A distributor is the contracted first-tier general distributor for a manufacturer, buying juice at 38.5 yuan per case. A nearby wholesaler, without any contract, sources products from outside and undercuts prices, disrupting market order. If the "illegal" wholesaler's price is lower than the general distributor's, what should be done?
1. Fight Fire with Fire, Target the Pain Point
If you find a wholesaler undercutting your product's price, go directly to negotiate. Is it useful? If the distributor is very powerful locally, it might help to bring the wholesaler to the table, because regardless of legal or illegal means, the distributor can "intimidate" the wholesaler to some extent. In reality, the distributor sells at 38 yuan per case, while the second-tier distributor undercuts at 37 yuan. When the distributor directly approaches this second-tier distributor for talks, the latter may not even care—perhaps this second-tier distributor is even more powerful. What to do then? What is negotiation? Negotiation is both parties sitting down to discuss compromise terms. If you can't make the other party fear you, you're not qualified to negotiate. [Case] Background: General distributor Mr. Zhang primarily represents Huiyuan Juice. Wholesaler Mr. Wang, who is also the general distributor for "Jinxing" instant noodles (fictional name, any resemblance is coincidental), sources Huiyuan Juice from outside and undercuts prices. General distributor Mr. Zhang: OK, Mr. Wang, you dare to undercut my Huiyuan Juice, 2,000 cases at a time, 0.5 yuan per case. I'll undercut your Jinxing noodles—how many cases? 4,000? I don't have that much money to play with you—you undercut my Huiyuan Juice by 2,000 cases, I'll undercut your Jinxing noodles by 50 cases. You undercut me by 0.5 yuan per case, I'll undercut you by 5 yuan per case. I'll pay out of my own pocket to sell your Jinxing noodles at a loss, 50 cases, 5 yuan per case, total loss only 250 yuan. Who do I give this stock to? I'll specifically release it to your downstream customers, and while doing so, I'll announce: Jinxing noodles' factory price has dropped by 5 yuan, and it's been almost half a year—these downstream customers will all say, "That damn old Wang has ripped me off by 4.5 yuan again." Fight fire with fire, target the pain point means: If you dare to undercut my (represented product's) price, I'll undercut your (represented product's) price. Which product? The best-selling one? No, that could have side effects—for example, if he also represents Coca-Cola, and you undercut his Coca-Cola, you might accidentally hurt a lot of peers and offend a group of people. You should target the product that gives him the highest profit and is exclusively distributed by him—that obscure brand. He'll lose significant profit, and you'll cause less collateral damage. My advantage is—this is purely a retaliatory strike. You undercut me by 2,000 cases at a time, 0.5 yuan per case, your purpose is to make money or drive sales, while I undercut you by 50 cases at a time, 5 yuan per case. I'm aiming to "destroy" and "scare" you, so I have no scruples and can undercut by a large margin—our positions are different. You may be a big wholesaler with more power than me, but I'm like a nail, you're like an ox. When a nail meets an ox, the nail doesn't necessarily lose. Of course, I'm not undercutting your price to have a "fight to the death"; I'm doing it to teach you a lesson, to let you know I'm not to be messed with. After three or four times, I'll come to negotiate with you. Script Example: Distributor (with concern): Mr. Zhang, I heard someone has been undercutting your price recently. Have you heard about it? Undercutting Wholesaler: Yes, I've heard. It's giving me a headache. Distributor (mysteriously): Do you know who's doing it? Undercutting Wholesaler: No, I'm still investigating. Distributor: I know who it is. Undercutting Wholesaler: Who? Distributor: Heh heh, it's me. Undercutting Wholesaler: Oh, I'm already worried to death, and you're joking with me. Distributor: It's really me. Look at my honest face; it never lies. It was me who undercut your price. I'm here to confess. I'll tell you, if you want to "die," it's easy—I'll accompany you. It's because you kept undercutting my price that I undercut yours a couple of times to teach you a lesson. You're big, I'm small. I'm a nail, you're an ox. When a nail meets an ox, the nail doesn't necessarily lose. If you want to "live," let's go our separate ways and call a truce. How about that? Special Note: For second-tier distributors who source and undercut, going directly to talk might end up with a "cold shoulder"; if you're not sure you can intimidate them at once, you must fight fire with fire—after undercutting them, then talk. Of course, the tone in the example above is a bit harsh; I