“Violent” exclusive distribution cannot truly earn the respect of channel partners. It is time to review the once-decisive practice of exclusive distribution.
The Exclusive Distribution Trap Company A is a famous sanitary products company in Hunan. Its General Manager and Sales Director, Mr. Xiao, is known for his market operations that are steady, accurate, and ruthless. Now, this distributor, who was once baptized by big companies, manages distributors with ease and even more extreme methods. In managing distributors, he implements strong-handed management, with the core strategy being exclusive distribution, and he is ready to take action against most non-exclusive clients. Mr. Xiao's grand plan for exclusive distribution is advancing step by step: Step 1: Assess Sincerity Sincerity is reflected in the annual contract task volume. In business, if you lack sincerity, he has ways to make you "sincere." Specific methods: painting a rosy picture, citing sales growth examples from model markets, sharing profit stories of star distributors, assuring that the company's overall market operations will leave you with no worries, and hoping you will catch the fast train of the company's overall development... How to show your "sincerity"? Only by maximizing the contracted task volume, showing your determination to turn pressure into motivation! Step 2: High Rebate Points Many manufacturers offer only 2% or 3% annual rebates, but Company A offers 5% annual rebate plus 5% quarterly rebate, but on the condition that you must follow the rules, otherwise severe punishment will be imposed. Step 3: Market Personnel Support Company A adopts the human wave tactic that Mr. Xiao once excelled at: one dedicated salesperson for every five distributors, and each salesperson assists the distributor for 5 days in the market. When the salesperson arrives at the distributor's location, the tasks are to assist in opening retail outlets and distributing products, help the distributor sell goods, train the distributor's sales staff to become the manufacturer's salespeople, and ensure that the money collected by the distributor in rural areas is immediately transferred to the company, seizing capital. At the same time, the dispatched sales team plays a role in mentoring and supervising the distributor. Step 4: Order Meetings to Push Inventory and Seize All Channel Resources With the most significant profit concession policy of the year, the first move is to fill the distributor's warehouse, and the second is to help the distributor hold order meetings to squeeze the retail customers' warehouses. As the saying goes: if you can turn the distributor's warehouse into your factory's warehouse, and 80% of his funds are occupied by you, it will be hard for him not to listen to you. Company A invests heavily to incorporate the distributor's funds, warehouse, and even the hard-earned network, and with a set of exclusive distribution processes, it is like building a highway: once you are on it, there is only one exit, which is gradually achieving exclusive distribution of its products. Coping Strategies After Being Trapped by Exclusive Distribution After two or three years, distributors begin to think about pulling out. They see through Company A's tactics and find it increasingly difficult to make money: in the first year of cooperation, it was 5% immediate rebate + 5% annual rebate. In the second year, it became 5% quarterly rebate + 5% annual rebate, making it harder for distributors to get their hands on. In the third year, the company required a 2% annual deduction for trial products and disallowed returns or exchanges. As the manufacturer's demands become harsher and the task volume heavier, distributors constantly face the risk of being cut off. Adhering to the principle that "change brings risk, but not changing is dangerous," distributors begin to fight back against Company A. Move 1: "I'm Taking on a Competitor? Actually, I Want to Kill It!" A distributor commits the ultimate act of defiance by taking on a competitor! When the regional manager finds out and wants to cut off the client, the distributor's explanation is: the competitor's product has four more pieces per pack, is cheaper, and has the same quality. If someone else takes it, it might impact our market. But if I take it, I can suppress its sales and ensure that the competitor's inventory never exceeds 20% of ours! He expresses his determination to kill the competitor this way! In the end, considering that replacing this distributor, who was cultivated over one or two years, might not yield a better one, no action was taken. In fact, this is the first move many distributors use to counter exclusive distribution—taking on a similar competitor as a threat: if you dare to cut me off, I won't be tied down by you. While carrying water from the mountain, I also dig a well in the backyard for emergencies. Move 2: Not Taking on Competitors, but Taking on Related Categories I won't take on a competitor brand of Company A (diapers), but I'll take on baby bottles, pacifiers, tissues, and personal care products. You shouldn't have a problem with that, right? Company A certainly has a problem! This also diverts channel funds. But you can't control the client to death. Move 3: Deliberately Suppress Sales Growth Distributors always find various excuses to prevent the manufacturer's personnel from understanding their network, do not need the manufacturer's assistance in market development, and intentionally control sales growth! Because distributors understand that the company's approach is to whip the fast ox; the faster the sales growth, the more they are coerced by the company! Move 4: Righteous Indignation Desirelessness makes one strong; this is also the most powerful move for distributors. How many outlets do you want? I'll do as required! What kind of display do you want? I'll do that too! But if you want me to sign a very high task, sorry, I can't do it! I guarantee you a 25% annual growth. If you think there is a more suitable client, I can give way to someone else, and I promise not to sabotage your market; just transfer the inventory. For such a client with vision, network, money, and good display compliance, cutting them off is a pity, and keeping them is more beneficial than harmful, so the company often just goes along. Through the above four moves, distributors severely trapped by exclusive distribution can often tear open a gap and find a new world. Reflections on Exclusive Distribution Many exclusive distribution clients coerced by manufacturers were cultivated from small clients and are loyal to the company. As sales volume grows, but the money earned is not proportional to the risks and pressures borne, and when the company's operations become increasingly autocratic and aggressive, distributors will also choose to switch. Market competition is becoming more intense, product homogenization is increasing, and the operational methods of peers differ. Price differences for similar quality products, and the different demands of high-, middle-, and low-end consumers require different products to satisfy. Terminal store owners have different preferences for profit, popularity, quality, and business ideas. No single company can fully meet all these needs. Therefore, distributors operate in the market by using different products to meet different market demands. Source: Golden Distributor