The 'death of shopping guides' and 'death of brand-focused displays' that I once predicted are now becoming reality. The 'weakening or disappearance of customer relations' predicted in this article is also in progress. Customer relations, once invincible in distribution channels, are now weakening or even disappearing in Pangdonglai and its reformed supermarkets, leisure retail chains, and B2b platforms. The deep distribution system was the scene where customer relations thrived; with platformization and supply chain revolution, customer relations need to be re-evaluated. The change in channel customer relations has profound implications, marking the end of 20-plus years of small-scale distributors and the arrival of an era of large-scale distributors.

Distributor Customer Relations Have No Capital Value

From 2014 to 2015, a leading listed company in a certain industry (not FMCG) took advantage of the 'internet' concept to double its stock price and acquired controlling stakes in almost all regional leading distributors in the industry. If the distributors had been integrated well, it would have been equivalent to controlling the industry's distribution channels. I was familiar with both the listed company and many of the acquired distributors. My judgment at the time was that this was not a successful acquisition because the distributors had no capital value. The reason was that the main resource of distributors was the customer relations of the boss or key employees in the channels, and customer relations are accumulated over time, with the individual as the carrier. They do not transfer automatically with the transfer of equity. Later, my judgment proved correct. Except for a few distributors who cooperated well and transitioned from bosses to professional managers, most distributors faced integration difficulties, and customer relations followed the individuals. Unless the founder of the distributor completed a centralized transition to professional management. However, if we consider the current trend of distributor platformization and supply chain transformation, my judgment would change. Platformized distributors are increasingly gaining capital value. Distributor platforms with capital value can be integrated through various cooperation methods, including capital acquisitions. This article aims to explain that the past small-scale nature of distributors was due to the decisive role of customer relations in channels. The organizational system based on customer relations has limited organizational boundaries and limited sales scale. Distributor platformization marginalizes the value of channel customer relations, thus enabling platformized distributors to grow larger.

Terminal Customer Relations and Small-Scale Distributors

With China's rapid economic development, the past 20-plus years have been transformative. Yet, the small-scale nature of Chinese distributors has persisted for over 20 years, which is a miracle. Some even believe that small-scale distributors are a regression in Chinese commerce, as small and scattered channels are seen as backward. Before 1998, China had a tier of large distributors. The channel structure was: provincial first-tier (large distributors) → municipal second-tier → county third-tier → township fourth-tier → village-level retail. 1998 marked the beginning of the small-scale distributor process, commonly known as 'cutting the big households' or channel flattening. This formed the current channel structure: county (district) distributors → retailers. Was the small-scale approach and cutting big households a progress or regression in channels? Some issues are hard for today's marketers to understand; they require an understanding of channel history to analyze.

First, small-scale distributors brought sustained growth for brands. In 1998, due to the Asian financial crisis, China unexpectedly shifted from a shortage economy to a surplus economy. A batch of manufacturers instinctively made channel sinking moves, including Kangshifu, Wahaha, Shuanghui, and Xurisheng. The first batch of manufacturers to sink channels (flatten) reaped benefits: as long as the channel sank one level, it could bring at least 20% sales growth for three consecutive years. Thus, channels quickly sank from provincial to county level and stabilized at the county level. Why did channel sinking bring sustained sales growth? The main reason was: the original large distributors were wholesalers, typical 'sitting merchants.' County-level distributors were 'traveling merchants,' delivering goods and conducting deep distribution. The establishment of distribution greatly increased brand penetration in channels, bringing sustained sales growth. Things that bring benefits can be continuously promoted, and many enterprises followed suit.

