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The dairy peak season has arrived, and the industry's price wars, PR battles, and resource contests have begun in earnest. Manufacturer A, a strong player in the dairy industry, is no exception. This year, it has taken price competition to the extreme: in distributor Huang's territory, supply prices to major retail outlets have been cut by 20%, and a "buy 10 get 1 free" promotion is running in the channel. Given its strong position, the manufacturer requires the distributor to bear 30% of the promotion costs. In this campaign, the manufacturer's determination is to use aggressive promotions to suppress competitors and secure the No.1 brand position in the region. To cooperate, Huang has fully supported the manufacturer's intentions and implemented all policies. However, during execution, Huang calculated the following: in the entire prefecture-level city, there are about 15 major retail outlets. With an average sales volume of 40,000 yuan each, his share of promotion costs would be 36,000 yuan. The channel sales are about 3 million yuan, and his share of promotion costs would be 90,000 yuan. The average gross margin on all products is only 4%, which on 3.6 million yuan is 144,000 yuan. After deducting 126,000 yuan in promotion costs, the remaining 18,000 yuan is far from covering personnel expenses, logistics, and business taxes. The monthly loss would definitely exceed 100,000 yuan. So how can such a business be viable?
This is a classic case where the manufacturer's promotion policy cuts into the distributor's margins.
Because Manufacturer A has a strong brand, its frontline sales staff often adopt a lax attitude. They typically approve the distributor's plan, leave once payment is made, and after the promotion ends, they do a cursory market visit and wrap up. Based on my understanding of Manufacturer A's marketing management, I suggest Huang adopt the following measures to seize opportunities for profitability:
Climb the ladder: In the promotion, major retail outlets bear 6 percentage points of costs, while the channel bears only 3 points. However, the number of major retail outlets is fixed, and the potential for sales growth is very limited. Their role is mainly to showcase the company's strength, secure terminal resources, attract consumer attention, and serve as image outlets. In contrast, the channel is different: for wholesale and retail stores, there are usually no promotions, so a total promotion of 10 points would be a pleasant surprise. Moreover, this year's promotion intensity is much higher than competitors. Therefore, Huang should increase channel distribution. This not only boosts sales but also allows him to fully develop the network, eliminate market blind spots, and strengthen relationships with existing downstream small clients. After all, selling more products through the channel yields an additional 2% gross margin. For the sake of overall sales, in major retail outlets, he should ensure the image meets Manufacturer A's requirements, but delay supply as much as possible—as long as there is no stockout and the image is good, he can minimize supply to these outlets and reduce his losses.
Switch the pillars: The promotion intensity at major retail outlets is 20%, with the distributor bearing 6%, while the channel gets 10% with the distributor bearing 3%. In the prefecture-level city, relationships with major retail outlets are hard to manage, but in county-level markets, the largest outlets tend to respect prefecture-level suppliers. Huang can communicate with county-level major outlets, even bearing 2 percentage points of relationship costs, and use these county-level major outlets as transfer points for channel orders. After all, the manufacturer's sales staff are reluctant to visit county markets. By diverting products from major retail outlets or executing the manufacturer's promotion in the channel, Huang can net a 5-percentage-point gross margin difference. However, there must be a volume control: not all county-level demand should be sourced from major retail outlets. Generally, it's acceptable for major retail outlets' sales to double, but the majority of county-level products must come from the company; otherwise, the deviation from the original plan would be too large, and if Manufacturer A investigates thoroughly, it could affect future business.
Seize by force: Major retail outlets often require the manufacturer to implement the promotion on a "first three, last seven" basis—that is, supply starts three days before the promotion and continues until seven days after it ends. This extends the promotion period by 10 days. Huang should use this 10-day window to divert more products from major retail outlets using the "switch the pillars" method. These products can then be sold at regular prices, yielding an additional 14% gross margin from the manufacturer.
Hide the sea: After years of operation, Huang has built strong relationships with downstream clients, forming a community of interests. In the final days of the promotion, he can jointly stock up with downstream clients, then release the inventory after prices recover, selling at regular prices. This way, Huang and his clients can collectively capture the 6% promotion margin from the manufacturer.
Bend to survive: Throughout the promotion, Huang should fully comply with the manufacturer's policies and cooperate with sales staff to gain favor, which helps in expense reimbursement. To reduce logistics and warehousing costs, he should coordinate multiple downstream clients for bulk orders, encouraging the manufacturer to deliver full truckloads directly to county markets. This reduces storage and logistics costs, contributing to Huang's profitability.
In summary, by applying the above methods, Huang can, even when the manufacturer's promotion policy cuts into margins, convert part of the manufacturer's resources into his own marketing resources or profit sources through policy transfer and cashing out. Of course, all outcomes should aim not to harm his own interests or long-term market sales.
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