Click the image for details Many manufacturers and primary distributors get a headache when talking about "secondary distributors" (二批), often criticizing them more than praising them: they "buy high, sell low"; they seem to know about promotions in advance; they handle a large volume of sales but frequently cause problems for manufacturers, leaving them with mixed feelings of love and hate... The term "weathervane" (墙头草) has become synonymous with secondary distributors in the eyes of manufacturers and primary distributors. With all these doubts in mind, let's lift the veil on secondary distributors and decode those seemingly "mysterious" phenomena.

The "Rebellious" Secondary Distributors? In my view, the frustration that companies and primary distributors feel toward secondary distributors largely stems from a lack of understanding; some of our perceptions are wrong. In the subconscious of manufacturers and primary distributors, secondary distributors are part of their sales system, so they evaluate them using their own pricing systems and sales policies. If they "violate rules" or are "disobedient," they wield the big stick—penalizing or fining them. In reality, the secondary distributor market is independent and self-contained. First, secondary distributors operate with the goal of maximizing profits and building their own network relationships, which differs from the interests of manufacturers and primary distributors. Second, secondary distributors have their own complex operational rules. Many phenomena that manufacturers and primary distributors find strange or unreasonable have logical explanations within this system, but manufacturers and primary distributors either don't dig deep or always act according to their own thinking. Finally, manufacturers and primary distributors typically interact with secondary distributors through sales representatives. In the game between sales reps and secondary distributors, sales reps are at a disadvantage in terms of market information and overall competence (secondary distributors have years of experience in the market, and many were once sales reps themselves). Manufacturers subconsciously believe they are the market experts and their sales reps are professionals who know more than secondary distributors, so they always trust their own people. Thus, the sales reps' judgments about secondary distributors become the manufacturers' judgments, and the sales reps' misunderstandings become the misunderstandings of manufacturers and primary distributors—this is the root cause of misconceptions and misguided measures.

The Culprits Behind "Price Chaos"? We often hear secondary distributors in the market accusing each other of disrupting prices. Sales reps also don't know who is actually causing the price chaos. Generally, price chaos is caused by overly high rebates (the goal being two secondary distributors competing for retail customers). In such cases, adjusting the rebate amount or setting conditions for rebate redemption can prevent secondary distributors from undercutting prices with rebates. In the common view, secondary distributors buy all goods low and sell high, but that's not always the case. Secondary distributors pursue overall profit; among the products they sell, some have high margins, some low, and some are sold at a loss, depending on the sales target and market development needs.

1. Competing for Retail Customers Causes Price Fluctuations For example: Old Zhang sells three categories—dried goods, food, and beer—as products A, B, and C. For regular customers, Old Zhang profits by buying low and selling high. Now, retail shop owner Xiao Wang calls to inquire about beer A, whose normal wholesale price is 30 yuan per case. Xiao Wang usually wavers between Old Zhang and Old Li for his purchases. So Old Zhang tells Xiao Wang, "I have some promotional stock here, 29 yuan per case." Xiao Wang agrees to buy. Old Zhang then says, "Delivering just beer is inconvenient; let me add some dried goods and instant noodles for you." Xiao Wang agrees. So the three products are delivered together. Although the beer was cheaper, Old Zhang made more profit on the other products. When the sales rep from Manufacturer A confronts Old Zhang, Old Zhang denies it and instead accuses Old Li of selling at low prices. Will Old Zhang supply Xiao Wang at a low price long-term? No. Next time Xiao Wang comes, Old Zhang will say, "The promotion is over; it's 30 yuan per case now." Xiao Wang, feeling embarrassed to go back to Old Li, accepts. Generally, such occasional incidents don't affect the pricing system, and primary distributors and manufacturers don't need to take action against Old Zhang.

2. Extending Promotions to Attract New Customers Sometimes, after a manufacturer's or primary distributor's promotion ends, some secondary distributors continue to promote using their promotional stock. When two distributors compete for customers, they may dump their promotional stock into the market.

