprise profitability. Only full value optimization can thoroughly solve the difficulty of profitability.
  19. The Way Out: Full Value Optimization to Enhance Profitability Chinese distributors have already traversed a journey that took foreign distributors three to four times longer. The era of sudden wealth, combined with thin cognitive accumulation and compressed time, means the industry does not fully accept certain values. Reality has clearly shown that single value has little direct significance for profitability. At this stage, distributors face two levels of cognitive reconstruction:
  20. Strategic level of full value identification—knowing your value matching situation and understanding your profitability conditions;
  21. Tactical level of full value optimization—knowing the industry's value matching situation and optimizing your value matching degree;
  22. Breakthrough level of full value identification—knowing how to transcend traditional business scope, expand value opportunities, and achieve industrial interaction. The first two are within the scope of improving profitability through channel optimization; the latter addresses the issue of multiple profit paths for large distributors. Many distributors now face pressure from upstream and downstream channels and suffer from shrinking profits. How to achieve the lowest-cost improvement in profitability on the current basis is crucial. In fact, some problems have already emerged, such as: Is more agency products better? How many is good? Is a broader downstream network better? How much is good? How to choose between traditional and modern channels? Are there other channel types? Should I get involved? How? These issues must be analyzed based on the distributor's own resource allocation: What value type are you now? This determines your upstream and downstream cooperation types. Also, what people should you configure, and how much territory should you cultivate to maximize performance? Everything falls into place. In fact, distributors do not need to achieve the highest level of full matching. Many profit models can help distributors break through themselves. For example, in a certain market in Shandong, there are several major distributors. These distributors have very weak channel operation functions; they have nothing except cash, not even a warehouse. But almost all enterprises wanting to enter this market must go through these customers, serving as the cash turnover link for manufacturers. Whenever a good product comes, these distributors unite to discuss how to operate it. They simply take the manufacturer's discount policy and distribute it within the channel. This profit model based on channel functions lies in deep value identification. If today people say terminal wins and these customers quickly do channels, they might mess up and fail, because if these people operated channels, the cost would likely be very high. "Enterprises that do not value profitability are just a matter of time before death," and this process can be very fast. The defeat of Lion at the foot of Gusu City is a good example. In fact, Lion and Budweiser both persisted in China for over 10 years. One returned in defeat, the other became the king of Chinese beer. There may be many reasons, but the essential reason is the difference in value matching. At the same time, the current mobile phone, home appliance, and FMCG industries almost all face such situations. Currently, there are about eight profit models, which are summarized from a comprehensive analysis of distributors' profit elements from different angles, combined with the business philosophies of nearly 150 successful distributors in 15 provinces. Over the past 3 years, we have focused on supporting and tracking 20 distributors to improve profitability, of which 5 have annual profits exceeding 10 million yuan. These profit models are as follows:
  23. Industrial interaction profit model
  24. Reverse control profit model
  25. Functional profit model
  26. Full value matching profit model
  27. Follow-up amplification profit model
  28. Product portfolio profit model
  29. Atmosphere profit model (terminal interaction profit model)
  30. Value discovery profit model Reply with the following keywords to categorize and read related professional articles: Sales Supervisor, Second-Tier Management, Regional Manager, Distributor Management, New Channels, City Manager, Competition, 2015, Manufacturer-Dealer Game, Product Slow Sales, Terminal Visit Management, Route Management, Deep Distribution, Internal Management, Sales Skills, Profit Improvement, Recruitment, Distribution, Daily Management, Team Motivation, Channel Promotion, Sales Misconceptions, New Product Launch, Township Market, New Product Pricing, Sales Target Achievement, Closing Orders, Market Visit Inspection, Baijiu, Beer, Sales Volume Increase, Agency Products, Cross-Regional Selling, KA, Terminal Merchandising, New Market, Market Operation, Learning, Book Recommendations, Inventory Management, New Salespeople, Consumer Promotion, Execution, Old Products, Expired Product Handling, Model Market, Franchise Recruitment, New Media, Distributor Development, Performance Assessment, Assessment, Annual Planning, Shopping Guide, Morning Meeting, Display, Transformation, Stock Pressure, Holidays, Distributor Cost Control, Channel Operation, Marketing Theory and Laws, Brand Truth, Order Meeting, Team Management, Training, Work Report, Work Report.