deliberately made it light for reading. If you actually do this, it's best to bring a few security guards and have a driver waiting at the intersection to pick you up for a quick escape. [Case] I was teaching this tactic to a pesticide company in Weihai, Shandong. A salesperson raised his hand and said, "Teacher Wei, your tactic isn't that 'awesome.' I have an even more 'awesome' one:" There was a second-tier distributor surnamed Li who sourced our products from outside and undercut prices. We came up with a plan—at 11:30 PM, I, along with the local distributor and a few people, went to knock on his door (not to beat him, of course). After he opened the door, I, as the manufacturer's representative, said, "Mr. Li, you're a wholesaler. Why do you have to go against us, the manufacturer? If you go against us, you're 'dead.' Our pesticide is a nationally known brand. We have only one brand, and we operate nationwide. You're different—you're a wholesaler with 30 brands, and you operate in just one city. If you push me too far, we'll report to headquarters for support funds, transfer stock from all over the country, and undercut each of your 30 brands by 5 cases, 5 yuan per case. I'll destroy you in one go. Do you believe it?" Comment: After hearing this, wouldn't this wholesaler feel uneasy? If the manufacturer actually did that, the wholesaler would be finished. Of course, it's just a scare; the manufacturer can't really do that, otherwise it would be "against the entire martial arts world" (manufacturers, wholesalers, and distributors of the 30 brands would all rise up against it).
2. What If the Other Party Has No Brand and Is Purely a "Feather Trader"?
If a second-tier distributor sources cross-region and undercuts prices, we must "fight violence with violence"—undercut the price of the products he represents, and then talk after the fight. This tactic requires that the other party also represents branded products. Earlier, we said the strategy against big wholesalers undercutting prices is to "hit his pain point." But what if it's a small wholesaler who sources and undercuts? This guy isn't "big as an ox" or "small as a nail," but "small as a needle"—he's a ragtag (no brands, purely a "bare stick"). If you try to fight back, he says, "I have no brand, I'm 'barefoot and not afraid of those who wear shoes.' What can you do?" The most typical are a group of self-employed individuals who make a living by reselling goods (possibly without licenses), including some who used to be salespeople for big manufacturers and then quit to resell goods for the price difference (showing the profit margin is considerable). In the industry, these people are called "feather traders," "scalpers," or "garbage eaters." These second-tier distributors, who have no brands and source goods everywhere to undercut prices, are the most hated, and many manufacturers can't handle them. These people are well-informed and quick to act (they might have been salespeople in the industry and understand policies). For example, if Coca-Cola runs a promotion in Foshan like "Smart buy one get one free," they'll immediately rush over, buy 500 cases, and then sell them in Dongguan. If Gome has a special price on "Konka 21-inch flat-screen TV at 500 yuan per unit, limit one per person," they'll quickly find five farmers, "disguise" them as consumers, buy five units, and then resell them to a wholesaler. These people have quite a presence in wholesale markets—they can even get goods without paying upfront. When a promotion happens, they come and say to a familiar wholesaler, "Give me 50 cases, I'll pay you tomorrow," and the wholesaler is willing to support (because these people have good repayment reputations). These "rogue proletarians" have no home, no store, no brand, but they have considerable energy, making them hard to deal with. What to do? Some say beat them up—but if you resort to violence in business, you're pitiful. Some say "co-opt" them—just make them your second-tier distributor or salesperson. The problem is that those who are good at this won't change their business model just because you recruit them. These people make money from feather trading, and their lifestyle might be more comfortable than that of an average wholesaler, so it's hard for them to settle down as your wholesaler, let alone your salesperson. If you can't find a target to hit, and "co-opting" risks them "relapsing into old habits," what to do? First, cut off the supply source and buy them out. If their goods would severely impact your market, first buy their stock with cash, then immediately investigate where they got it from and cut off the source there (this is difficult but necessary). Second, hit where it hurts. What do these people rely on for a living? Price differences and customer relationships. What they value