Second, small-scale distributors helped industry giants gain channel control. Large enterprises want distributors to be 'obedient,' while small enterprises want distributors to be 'omnipotent.' Undoubtedly, large distributors are less 'obedient.' Under the premise of channel flattening, large enterprises have the organizational capability to cover the national market. To cover China's over 6 million street-side stores, with the county (district) as the smallest distribution unit, the internal management levels needed are: regional → provincial → city → county. I have summarized a rule: to cover the entire Chinese market, internal management levels + external channel levels = 6 levels. Small-scale distributors benefit industry giants. According to Coase's transaction theory, enterprises benefit when internal management costs are lower than external transaction costs. Only industry giants have the ability to organize a sales force with four management levels. Therefore, the consequence of small-scale distributors is the rise of industry giants. Many people have not realized this; most think industry giants are strong because of brand power, but channel driving force is also a giant's capability.

Third, small-scale distributors continued until customer relations played a significant role. Chinese-style customer relations are a special influencing factor in Chinese channels. The key is: the organizational scale based on customer relations is limited, and thus sales scale is also limited. County-level distributors are precisely the best unit for distributors to play their role. Some enterprises once tried township-level distributors as the main focus, but the effect was not as good as county-level distributors.

The Scale Boundary of Customer Relations Business

Twenty years ago, I met a particularly capable distributor in Shandong who became the top county-level distributor within three years of starting business. He discussed with me the topic: how to develop next. My view was: since you are already the county leader, the space for continued development in this county is limited. If you want to develop, you should either enter neighboring counties or enter the prefecture-level city. The boss asked me back: 'I'm not familiar with neighboring counties?' The boss's answer did not surprise me, reflecting a special phenomenon in Chinese channels. In northern and western China, customer relations are extremely important. Only in Guangdong, Fujian, Jiangsu, and Zhejiang is this slightly alleviated. These places also produce large distributors. Why are customer relations so important in Chinese channels? China developed from an agricultural society, and in traditional commerce, the remnants of agricultural civilization remain. In agricultural society, population migration was low, and people were familiar with each other in the same village. This is reflected in commerce: outside the store are acquaintances, inside the store are regular customers. Because of mutual familiarity, there is trust. Therefore, in traditional Chinese commerce, especially street-side stores, customer relations are extremely important. In modern retail, such as chain stores and supermarkets, the importance of customer relations is much weaker. When customer relations become a decisive factor in channels, one must consider: What is the boundary of customer relations? That is, how large can a distributor supported by customer relations become? The boundary of a person's customer relations, according to Dunbar's number, is about 250 familiar people. Many small distributor bosses have a scale boundary that is the boundary of their customer relations. In addition to the distributor boss's customer relations, there are also salespeople's customer relations. The boundary of customer relations can be extended through organization. But this extension has a crucial premise: high employee stability and no more than 2 levels of management. For example, small store owners can easily build customer relations with customers, but chain store managers and staff find it harder to build customer relations. Customer relations are personal credit accumulated over time. They require time to accumulate and continuous effort to build credit, and they have boundaries. Staff and store managers have high turnover, making it harder to build customer relations. If salespeople have high turnover, it is also difficult to build customer relations. Some may say that street-side stores need customer relations, but supermarkets and chain stores do not. In fact, there are more interactions with supermarkets and chain stores, such as displays, end caps, shopping guides, and promotions, each requiring customer relations as a foundation. The main reason is that the back-end profit model of Chinese supermarkets provides opportunities for customer relations. Now, Pangdonglai and its reformed stores adopt a front-end profit model, making it difficult for distributor customer relations to play a role.

The Disappearance of Customer Relations Orders

The Rise of Platforms

In recent years, I have predicted the disappearance of many phenomena, such as the disappearance of shopping guides and the disappearance of brand-focused displays in supermarkets. Initially, no one believed it. Because phenomena that have existed for decades are assumed to persist. It was not until recently, when Pangdonglai helped reform supermarkets, that these phenomena disappeared from Pangdonglai and its assisted stores. Only then did people realize that disappearance is normal. The disappearance of channel customer relations is currently a prediction, but in the future, it will be the norm. It does not mean customer relations do not exist, but that in future channel transaction models, the influence of customer relations will be minimal.

