---
title: "The Model Dividend of Deep Distribution in China Has Reached Its End in 2014"
description: "Since 2002, deep distribution has been the mainstream sales model for Chinese consumer goods, especially FMCG. However, by 2013, the demographic dividend that underpinned this model had reversed, leading to diminishing returns and rising costs. This article argues that the model's inherent flaws—large front-end, small platform, and weak system—have ended its dividend, and proposes a shift to a system distribution model characterized by small front-end, large platform, and strong system."
author: "史贤龙"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2014-07-18"
language: "en"
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original_source: "https://mp.weixin.qq.com/s/5ZG0oWH6ZNRY4M-F2aTiCw"
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---

# The Model Dividend of Deep Distribution in China Has Reached Its End in 2014

> Since 2002, deep distribution has been the mainstream sales model for Chinese consumer goods, especially FMCG. However, by 2013, the demographic dividend that underpinned this model had reversed, leading to diminishing returns and rising costs. This article argues that the model's inherent flaws—large front-end, small platform, and weak system—have ended its dividend, and proposes a shift to a system distribution model characterized by small front-end, large platform, and strong system.

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**The Internal Injury of the Deep Distribution Model: Large Front-End, Small Platform, Weak System**

Since 2002, deep distribution has been the mainstream sales model for Chinese consumer goods, especially FMCG. Many small and medium-sized enterprises, in the early stages of adopting deep distribution, could achieve significant growth through measures such as distributor flattening (i.e., increasing the number of primary distributors) and refined terminal management.

The advantages of this model are: channel下沉 (channel sinking), channel flattening, and terminal fine management. The disadvantages are: human-wave tactics, massive report information, and difficulty in integrating large systems. Enterprises that executed deep distribution effectively were typically larger in scale and had relatively complete information systems (including financial settlement systems).

As sales regions expanded, sales personnel increased, and the growth potential of channel sinking and flattening plateaued, coupled with rising labor costs in recent years and the reduced endurance and stress tolerance of post-80s and post-90s sales staff, the human-wave tactics of deep distribution are becoming a black hole that devours sales profits.

If you don't use deep distribution, competitors will push you out of the market; if you continue with deep distribution, with the slowdown in incremental growth, sales expenses (including salaries and channel costs) increase at a growing rate. Additionally, with overly broad management spans, fragmentation of primary distributors, and slower processing of small orders, deep distribution has become a nightmare for many enterprises.

Over the past 20 years, the competitive landscape of China's FMCG sales channels has evolved: first, modern retail channels such as KA hypermarkets and CVS broke the traditional wholesale-dominated distribution pattern; in the last five years, FMCG e-commerce has surged but has not yet become the main channel.

Deep distribution, in essence, is the main driver of "horizontal growth." Its implicit background is China's demographic dividend over the past 30 years—an abundant, diligent, hardworking, and low-cost sales force. Enterprises that boldly or ahead-of-time invested in personnel often achieved high returns on investment.

Now, the diminishing returns of the demographic dividend are an inevitable trend. Manufacturing, retail, restaurants, and other high-intensity, low-income industries are facing labor shortages. Frontline sales staff need more knowledge; college and technical school graduates are the main component of the sales force, but there is a gap: new salespeople cannot carry the load, and sales teams are generally aging. Human-wave tactics not only fail to increase growth but also add costs and risks.

The enormous changes in the external environment exceed the control of enterprise resources and capabilities. The core element supporting the deep distribution model—the demographic dividend—has undergone an irreversible reversal. From the perspective of growth drivers, the extensive, opportunity-oriented horizontal growth drivers of the past 30 years are no longer sufficient to support enterprise scaling, let alone high-quality sustainable growth. In 2013, the trends of internal and external factors were forming a "death cross," indicating that the model dividend of deep distribution has largely run its course.

It should be noted that the end of the deep distribution model dividend does not mean that the channel dividend in the Chinese market (i.e., the growth model of using channels to counter brands) has disappeared. The vast, broad, deep, and complex nature of the Chinese market makes it difficult for even super-large enterprises to achieve monopoly. The channel dividend, for the foreseeable future, remains a market opportunity and strategic barrier for the rapid rise of small and medium-sized enterprises.

To date, even in industries with high brand concentration such as instant noodles, bottled water, beverages, and beer, China's richest man (Wahaha) or strong dragons (Master Kong, JDB) cannot claim channel monopoly. Even in the home appliance industry, where the rapid concentration of physical chain stores like Suning and Gome led to a brief period of "retail strangling manufacturers," e-commerce and self-built channels by large enterprises quickly broke through the channel monopoly of Suning and Gome.

From this macro perspective, it is clear that the disappearance of the deep distribution model dividend is essentially a reduction in the "marginal benefits" of the extensive, horizontal growth model. It is the internal problems of the deep distribution model (model internal injuries) that determine the end of its model dividend.

Deep distribution represents extensive, opportunity-driven, speed-oriented horizontal growth thinking. From the theory and practice of deep distribution over the past 15 years, whether it is the multinational enterprises that initiated it or local innovative enterprises, the management characteristics of deep distribution show striking consistency, with three core features:

- **Large Front-End**: A huge frontline sales force.
- **Small Platform**: Regional and headquarters management exhibit a pyramid structure.
- **Weak System**: Even enterprises with ERP and CRM systems cannot effectively manage the massive frontline data and the competitive dynamics behind it in real time.

