---
title: "Unequal Profit Distribution Among Manufacturers and Distributors Turns 'Channels' into 'Obstacles'"
description: "No distribution model can be replicated; the best model must be created by the enterprise itself. 2023 is bound to be an unusual year, marking a new starting point in the post-pandemic era, with many brand owners gearing up to redefine their positions in the FMCG industry."
author: "高级研究员 海游"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2023-01-14"
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---

# Unequal Profit Distribution Among Manufacturers and Distributors Turns 'Channels' into 'Obstacles'

> No distribution model can be replicated; the best model must be created by the enterprise itself. 2023 is bound to be an unusual year, marking a new starting point in the post-pandemic era, with many brand owners gearing up to redefine their positions in the FMCG industry.

**Introduction: No distribution model can be replicated; the best model must be created by the enterprise itself.**
2023 is bound to be an unusual year, marking a new starting point in the post-pandemic era. Many brand owners are eager to make a big push and redefine their standing in the FMCG circle. Indeed, during the three years of the pandemic, all brand owners seemed to be swimming in the tide, unable to fully showcase their strength. But when the tide recedes, it becomes clear who has been swimming naked. Of course, brand owners have many ways to exert effort, such as product development, branding, consumer awareness, and distribution models. Today, we discuss a few suggestions on distribution model innovation.

What is the essence of a distribution model? I have explained the iterative process of offline channel development models in China to many enterprises, detailing the characteristics of representative brand owners like Wahaha, Master Kong, Tsingtao Beer, Nongfu Spring, and Jinmailang. Through constant interaction with executives, I have summarized some patterns. I believe: The essence of a distribution model is the rights, responsibilities, and benefits of the manufacturer and distributor. The definition of model innovation is the redistribution of these rights, responsibilities, and benefits. Whoever has certain rights must match them with corresponding responsibilities, and whoever bears responsibilities must receive corresponding benefits. In this process, the manufacturer and distributor must fully empathize with each other, combining their actual capabilities and willingness to achieve the optimal match, and then implement this optimal match into the six major operational strategies: product strategy, channel strategy, expense strategy, organization strategy, consumer strategy, and time progression strategy. Then this new distribution model is the most suitable for you. All excellent enterprises' distribution models have evolved this way!

The biggest resistance to distribution model iteration: the distribution of "benefits." First, it must be emphasized: if a brand owner is not a pure online enterprise, the distributor link is unavoidable; the channel chain cannot bypass F2B2b2C. Therefore, the closest partner to the brand owner, and the first touchpoint for market operations, is inevitably the distributor. The most difficult part of redefining rights, responsibilities, and benefits is the distribution of "benefits." The reason is simple: rights match responsibilities, and the rights and responsibilities for market operations are relatively easy to list. However, matching "benefits" often presents problems. There are four main aspects.

1. Inability to implement benefit distribution. Many enterprises want to learn from Jinmailang's Four-in-One model. They have also observed that one of the core aspects is changing the basic staff's commission system into a profit-sharing system. This stabilizes the terminal price (selling cheaply means losing your own profit) and effectively enhances the initiative and enthusiasm of frontline staff (changing from employment to partnership, where staff are their own bosses). So they designed their own profit-sharing system, but within a few days, a large number of frontline staff resigned, causing irreversible impact. Where was the problem? Often it is the inability to implement benefit distribution. In areas where Jinmailang successfully implemented the Four-in-One model, the product price was stable. Simply put, the price difference between purchase and sale was 4 yuan, with the distributor and small shop owner each getting 2 yuan. This is what actually happened. However, some learning brand owners designed price systems that could not be implemented. They designed a 4-yuan price difference, but in reality, the suggested price could not be achieved, leaving only a 2-yuan difference. Staff spent time and money without making a profit, so they had to find other ways out. The failure of the channel price system to be implemented as planned is a typical cause of distribution model failure due to unreasonable benefit distribution.

It is important to emphasize: adjustments to the channel price system (usually upward) need to consider the significant impact on sales volume in the short term. The larger the adjustment, the greater the impact on sales. It is recommended to proceed gradually and prepare for necessary feedback.

2. Entanglement of expenses and benefits. Marketing requires spending money, so the biggest question is: which items' costs should be borne by whom? How should the sharing ratio be regulated? A simple example: entering a retail store requires fees, which come in various forms such as barcode fees, entry fees, display fees, anniversary fees, etc. How should manufacturers and distributors agree on which items or ratios to bear? Secondly, every expense from the brand owner must go through budgeting, application, verification, reimbursement, and accounting processes. Can distributors meet these requirements? These need to be clarified. For distributors, saving expenses is equivalent to profit. Of course, there are also cases where distributors defraud brand owners' expenses. Without a reasonable system of mutual trust, it cannot be maintained. The entanglement of expenses and benefits is the second cause of distribution model failure.

