---
title: "Tiered Policies Are Ruining the Channel"
description: "At a distributor meeting, a distributor complained that small stores lack loyalty because they buy from secondary wholesalers, who offer lower prices due to tiered policies. The author argues that these tiered policies, originally meant to encourage larger orders, have become so high that only secondary wholesalers can meet them, thereby reviving a distribution layer that deep distribution had eliminated, harming the channel's efficiency."
author: "刘春雄"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2017-06-28"
language: "en"
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original_source: "https://mp.weixin.qq.com/s/kzLo3qvSL2-jxfZATYLnpw"
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---

# Tiered Policies Are Ruining the Channel

> At a distributor meeting, a distributor complained that small stores lack loyalty because they buy from secondary wholesalers, who offer lower prices due to tiered policies. The author argues that these tiered policies, originally meant to encourage larger orders, have become so high that only secondary wholesalers can meet them, thereby reviving a distribution layer that deep distribution had eliminated, harming the channel's efficiency.

Author | Liu Chunxiong
Source | Teacher Liu's Forum (ID: liuchunxiong1964)

Not long ago, at a distributor meeting, a distributor raised a question that surprised me.
The distributor said, "Now it's difficult to get products into small stores because they lack loyalty." I was surprised because after so many years of deep distribution, how could small stores still lack loyalty?
I asked, why don't small stores have loyalty? The distributor said that small stores all buy from secondary wholesalers.
Why do small stores buy from secondary wholesalers instead of directly from distributors? Because buying from secondary wholesalers is cheaper.
This seems strange: end customers buying from secondary wholesalers is cheaper than buying directly from distributors. This is because of the "tiered policy" (坎级政策), which allows secondary wholesalers to buy in large quantities.

**1**
In recent market research, a distributor's salesperson said that after a while, they could hold an ordering meeting.
I asked why they would hold an ordering meeting. He said that secondary wholesalers could order more!
To get secondary wholesalers to order more, they need a purchasing policy, but it has no effect on end sales. The salesperson seemed to have formed a habit.
I told him that we might never have tiered policies, because "the current 'tiered policy' does more harm than good."

**2**
Last year, I discovered that the deep distribution initiated more than a decade ago has now been undone, and secondary wholesalers have "returned." I concluded: "Marketing has degenerated."
What is the purpose of deep distribution? It is to get as close to the end customer as possible. To get close to the end customer, you must bypass secondary wholesalers.
It can be said that deep distribution is "revolutionizing secondary wholesalers."
Now, the tiered policy has thresholds so high that not only small stores but even larger stores find it difficult to order, which actually feeds secondary wholesalers.

**3**
Before deep distribution, secondary wholesalers had a distribution function. Facing scattered end customers, secondary wholesalers were still valuable.
In the past, secondary wholesalers were "wholesale and retail combined." They focused on wholesale, supplemented by retail.
After deep distribution, secondary wholesalers gradually disappeared.
Because of excessively high tiered policies, a new type of secondary wholesaler has emerged.
"New type" secondary wholesalers, in county-level markets, focus on retail, supplemented by wholesale. So, today's secondary wholesalers are different from those before deep distribution.

**4**
In urban markets, such as provincial capitals, deep distribution has long disappeared, and they mainly rely on secondary wholesalers to cover end customers.
Secondary wholesalers covering end customers also gives B2B an opportunity.
Now, if a B2B company with scale is direct-operated, it basically does the work of a secondary wholesaler in provincial and municipal cities, or it is a super secondary wholesaler.
If B2B reaches a certain level, it may even block manufacturers and distributors from end customers, and manufacturers and distributors will inevitably suffer in the future.

**5**
The original intention of the tiered policy is quite different from now.
The tiered policy was originally intended to get end customers to order more, but with a premise: "under the premise of matching digestion capacity."
Now, the tiered policy sets targets so high that ordinary end customers cannot digest them, and only secondary wholesalers can. So, end customers simply buy from secondary wholesalers.
When end customers buy from secondary wholesalers, manufacturers and distributors seem not to mind, as long as someone buys.
Some manufacturers and distributors are even happy because the existence of secondary wholesalers makes short-term inventory pushing easier. But in the long run, they lose contact with end customers and have lost the ability to influence them.

**6**
What role does the tiered policy actually play? This is the question that needs to be examined.
No matter what policy, if it cannot affect "end customers" and "consumers," it is useless.
The tiered policy has no effect on consumers, that is certain. So if the tiered policy cannot be turned into end-customer activities, it cannot drive sales.
Does the tiered policy affect end customers? If end customers directly benefit from the tiered policy, then the policy is useful. If end customers buy from secondary wholesalers, the tiered policy has little effect on end sales.
The larger the tier, the more likely secondary wholesalers will absorb the policy. Then secondary wholesalers use the policy to reduce prices, disrupting the price system.
If it has no effect on end customers or consumers, does it affect secondary wholesalers? The answer is: yes.
The main effect is one-time bulk purchasing. Because the tiered policy determines that the larger the batch, the greater the policy benefit.
Thus, a basic conclusion can be drawn: if secondary wholesalers exceed the normal purchasing batch of ordinary end customers, then the tiered policy merely feeds a distribution layer: secondary wholesalers.

**7**
In the eyes of manufacturers and distributors, the tiered policy does not feed secondary wholesalers, but "seems to expand sales."
In fact, this is an illusion!
Why do they feel this way? Because secondary wholesalers can buy in large quantities.
When the tiered policy has no effect on ordinary end customers, the capacity that the tiered policy can accommodate in secondary wholesalers is actually just turnover inventory. This turnover inventory is only enough for one batch of inventory pushing, equivalent to adding a "circulation reservoir."
But the bulk purchasing ability of secondary wholesalers is particularly needed by manufacturers' salespeople, because when company pressure is high, secondary wholesalers can buy in large quantities in a short time.

**8**
Not long ago, I saw something almost like a "story."
A director of a multinational company, in order to both complete the tasks assigned by superiors and not disrupt the channel, had to think of a "best of both worlds" approach.
He rented a warehouse next to the distributor and stocked a batch of goods. This batch did not enter the channel and would not disrupt the market. But in the eyes of the manufacturer, this batch entered the market.
In fact, the tiered policy for secondary wholesalers is like what this company did: secondary wholesalers are not needed originally, but for the sake of a batch of inventory, a distribution layer is fed.
"Use a policy to feed a distribution layer. And not with one policy, but with continuous policies."
This seems a bit ridiculous.
What's more ridiculous is that Chinese companies are generally doing this, and it's hard to stop now.
"The loss of deep distribution function" is the reason why they cannot stop.
(Final note: In places where end customers are scattered, secondary wholesalers still play an important distribution role.)
-END-


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