---
title: "Trend: Become a Category Operator, Not a Product Portfolio Distributor!"
description: "The transformation of distributors involves not only changes in business models but also in product portfolio strategies. Traditional product portfolios fall into three types: all well-known brands, well-known brands plus second- and third-tier brands, and mainly non-well-known brands. However, these classic approaches are now being challenged by new factors such as the difficulties of major brands, price transparency, bottom-line safety, category integration, and increased product innovation."
author: "刘春雄"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2019-04-16"
language: "en"
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# Trend: Become a Category Operator, Not a Product Portfolio Distributor!

> The transformation of distributors involves not only changes in business models but also in product portfolio strategies. Traditional product portfolios fall into three types: all well-known brands, well-known brands plus second- and third-tier brands, and mainly non-well-known brands. However, these classic approaches are now being challenged by new factors such as the difficulties of major brands, price transparency, bottom-line safety, category integration, and increased product innovation.

The transformation of distributors involves not only changes in business models but also in product portfolio strategies.
Traditional product portfolios generally fall into three types:
First: all well-known brands, because they bring both sales volume and profit.
Second: well-known brands plus second- and third-tier brands. Well-known brands generate sales but little profit, so they are used to drive non-well-known brands, creating a combination of sales and profit.
Third: mainly non-well-known brands. Unless the distributor is very capable and turns non-well-known brands into regional well-known ones, this approach limits scale.
Now, these three classic product portfolio strategies may be challenged.
01
**Giants Are Hot to Handle, Long Tail Gains Power**
New influencing factors have emerged, requiring a re-evaluation of traditional product portfolio strategies.
The first factor is that giants are all struggling, and relying on them no longer drives sales growth.
The second factor is that prices of giants are highly transparent. Especially with the emergence of B2B, the damage to pricing systems is even worse than past cross-region selling. Relying on well-known brands for profit is harder.
The third factor is **bottom-line safety**. Consumers are more accepting of non-well-known brands, and sales are no longer concentrated among well-known brands. As long as the product is good, non-well-known brands sell well too.
The fourth factor is **category integration**. In some categories, industry concentration is low and product substitution is high, such as snacks, condiments, food ingredients, stationery, and office supplies. Only through category integration can influence over terminals be established.
The fifth factor is increased product innovation. Extended price bands, category innovation, more shelf space, and smaller sizes of big single products all favor small and medium enterprises.
The direct consequence of these five factors is: giants are hot to handle, and the long tail gains power. This landscape is changing distributors' product portfolio strategies, and traditional approaches are no longer effective.
02
**New Product Combinations**
**The direction for distributors' product portfolios should be platform-based. Simply put, there are three major product combination methods: agency brands + self-operated categories + category integration.**
1. Agency Brands
Agency brands include both well-known and non-well-known brands. Well-known brands still have a significant driving effect, though not as strong as before.
2. Self-operated Brands
**Bottom-line safety** is the biggest shift in consumer perception, and the biggest beneficiaries are non-well-known brands. Recently, many small and medium enterprises have seen sales growth due to this. This is also the premise for distributors to create their own brands. Of course, which categories are suitable for creating self-operated categories requires careful consideration. Generally, the lower the industry concentration, the more suitable for creating self-operated brands.
3. Category Integration
The number of distributors will decrease in the future. The remaining distributors will tend to integrate categories, meaning they will achieve **category trusteeship** over terminals, supplying all products in a certain category.
Distributors shift from studying products to studying categories. Once category trusteeship is implemented, they must achieve: sales growth and profit growth.
Category trusteeship is a new trend. B2B is doing this, and many distributors are also doing it.
03
**Focus on Core Functions**
Some say distributors will be replaced by B2B, but I disagree.
However, non-core functions of distributors will be stripped away, such as logistics and distribution, which will shift from distributor delivery to **unified warehousing and distribution**.
Stripping non-core functions is a good thing, in my opinion. Developed countries have long done this.
Once non-core functions are stripped, distributors must focus on core functions and strengthen them to the point of being irreplaceable.
**What are the core functions of distributors? I believe it is promotion based on product integration.** Here, there are two key points.
One key point is product portfolio, which must be stronger than before. It's not about studying individual products, but studying products based on categories.
The other key point is the promotion function, which must be more professional and efficient.
Achieving these two points makes distributors difficult to replace.
Source: Teacher Liu's New Marketing (ID: liuchunxiong1964)
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