most is their fixed customer network and industry "reputation" (good service, accepting returns for damaged goods, good repayment reputation, etc.). Their most "painful" spot is customer relationships, so you need to set traps to destroy their customer network until they fear you and dare not provoke you again. We have three methods. (1) First Tactic: Promotional Counterattack [Case] For example, I'm the business director for Coca-Cola, and a feather trader surnamed Li has been undercutting my prices severely. I'll spread the word in the wholesale market: "The Coca-Cola office people said anyone who takes goods from Xiao Li will be made to lose money." Then I'll find a suitable opportunity to "teach him a lesson." How? Recently, I found he sourced goods from outside again, selling at 52 yuan per case to local customers (our distributor's price is 53 yuan). Once confirmed, I immediately apply for company resources and run a local promotion, still selling at 53 yuan per case, but with two bottles free per case, effectively 49 yuan per case. This move makes anyone who bought from him lose money (they just bought from Xiao Li at 52 yuan, and now the manufacturer's promotion makes it 49). Then, while doing this, I'll also spread the word—this is aimed at Xiao Li: anyone who takes his goods in the future will "die ugly," and this is an example. (2) Second Tactic: Gift to Grab Terminals [Case] This is something I experienced personally. For a while, my distributor's Sprite cans were selling at 41 yuan per case. A feather trader named Wang Hanyang sourced from outside and sold at 40.5 yuan per case. Our distributor, nicknamed Xu Guaizi ("Cripple Xu"), was very "sly." He came up with a plan: I sell at 41 yuan, you sell at 40.5? Fine. I'll apply for a promotional policy: buy two cases, get a plastic basin. We'll specifically sell to this wholesaler's downstream customers, and while selling, we'll promote: "In the last two months, anyone who buys Sprite gets a basin." As a result, customers said, "Wang Hanyang, that bastard! I wondered why he sold me Sprite 0.5 yuan cheaper than the market price. It turns out he kept the basins." Even more dramatic, Wang Hanyang didn't realize we were targeting him. He actually thought we were giving away basins, so he came to Xu Guaizi: "Brother Xu, I heard you're giving away basins with Coke and Sprite recently. I'll take 500 cases today, give me 250 basins." Xu Guaizi replied with a line that became a joke: "I give basins with Sprite not for the basins themselves, but mainly to catch turtles. Look, the turtle has come." Whether it's gifts to grab terminals or promotional counterattacks, the principle is the same: hit the feather trader's most painful spot, destroy his customer relationships, and make him lose credibility and trust among his downstream customers. The last method is official means: It's a legal common sense. You can file a complaint with the Fair Trade Bureau/Division of the Industry and Commerce Bureau against the feather trader for below-cost dumping and unfair competition, because these feather traders often lack proper business licenses. You can use government power to "take him down." In summary, for feather traders, you need to make them understand: don't think you're "barefoot and not afraid of those who wear shoes." If you have a brand, I'll attack your brand; if you don't have a brand, I'll attack your customer network. If you say you'd rather have your customer relationships damaged than stop sourcing my goods, I don't believe you're not afraid of government administrative penalties. These tactics won't eliminate all feather traders at once, but at least they'll make the other party feel that the manufacturer's people are not to be messed with, and they might think, "Forget it, I'll source less of this product and switch to another." -END- The best FMCG distributor learning platform in China Focusing on providing professional, practical, and actionable tutorials for companies and distributors Committed to helping Chinese FMCG distributors grow rapidly The most professional and practical knowledge base in the FMCG industry Reply with the red number below to get the corresponding content Reply with number 1 to view the complete knowledge base | 001 Excellent Article Selection | 002 Distributor Market Operations | 003 Terminal Visit Management | 004 Sales Supervisor Skills | 005 Sales Volume Improvement Tips | 006 Channel Expansion | 007 Managing Distributors | 008 Distributor Development | 009 Distributor Internal Operations Management | 010 Team Management | 011 Efficient Distribution Techniques | 012 Sales Manager's Eighteen Skills | 013 KA Operation Methods and Strategies | 014 First Lesson for New Salespeople | 015 Internet, Brands | [Long press QR code to follow] To join QQ/WeChat groups, click: Read Original