Many manufacturers and primary distributors find dealing with secondary distributors a headache, often criticizing them more than praising them: they "buy high and sell low"; they seem to have "foreknowledge" of promotional information; they handle a large volume of sales but frequently cause disruptions, leaving manufacturers with mixed feelings. The term "weathervane" has become deeply ingrained as a synonym for secondary distributors in the eyes of manufacturers and primary distributors. With these various doubts in mind, let us lift the veil on secondary distributors and interpret these seemingly "mysterious" phenomena.
The "Rebellious" Secondary Distributor?
In my view, the frustration that companies and primary distributors feel towards secondary distributors largely stems from a lack of understanding, and some of our perceptions are incorrect.
In the subconscious of manufacturers and primary distributors, secondary distributors are seen as part of their own sales system, and they evaluate them using their own pricing structures and sales policies. If they "violate rules" or are "disobedient," they wield the big stick, punishing 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 can be logically explained within this system, but manufacturers and primary distributors often fail to delve deeper or 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, the reps are at a disadvantage in terms of market information and overall competence (secondary distributors have years of market experience, and many were once sales reps themselves).
Manufacturers subconsciously believe they are professional marketers and their sales reps are experts who know more than secondary distributors, so they always trust their own people. Consequently, the sales reps' judgments about secondary distributors become the manufacturers' judgments, and the reps' misunderstandings become those of the manufacturers and primary distributors. This is the root cause of misunderstandings and erroneous measures.
The Culprit Behind "Price Chaos"?
We often hear secondary distributors in the market accusing each other of disrupting prices. Sales reps are also unclear about who is actually causing the price chaos.
Generally, price chaos is caused by excessively high rebates (aimed at competing for retail customers between two secondary distributors). In such cases, adjusting the rebate amount or setting conditions for rebate redemption can prevent secondary distributors from undercutting prices.
In the common view, all goods sold by secondary distributors are bought low and sold high, but this is 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.
- Competing for retail customers leads to price fluctuations.
For example: Lao Zhang sells three categories of products: dried goods, food, and beer (A, B, C). For general customers, Lao Zhang profits by buying low and selling high.
Now, retail store owner Xiao Wang calls to inquire about beer A, whose normal wholesale price is 30 yuan per case. Xiao Wang usually wavers between Lao Zhang and Lao Li for purchases. So Lao Zhang tells Xiao Wang, "I have some promotional stock here, 29 yuan per case." After Xiao Wang agrees, Lao Zhang adds, "It's inconvenient to deliver only beer; let me add some dried goods and instant noodles." Xiao Wang agrees, and the three products are delivered together. Although the beer is cheaper, Lao Zhang earns more on the other products.
When the sales rep from manufacturer A confronts Lao Zhang, he denies it and instead accuses Lao Li of selling at low prices.
Will Lao Zhang continue to supply Xiao Wang at a low price? No. Next time Xiao Wang comes, Lao Zhang will say, "The promotion is over; I'll give it to you at 30 yuan per case." Xiao Wang, feeling embarrassed to go back to Lao Li, accepts.
Generally, such occasional incidents do not affect the price system, and primary distributors and manufacturers need not take measures against Lao Zhang.
- Extending promotional periods to attract new customers.
Sometimes, after a manufacturer's or primary distributor's promotion ends, some secondary distributors continue to promote using stock accumulated during the promotion. When two distributors compete for customers, they may dump promotional stock into the market.
- "Dumping" at a loss.
In every market, there are a few secondary distributors known as "dumpers," who are rumored to sell all goods at a loss. This is often a facade, deliberately conveyed to sales reps by shrewd secondary distributors 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 (claiming the Dongguan market is his). He deals in multiple product categories (A, B, C, D). When customers primarily order product A, he prices A significantly lower than competitors but bundles B and C products. When customers primarily order B, he prices B low but bundles A and D. This creates the illusion that all of Wang Dongguan's products are priced lower than competitors.
Moreover, he deliberately delivers at low prices to store H, which the manufacturer frequently monitors. When sales reps visit, he warmly entertains them, showing a thriving business. Many manufacturers succumb to this psychological warfare and make concessions, giving Wang Dongguan more leverage for such games.
Does he really sell everything at a loss, just for the sake of reputation? Who would believe that? 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 other. Dealing with secondary distributors requires not only eyes but also feet and brains; handling relationships with such customers tests the patience and wisdom of the manufacturer's personnel.
The above "price chaos" behaviors should be allowed. Most secondary distributors have their own fixed customer base, and most terminals will not change their supply channels due to a temporary price difference. Moreover, due to information asymmetry in the market, occasional price fluctuations are not known to most retail customers.