First, stores are 'victims' of customer relations. I saw a case where a store owner stocked many products that did not sell, and the owner's wife was worried. Why did they stock so much? First, because of customer relations, out of face; second, because of policies, taking advantage of discounts. When I predicted the 'death of shopping guides,' I said that shopping guides 'interfere' with consumer purchases, and consumers who are 'interfered' with will be dissatisfied. Similarly, customer relations 'interfere' with store stocking. Now, store owners are no longer polite to the endless stream of salespeople coming for 'customer relations.'** When I visited a store and asked the owner how many manufacturer salespeople he received in half a day, the owner counted and said 28. I asked the owner what his first thought was when facing salespeople, and he replied, 'How to get rid of them.' Now, in terminal visits, customer relations have become a KPI. When everyone is doing terminal customer relations, customer relations become alienated. Current customer relations are superficial and process-oriented. The effect of greeting and small talk is known to both salespeople and terminals. Visiting dozens of stores a day and spending a few minutes on customer relations—everyone knows the effect. In fact, terminal customer relations have long given way to the purchase of terminal resources.

Second, centralized purchasing by supermarkets and chains, and the front-end profit model. In the past, supermarkets used stores as purchasing units. Now, except for some fresh produce, most will move to centralized procurement, with delivery to stores, or even delivery through the supermarket's internal logistics system, weakening the influence of customer relations. Especially with the current channel supply chain revolution, integrated procurement and supply, direct access to sources, bypassing distributors, leaves distributor customer relations with no role to play. The front-end profit model has an even greater impact. Under the front-end profit model, distributors no longer participate in displays, shopping guides, promotions, and other past routine activities, naturally losing the basis for customer relations with supermarkets.

Third, the emergence of order platforms. Order platforms, where stores place orders centrally, separate distributors from platform operators, making customer-relations-based orders much harder. This is the most important factor affecting channel customer relations. The 'disappearance of customer relations' in this article is contextual: it does not mean customer relations are no longer important, but that customer relations in channel transactions are less important, mainly due to the emergence of centralized ordering on B2b platforms. However, as long as it is Chinese commerce, customer relations will always be important. Only the target of customer relations may shift. For example, in the bC integrated user operation I recently promoted, distributors still need to maintain good customer relations with terminals, but the purpose is not store orders, but user operation based on the b-end. Through customer relations, the bC relationship is transferred to the F-end and B-end. This is a cognitive activity based on customer relations, not an order transaction based on customer relations.

The Capital Value of Platforms

The emergence of B2b platforms directly results in platforms becoming the second-tier distributors for all brands, and of course, some are first-tier distributors. Only in this way can 'one-stop ordering' and 'one-stop delivery' be guaranteed. The emergence of B2b platforms will inevitably lead to regional oligopolies: no more than 3 platforms in a county, and no more than 5 platforms in a city. This is the large-scale nature of platforms, inevitable and irreversible. After B2b platforms become regional oligopolies, distributors will evolve in two directions: one direction is to become B2b platform operators, continuing to grow larger, no longer relying on customer relations but mainly on service and operational efficiency; the other direction is user operation, no longer participating in ordering and delivery, only undertaking limited functions, mainly promotion and user operation. Such distributors are light distributors, still relying on channel customer relations for user operation, and continuing to be small-scale. B2b platforms that rely on service and operational efficiency have capital value. Through capital operations, they can expand scale, operate across regions, and improve operational efficiency. Therefore, the scale of future large distributors is unlimited. In the pharmaceutical industry, the top 4 channel distributors have revenues exceeding 100 billion yuan, while in the FMCG industry, the leading distributors only have around 10 billion yuan, with most in the tens of millions. Currently, the FMCG industry only has distributors at the 10-billion-yuan level. In the future, the FMCG industry will definitely see distributors at the 100-billion-yuan level, and perhaps even trillion-yuan level distributors.