3. The "Loss-Leader" Sales of "Dumpers" In every market, there are a few secondary distributors known as "dumpers" (倒家), who are rumored to sell all goods at a loss. This is actually an illusion—a deliberate message that savvy secondary distributors convey to sales reps to apply pressure: "If you don't give me better terms, I'll sell at low prices and disrupt your market." I know a secondary distributor nicknamed Wang Dongguan (he dominates the Dongguan market). He deals in multiple product categories A, B, C, and D. When a customer primarily buys product A, he prices A significantly lower than competitors but bundles B and C products. When a customer primarily buys B, he prices B low but bundles A and D. This creates the illusion that all of Wang Dongguan's products are priced below competitors. Moreover, he deliberately delivers goods at low prices to store H, which the manufacturer closely monitors. When sales reps visit, he warmly entertains them, showing off his thriving business. Many manufacturers can't withstand this psychological warfare and concede, giving Wang Dongguan more leverage for such games. Selling everything at a loss—who would believe he's just doing it for the publicity? Sales reps might say, "I saw it with my own eyes!" Every manufacturer's sales rep has seen it, but we only see one side, not the whole picture. Dealing with secondary distributors requires not just eyes, but also feet and brains. Whether you can handle such customers tests the patience and wisdom of the manufacturer's staff. The above "price chaos" behaviors should be allowed. Most secondary distributors have their own fixed customer base, and most terminals won't change their supply channels over a temporary price difference. Moreover, due to asymmetric market information, occasional price fluctuations aren't known to most small retailers. As for the impact, it's often exaggerated; many sales reps spread rumors without thorough investigation. If manufacturers or primary distributors impose penalties or subsidies, the situation worsens: the penalized party may leave or retaliate, while the subsidized party may follow with further price cuts.

The "Resourceful" Secondary Distributors: Living on "Information" Secondary distributor bosses are usually "active" and love making friends. They typically have "iron connections" within the same market to ensure timely local information exchange, and they also have peers in other regions for communication. Some even have close ties with primary distributors or rely on manufacturers as "big trees." They are good at "pooling orders" (joint purchasing), so some secondary distributors can sell without even stocking goods. When A gets promotional information, he immediately contacts B—first to verify, second to discuss countermeasures. So when a sales rep arrives at B's place, B throws out this information, putting the rep on the defensive: "I have connections; next time you have promotional info, you'd better tell me quickly! Don't even think about hiding it from me!" Secondary distributors are usually more market-savvy than sales reps. Before the promotion season, they use various means to probe for promotional information, sometimes getting it before the sales reps do. Even if the information is worthless, they "bluff" the sales rep (to gain negotiation leverage), for example: "Does Boss Li next door sell over 200 cases a day?" (Actually, they want to know Li's business status.) Or "Product M gives a car for selling 2,000 units; what does your company reward now?" (They want to know the manufacturer's current policy.) Facing such "bluffs," some inexperienced sales reps either make reckless promises or take the secondary distributors' words at face value, spreading and verifying them, causing a stir that the secondary distributors exploit.

Selling Generic Brands at High Profits Wang, a secondary distributor in a certain region, is shrewd and has some strength. Seeing the high margins of a small brand, Wang uses a best-selling brand to drive this small brand, focusing on township markets. Through consignment and high margins, he gains support (many township terminals will try their best to sell once they receive goods), achieving decent sales. Some even smarter secondary distributors customize generic products, design attractive packaging, create novel selling points, and use high promotions and consignment methods. In certain remote areas they control, they sell at prices higher than famous brands. These phenomena, exaggerated by secondary distributors and blindly spread by sales reps, create a big effect: these people are capable! These "special" secondary distributors are sometimes seen by manufacturers as "treasures" that must be won over. "You only see the thief eating meat, not getting beaten." In fact, many savvy secondary distributors have stumbled on generic brands. After all, generic brands can only thrive in remote areas, and such secondary distributors are active only in a corner, on the fringes. Many sales reps often talk about "how powerful a certain secondary distributor is" or "how strong the competitor brand is," but in reality, they are making excuses for their poor sales performance.