As for the extent of the impact, there is often exaggeration; many sales reps spread rumors without thorough investigation. If manufacturers or primary distributors take punitive or compensatory measures, the situation worsens: the punished party may leave or retaliate, while the compensated party may follow suit and lower prices further.
The "Resourceful" Secondary Distributor?
Secondary distributor bosses are usually "active" and enjoy making friends. They typically have "loyal customers" within the same market to ensure timely exchange of local information, and they also have counterparts in other regions for communication. Some even have close ties with primary distributors or back up against the "big tree" of manufacturers. They are adept at "pooling orders" (joint purchasing), so some secondary distributors can sell even without stocking goods.
When A gets promotional information, he immediately contacts B to verify and 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 sensitive to the market than sales reps. Before the promotional season, they will try every means to find out promotional information, sometimes getting it before the reps.
Even if they get useless information, they will "bluff" the sales rep (to gain negotiation advantage), for example: "Next door, Boss Li sells over 200 cases a day, right?" Actually, he wants to know about Li's business. "Product M sells 2,000 cases and gets a car as a reward; what does your company reward now?" This is to find out the manufacturer's current policies.
Facing the secondary distributors' "bluffing," some inexperienced sales reps may make random promises or take their words at face value, spreading and verifying them, causing a stir that the secondary distributors exploit.
Selling Generic Brands at High Profits
Wang is a secondary distributor in a certain area, shrewd and with some strength. Given the high profits of a small brand, Wang uses popular brands to drive sales of this small brand, focusing on township markets. By consignment and high margins, he gains support (many township terminals will try their best to sell once they accept the goods), achieving good sales.
Some even shrewder secondary distributors customize generic products, design attractive packaging, extract novel selling points, and use high promotions and consignment methods to sell at prices higher than branded goods in certain remote areas they control.
These phenomena, exaggerated by secondary distributors and blindly spread by sales reps, create a significant effect: these people are capable! These "special" secondary distributor groups are sometimes seen by manufacturers as "treasures" that must be won over.
"You only see the thief eating meat, not the thief being beaten." In fact, many shrewd secondary distributors have stumbled on generic brands, after all, generic brands can only huddle in remote places, and such secondary distributors are only active 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," which is actually an excuse for their own poor sales performance.
The "Loyal" Network That Cannot Be Penetrated
I once accompanied General Distributor Mr. K to distribute Y brand instant noodles in the countryside. At a convenience store in L Town, we had barely spoken when the owner said, "No need, we have stock." Indeed, he had stock, and even though our price was lower than his purchase price, he refused, saying, "Mr. 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 that this was Liu's long-time customer, and no one else could get in, so we shouldn't try again. Is that really the case?
After some investigation, I found the reasons:
- After we left, the store owner called Liu to verify and try to get cheaper goods.
- He had stock at the time and was not in a hurry to buy.
- Liu delivers a full range of food and daily necessities; if he rashly accepted K's goods, his procurement costs for other items would increase.
- Terminals owe money to secondary distributors; if they don't buy from them, they must repay the debt. To maintain working capital, terminals try to buy from secondary distributors as much as possible.
- Liu chooses the right delivery timing, knowing when to restock, while K's sales rep doesn't visit the market often and misses the timing.
The main reason here is the lack of a close relationship. If they visited more often and chose the right time, they could get the goods in. But many sales reps give up after a shallow attempt, retreating in the face of difficulty, thus perpetuating this abnormal phenomenon.
Understanding Secondary Distributors Correctly
After years of dealing with secondary distributors, I have learned that they strive to survive with all their might because competition among them is fierce, and they lack competitive advantages. Therefore, they exploit information asymmetry and areas that upstream sales personnel don't think about or see.
However, with the rapid development of transportation and communication (making information more transparent), the rapid rise of modern terminals, and the implementation of market flattening, sales reps becoming distributors, and regionalized product sales, the situation for secondary distributors has become more difficult.
Many companies and marketing personnel fail to see the significant role secondary distributors play in product sales, always viewing them as a third party sharing profits. In the minds of marketing personnel, corporate profits cannot be reduced, and terminal prices cannot be high. What to do?
The only solution is to squeeze secondary distributor profits (not realizing there are many better ways). Thus, large companies go direct, small companies do distribution, and 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, such as "wholesaler associations" in second- and third-tier cities; some are aligning with big brands to become their distributors; some are moving upstream, buying out brands or products to become brand distributors.
Regardless, existing secondary distributors continue to use every trick to maneuver among manufacturers, primary distributors, peers, and terminals. In their world, there are ever-changing strategies, full of deception and complexity, far from the simple first-tier price, second-tier price, terminal price, distribution, and promotion that manufacturer personnel design! Therefore, when dealing with secondary distributors, one cannot disbelieve everything, cannot believe everything, should not be easily surprised, and must go deep into the market to get to the root of things.
Source: First Marketing Network
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