3. Entanglement of incentives and benefits. Many brand owners design quarterly rebates, annual rebates, and other incentives to encourage distributors to achieve staged targets. First, these incentives should be counted as part of the distributor's benefits. Second, there are two prerequisites: the distributor achieves the relevant targets as required by the brand owner, and the brand owner unconditionally fulfills the promises as agreed. These three points are necessary conditions for the unity of incentives and benefits; otherwise, disputes are inevitable. Some brand owners design too many rebate clauses, including task indicators, expense indicators, product indicators, key category indicators, working capital assessments, payment and delivery assessments, etc., which confuse distributors. Whether they can get the incentives is left to fate, which is highly inadvisable. The entanglement of incentives and benefits is the third cause of distribution model failure.

4. Benefit distribution between distributors and their teams. Some brand owners have extended the distribution model design to the benefit distribution between distributors and their employees. The more decentralized the distribution rights, the stronger the initiative of frontline staff. The benefit entanglement here comes from the distribution of benefits (between distributor and sales staff), the process of benefit distribution (who pays, when, and feedback channels), and how the three parties (brand owner, distributor, and frontline team) can mutually benefit (alignment of benefit goals). The entanglement of benefit distribution between distributors and their teams is the fourth cause of distribution model failure.

Determination in market transformation for distribution model iteration. Why do I emphasize determination? And why must it be the determination of the boss or general manager? Because I have seen too many brand owners' distribution model transformations fail due to the lack of determination from the "top leader." First, answer the question: "Why transform the distribution model?" Answer: The existing model can no longer support the enterprise's development. Market competition is like sailing against the current; if you don't advance, you retreat. To develop, transformation is necessary. This point must be "branded" into the heart of the "top leader." Second, answer: "What are the resistances to transformation?" Answer: Internal teams unwilling to change, and external distributors unwilling to change. These "old-timers" can be summarized in one sentence: Without them, there is no present; with them, there is no future! What to do? Then answer: "How to convey confidence and determination for transformation?" Answer: Senior management must lead by example, so that frontline staff can implement with peace of mind. When Nongfu Spring underwent channel transformation, some regions needed to integrate distributors, removing those who did not align with Nongfu's development. This work inevitably offended people, especially old distributors, who would continuously provide feedback, complain, or even go to headquarters to lodge accusations. At this time, the "smart office manager" would wait and see, with only one concern: if the reform fails and they encounter a boss who doesn't take responsibility and is indecisive, they will be in trouble. So transformation should not be "loud thunder with little rain"; only by "taking responsibility" from top to bottom can confidence and determination be conveyed smoothly. Finally, answer: "What kind of process and system should be established?" Answer: Process and system are strong guarantees for successful transformation and are regulations to avoid misjudging transformation targets. The standards for adjusting internal teams and external distributors should first be labeled and data-driven, then differentiated based on current conditions, and improvement systems should be made accordingly, not one-size-fits-all or arbitrary. As the great leader Deng Xiaoping once said: Reform is like crossing a river by feeling the stones. Mistakes are allowed during reform, but not reforming is not allowed!

The impact of product competitiveness and consumer competitiveness on distribution models. Why mention product competitiveness and consumer competitiveness in channel transformation? A brand owner's competitiveness mainly comes from three elements: product competitiveness, channel competitiveness, and consumer competitiveness. The distribution model mainly addresses channel issues; the other two, though complementary, cannot solve the essence. I once served an enterprise that hoped the distribution model could improve its competitiveness. After communicating with several executives, I found that according to the product life cycle definition, most of their products were in the transition from maturity to decline. Through distribution model transformation, improvement is possible, but to achieve twice the result with half the effort, they must quickly develop new products to reshape product and consumer competitiveness. Only then can the distribution transformation maximize its advantages. After all, without a good product as a carrier and loyal consumers as support, even the best distribution model is just a mirage.

No distribution model can be replicated. We know that any brand owner's success is inseparable from its own exclusive distribution model. For example, Nongfu Spring achieved qualitative and quantitative leaps through its exclusive distributor model; Jinmailang through the Four-in-One manufacturer-distributor cooperation model; Tsingtao Beer through a two-tier distribution model; Coca-Cola through the 101 model at a specific stage. Their common feature is that each model was "blazed" step by step by themselves. Why do many enterprises fail when "copying homework," including some first-tier brand owners? Distribution models have many characteristics that come with the brand owner's own growth, and they bear the "shadow" of the boss's governance and operational habits. Secondly, the characteristics of the brand owner's products, brand strength, market competition patterns, and the current distribution stage are all different, so "copying homework" is doomed to fail. So how can one succeed? I think the best method is: learn from others, but surpass them! Brand owners should study the past, present, and future of successful enterprises' distribution models. The core is to understand what difficulties these enterprises encountered, what internal and external environments they were in, and how they solved these difficulties, then transform and absorb these lessons. But creating the best model still relies on the enterprise itself, which is irreplaceable, because only a model created by the enterprise itself can be more suitable for itself, and can strengthen confidence and determination to move forward, making success possible!

**Extended Reading:**
Hai You: Special author of New Distribution, senior researcher, practitioner of offline channel marketing, designer of enterprise channel coverage models. He has provided channel consulting for more than ten first-tier brands and has gained a good reputation.


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