The "Loyal" Network That Water Can't Penetrate I once accompanied primary distributor Mr. K on a rural distribution trip for Y-brand instant noodles. At a convenience store in L Town, we barely said a few words when the owner said, "No, we have stock." Indeed, he had stock, and even though our price was lower than his purchase price, he refused, saying, "Boss Liu usually delivers to me (secondary distributor). Come back another time." We encountered several such cases in a day. Mr. K's sales rep said, "This is Boss Liu's long-time customer; no one else can get in. Don't bother coming back to distribute here." Is that really true? After some investigation, I found the reasons:

  1. After we left, Boss L called Boss Liu—first to verify, second to get cheaper goods;
  2. He had stock at the time, so he wasn't in a hurry to buy;
  3. Boss Liu delivers food, daily necessities, etc., all at once. If he rashly took primary distributor K's goods, his procurement costs for other items would increase;
  4. Terminals owe money to secondary distributors. If they don't buy from them, they have to repay the debt. To maintain working capital, terminals try to buy from secondary distributors as much as possible;
  5. Boss Liu can time his deliveries well, knowing when to restock, while K's sales rep doesn't visit the market often and can't time it right. The main reason here is unfamiliarity. If they visited more often and found the right timing, they could get in. But many sales reps give up easily, perpetuating this abnormal situation.

Understanding Secondary Distributors Correctly After years of dealing with secondary distributors, I've learned that they are fighting for survival with all their might. Competition among secondary distributors is the fiercest, but they lack competitive advantages, so they mainly exploit market information asymmetry and areas that upstream sales personnel don't think about or can't see. However, with the rapid development of transportation and communication (making information more transparent), the rise of modern terminals, and the push for market flattening, sales reps becoming distributors, and regional product sales, the situation for secondary distributors has become more difficult. Many companies and marketing personnel fail to see the huge role secondary distributors play in product sales, always viewing them as third parties sharing profits. In marketers' thinking, company profits can't be reduced, and terminal prices can't be high—so what to do? Only by squeezing secondary distributor profits (unaware that there are many better ways). So big companies go direct, small companies do distribution—whenever possible, they abandon secondary distributors (wholesale departments in first- and second-tier cities are dying at a rate of 10% per year, and this trend is gradually spreading to third- and fourth-tier cities). Facing increasingly severe market conditions and pressure from all sides, secondary distributors are also optimizing and transforming internally, seeking breakthroughs: some are building their own terminals, transitioning to supermarkets and hypermarkets; some are forming horizontal alliances, like the "Wholesaler Associations" in second- and third-tier cities; some are aligning with big brands to become their distributors; some are moving upstream, buying brands or products to become brand distributors. Regardless, existing secondary distributors still use every trick to maneuver among manufacturers, primary distributors, peers, and terminals. In their world, there are ever-changing strategies—some real, some fake, complex and intricate—far from the simple "first-tier price, second-tier price, terminal price, distribution, promotion" that manufacturer personnel design! Therefore, when dealing with secondary distributors, you can't not believe them, but you can't fully believe them either. Don't make a fuss over nothing; instead, go deep into the market and get to the root of things.

Source: First Marketing Network (第一营销网)

New Distribution will hold the 2019 (5th) FMCG + Internet Conference during the Chengdu Spring Sugar & Wine Fair from March 15-18. This conference will focus on the theme "Breakthrough" (破局), with in-depth discussions involving brand owners, supply chain service providers, distributors, and retailers. Compared to previous conferences, this summit will be fully upgraded. In addition to original topics like channel innovation, city distribution logistics, and distributor transformation, it will add multiple parallel forums on new marketing cases, IP + FMCG empowerment, community group buying, and innovative retail. Through three days and ten high-density, high-quality expert sharing sessions, we believe every brand owner and distributor can learn the latest business models, expert insights, and practical methods, finding new tools and approaches for their own breakthrough in 2019, and returning to the track of rapid growth.

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