---
title: "Understanding the Relationship Between Manufacturers and Distributors: A Look at Nongfu Spring"
description: "This article examines the manufacturer-distributor relationship through the lens of a competitor, Nongfu Spring. It argues that truly understanding competitors and their strategies is crucial, and that treating distributors as logistics providers is counterproductive. Instead, aligning with human nature and treating distributors as true partners, with contracts as business plans and investments that feel like their own, leads to better outcomes."
author: "老章"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2020-03-13"
categories: "Dealer Operations"
language: "en"
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# Understanding the Relationship Between Manufacturers and Distributors: A Look at Nongfu Spring

> This article examines the manufacturer-distributor relationship through the lens of a competitor, Nongfu Spring. It argues that truly understanding competitors and their strategies is crucial, and that treating distributors as logistics providers is counterproductive. Instead, aligning with human nature and treating distributors as true partners, with contracts as business plans and investments that feel like their own, leads to better outcomes.

**From a competitor Nongfu Spring distributor to understand the relationship between manufacturers and distributors.**
Who is our competitor? Do we really understand our competitors? Do we care about competing products as much as we care about our own?
What is the competitor's strategic thinking? What is their competitive strategy? What are their medium- and long-term strategic goals? **If we understand the competing products, we will know which things must be done now and immediately, know where our investments need to focus, which things can be temporarily abandoned or delayed, and we will set reasonable psychological bottom lines!**
**Only in this way will we not blindly follow, and will not feel passive and besieged on all sides. Or, we can be one step ahead and seize the initiative.**
As a frontline sales market manager, is it years of work habits that lead to our way of thinking, or do thinking habits form our working methods? Which view do you agree with?
The former expresses the idea that in the existing environment, in order to achieve the best results, we change or improve our management methods or tools, which is an internal cycle; the latter is revolution, and the cost of revolution is that it may succeed or it may become a martyr, reflecting courage and wisdom.
Both working methods can achieve excellent results, but the latter will make the business more vibrant.
Here, I want to describe a real feeling and reflection from visiting the market. Actually, before telling this feeling, I was conflicted and reluctant. We **thought we had been fighting in the FMCG industry for many years, thought we were full of experience, but it was just work habits leading to rigid thinking. We were just habitually and passively doing refined management work, rather than proactively following human nature or leveraging forces.**
It was from conversations with Nongfu distributors and employees that I had the above thoughts.
I once visited three distributors: one in a county town, one supplying the petroleum system, and one doing urban distribution. **These three types of distributors are in different regions and responsible for different channel businesses, but I felt they had a common starting point, a strong sense of responsibility, and a cherishing of owning this business.** In short, they treated cooperation with Nongfu as their own business, and regarded the manufacturer's requirements as support for their own business.
Therefore, whether in the use of investment, distribution actions, inventory management, or new product promotion, they reached consensus with the manufacturer and formed resonance. This behavior is not one-sided, not external pressure, not any command. This behavior shows a management effect of 1+1 greater than 2 in the market. The **reason may be that it follows human nature, follows the connotation of win-win cooperation in business, and through changing the way of thinking, business cooperation goes smoothly.**
**-01- Restoring the distributor's original role**
**Price agreement is a key clause in the contract and the most direct profit space for distributors, that is, the delivery price minus the purchase price.** If we take away, control, or rename this directly visible profit space (for example, as logistics distribution fees), the distributor's internal motivation will weaken, or their initiative will weaken; this is the instinctive behavior of business people.
However, this **operation method of trying to control distributors and turn them into logistics providers has been used by us for many years.** Perhaps we just want to find a logistics provider without assessing whether they have distribution capabilities, and then agree on their price operation to achieve break-even, using the purchase price from the manufacturer as the distributor's delivery price. **Our starting point is to achieve the goal of controlling terminal prices through this operation method.**
So what determines the terminal price of a product in the market?
Basically, it is determined by the prices of similar products, by the design of our own value chain, and by the market. General distributors do not have the internal motivation to arbitrarily change terminal supply prices; they hope that terminal prices can remain stable to ensure their relatively fixed operating gross profit. So **the idea of trying to turn distributors into logistics providers to control terminal prices is worrying about nothing and is against human nature.**
Under this thinking, in actual work, we changed distributors more often than we changed clothes. We also realized that this problem is detrimental to business stability, so we issued documents and regulations time and again, even centralizing the right to change distributors at headquarters, but the result remained unchanged because it does not conform to the internal laws of the market or human nature.
Think about it, how long can this operation model of treating distributors as logistics providers last? Or think about what level of social and economic development is needed for this operation model to occur and be implemented? If we use this standard to select partners, we should reject some partners who have cooperation willingness, distribution capabilities, certain influence, and good qualifications. Obviously, this is not the idea of 1+1 greater than 2.