In simple terms, the management characteristic of the deep distribution model is a pyramid-shaped, vertically controlled oligarchic management model. The biggest problem with this model is peripheral paralysis and necrosis, which eventually leads to the affluenza and bureaucracy of the management system.

**Innovation in Sales Management Models: Beyond Deep Distribution**

Where should the sales management model go after deep distribution?

Management models (means) need to match strategic orientation (direction): From the perspective of growth drivers, shift from horizontal growth to vertical growth (horizontal and vertical growth are the two directions of organic growth, excluding M&A); from the perspective of management models, upgrade from simple deep distribution to collaborative intelligent system distribution.

The system distribution model is a sales model adapted to vertical growth. Briefly, the system distribution model consists of the following five interrelated components:

1. **Transform the sales model**: Divide the Basic Sales Unit (BSU) from offices and regions into "blocks" in one step, with each block consisting of one salesperson, a distributor, and target terminals—i.e., atomization of sales units. This allows the enterprise to manage directly the most basic unit of sales, with resource allocation directly configured and controlled, avoiding information distortion and slow transmission in management links.

2. **Transform the sales operation system**: Change from salesperson + logistics to system platform + salesperson + logistics, i.e., integrate three sales resources (customer service, sales, logistics) on one system platform to improve sales efficiency. This transformation can reduce reliance on traditional sales personnel by 20-30% and increase order response speed by 30%.

3. **Transform the sales process management model**: On the system, it is possible to achieve visualization and real-time tracking of the daily dynamics and results of each frontline salesperson and manager. With a sales funnel model, the system can automatically track, count, remind, and even conduct performance appraisals, bonus and salary calculations for each person's every transaction.

4. **Transform the sales report model**: Take a 100-person regional sales team as an example. Paper daily business reports: each person submits 6 per week, generating a total of 6*4*100=2400 reports per month. The truth and value of the information in these reports cannot be processed by the office manager. For sales teams of tens of thousands, the information value of such daily report systems is impossible to mine or discover. Filling out reports increasingly becomes a routine chore for salespeople, and the authenticity is hard to verify. With the support of the first three transformations, all information starts from the "atom" and can be infinitely accumulated, enabling frontline personnel to input simply, the system to automatically calculate, and management at all levels to obtain intelligently presented results.

5. **Transform the expense management model**: Change from delayed review of expenses to timely tracking, dynamic monitoring, intelligent analysis, and automatic improvement, avoiding unreasonable expenses. This transformation can save at least 10% of channel promotion expenses. For enterprises with channel promotions often exceeding 100 million yuan, this is not a small amount.

The system distribution model can efficiently achieve the following sales management goals: 1. Improve the visualization of sales information; 2. Improve the visit efficiency of frontline salespeople; 3. Enhance the commercial value of visit records; 4. Effectively monitor changes in terminal share; 5. Optimize the allocation of marketing expenses; 6. Promote seamless transmission and automated (or proactive) processing of marketing information flow from frontline to office, region, large region, and headquarters levels; 7. Automate performance evaluation (including automated salary calculation) for sales personnel at all levels, enhancing the objectivity of performance appraisal.

**The Source of System Distribution Dividends: Small Front-End, Large Platform, Strong System**

The management characteristics of the system distribution model also have three core points:

- **Small Front-End**: Streamline the number of frontline sales personnel and change the formalistic, undifferentiated use of salespeople and their business time.
- **Large Platform**: Replace sales with service, strengthening the role of service in the sales process.
- **Strong System**: From frontline to headquarters, carry the efficient flow of logistics, cash flow, information flow, work flow, and management flow—the "five flows in one channel" integrated system.

System distribution, by reconfiguring frontline sales personnel and system service personnel, not only changes the sales operation model but can reduce frontline personnel by about 20% in number, offset by the increase in system service personnel, resulting in at least a 10% reduction in frontline personnel. Moreover, the training cost of frontline personnel is much higher and slower than that of service personnel. Therefore, after switching to the system distribution model, human resources undergo significant changes in both quantity and quality, directly reducing labor costs by more than 15%.

The intelligent sales system brings about reductions in management costs, increased scientific decision-making, and faster market response—these are the tangible model dividends of system distribution. Without increasing sales scale, transitioning from deep distribution to system distribution can increase net profit by 50% annually on top of the original sales profit (here, net profit refers to the profit generated from sales orders that can be converted without special promotions).

2013 is the first year of China's new policy, and the new economic development thinking has shifted from "GDP competition" to "growth without water." Under this macro trend, crisis signals are frequent in various consumer goods industries: food safety scares, heavy inventory pressure, and retail store closures. Enterprises that still rely on beggar-thy-neighbor-style investment promotion, fooling distributors/franchisees, human-wave tactics, including bait-style advertising and external brain support for horizontal growth, will inevitably be eliminated by the market.

Changes in the business environment drive changes in enterprise operating models. What truly comes to an end is not the market, nor excellent enterprises, but rigid thinking and habits. The deep distribution model is still a growth driver for startups and growing enterprises; for enterprises that have achieved scale and super-scale, the model dividend of deep distribution has reached its end. The wave of sales model transformation for Chinese consumer goods enterprises has arrived.

Ultimately, regardless of the size of the enterprise, the shift from horizontal growth to vertical growth is the market trend; upgrading from the deep distribution model to the system distribution model is a strategic fork in the road for consumer goods enterprises, and it is also the ticket to determine whether an enterprise can enter the future.

Only by establishing a vertical growth strategic orientation and seeking growth and profit from the transformation of the sales model is the right path to "sustained valuable growth" under the general trend.

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