Any idea that tries to transform distributors into logistics providers is inertia of thinking, because from the beginning of operating this business, we have implemented it for a long time, without seriously thinking about the internal effects of this behavior, or whether it conforms to the internal laws of the market and human nature.
**-02- The power of contracts**
**Contracts have more significance in ritual.**
In life, from buying houses, cars, handling financial business, job entry, insurance and medical care, to buying some goods or registering software online, we all involve signing contracts. Few people scrutinize the internal logic and hidden meanings of contracts word by word, sentence by sentence. If Party B wants to take action, they mostly look at the main clauses. Generally, contracts protect Party A's interests, unless there is a cooperation dispute, then Party B will seriously study the contract terms.
So, what I want to express is that in today's fast-paced economic society, the significance of contracts is more reflected in the willingness of both parties to perform the contract, and more needs a sense of ritual.
If we look at it from this dimension, when we sign work contracts with distributors, we should emphasize the ritual, produce a high-end cooperation version that looks in line with the company and brand image, and organize the distributors cooperating in the region to hold a meaningful contract signing ceremony.
**-03- Contracts equal business planning**
We should treat the formulation of work contracts as business planning, not as an attachment.
**Contracts mainly reflect rights and obligations**, and both parties should achieve common goals and realize common interests according to the contract terms. This is no different in essence from business planning.
In the process of signing work contracts, it is a process of studying local market management opportunities and work training with distributors, clarifying both parties' work goals, mutual support and obligations, which are process indicators, which are result indicators, which are phased work, which are key focused projects, which are effective actions, and which are prohibited behaviors.
We not only **need monthly, quarterly, and annual goals, but also need to refine to the number of service customers, distribution goals, new product distribution goals, and even the market performance scores of important customers, the execution standards of key SKUs, the use of visualization tools, and fully and maximally utilize the distributor's manpower, material resources, and transportation capacity.**
At the same time, we **need to integrate those scattered investments, wild and uncontrolled investments, and gather price investments to form a joint force of investment.** If we gather those investments made for short-term purposes and some activities we think can bring short-term goals through price fluctuations, this is a staggering investment.
Why are we confident that we can maintain price stability, whether it is supply price or terminal price stability? Because every link in the circulation needs a stable profit space for prices, not uncertainty of high and low. If this staggering investment is used for terminal point investment and to accelerate product turnover in terminal points, it will be an unstoppable force.
Unfortunately, lack of confidence and short-sightedness not only waste our working time, increase workload, and lose the best investment portfolio, but also leave us no time to plan and think about what brand advantages, accumulation, and precipitation medium- and long-term investments will bring.
**-04- Investment ownership and investment calculation**
**When mentioning investment, the first reaction is real money, or products, or materials; these are very direct inputs and operations.
Customers pay us for goods, and we plan funds from operating gross profit to invest in customer business operations. In this way, distributors pay more attention to how much you invest in me, whether you invest in me, and how much you invest in others, forming a comparison psychology among distributors. At the same time, once they find favoritism, it also hurts feelings.
The most fatal thing is that even if investment is made, it may not be treated well, and may even become the distributor's profit. This comparison forms a mindset opposite to business; their demand is to continuously get more investment and discounts from you. We don't need to blame anything, because this is a thinking model based on human nature.
What we hope to see is that the manufacturer's investment is given to the distributor, and the distributor should treat it like their own investment, every penny. This is actually the issue of investment ownership. How can we make this investment look like the distributor's own investment? If this problem is solved and this ownership follows human nature, the issue of investment efficiency will be easily solved.
Here I want to mention that Nongfu manufacturer has achieved this.
**The orientation of investment is the manufacturer, but the actual use of investment is the distributor themselves.** The manufacturer helps distributors plan how to use funds, helps distributors improve the efficiency of fund use, and helps distributors use funds accurately in competition.
It seems that the investment is the distributor's own funds, but actually this is a very interesting way of thinking, just making the game rules of fund use seem like the distributor is the master of the funds.
How are these game rules formulated? What are the key control points? What is the specific communication process? I want to write another article to detail this. As a regional business and market manager, I hope to discuss the above four aspects with everyone, not to deny or copy anything, but to hope that the team can think from different angles.
Continuously study the changes in competitive partners' management behaviors, study why competitors want to change, what problems their changes want to solve, what results these changes bring to the overall business and management, and what can we learn and be inspired by in this process?
Source: Lao Zhang Shuo Shuo


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## Citation metadata

- Publisher: New Distribution
- Author: 老章
- Published: 2020-03-13
- Canonical: https://xinjignxiao.com/en/articles/understanding-the-relationship-between-manufacturers-and-distributors-a-7fe5d395/
- Original source: https://mp.weixin.qq.com/s/RAonzA_j8JvKCpTsqgOUYQ

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