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Slim margins yet not higher sales volume—this is a situation many county-level distributors are reluctant to see but have to face. High margins with high volume is the ideal business model for distributors, while low margins with low volume is a poor one. A poor business model directly leads to a sharp decline in profitability. If you're not making money, why bother?
Let's look beyond the surface. The slim margin is not a subjective reduction by the distributor but a response to competition—the simplest countermeasure. As for the lack of volume increase, it's not due to a decline in consumer purchasing power or a reduction in the number of consumers. Instead, while both consumer numbers and purchasing power are rising, individual distributors see declining sales because there are more manufacturers, more products, more competing distributors, and more downstream outlets. This severely fragments customer and consumer resources. Overall, the growth rate of buyers hasn't kept pace with the growth rate of sellers, so the share each distributor gets naturally shrinks.
The market always belongs to those who think, act, learn, and observe. Facing this issue of slim margins without volume, complaining is useless. Stay calm, observe the market rationally, analyze diligently, learn from others' advanced practices, and promptly implement them to quickly return to a healthy state of high margins and volume.
Solving the problem of slim margins without volume essentially means addressing two issues: first, why consumers should buy your products; second, why downstream customers should source from you.
The core of solving the first issue is: Product selection and mix, effective display in distribution channels and terminals, and full utilization of promotional activities in conjunction with manufacturers.
In product selection and mix, especially maintain a regular new product introduction strategy to keep downstream customers and consumers interested. This also continuously adjusts the profitability of the distributor's product portfolio.
For the overall product mix, consider an 80/20 concept: 80% of introduced products follow a trend-following model—whatever sells well in the market, you do it. Distribution is about fast circulation; quickly introduce hot-selling items and quickly stop slow-moving ones. There's no need to invest long-term in cultivating a market for a specific product or wait for its revival. The remaining 20% of products should have some uniqueness and be cultivable in the short term. This mix maintains business stability while sustaining momentum for continuous development.
Make good use of manufacturer market resources, applying them to terminal displays, channel advancement, and promotional campaigns. Don't focus on how to intercept the manufacturer's market funds; earning small money at the expense of long-term gains is unwise. One distributor friend of mine calls such behavior "eating pig feed"—relying on intercepting manufacturer funds is the least promising way to make money. Instead, use manufacturer funds to continuously build or strengthen your sales channels, which is the foundation of a distributor's business.
The core of solving the second issue is: Good downstream customer management, providing downstream customers with reputation, benefits, and emotional connection. This tightens customer relationships and ensures business stability.
These three aspects—reputation, benefits, and emotional connection—must be addressed from both internal and external perspectives. First, reputation: most downstream customers prefer to do business with well-known distributors because it implies greater security, more market experience, and higher credibility in product recommendations. To achieve this reputation, distributors need brand awareness, which involves brand design, positioning, communication, and application—topics I'll cover in a separate article later.
Now, emotional connection: during cooperation, provide meticulous service and a good attitude to give downstream customers a pleasant experience, making them feel at ease, comfortable, and smooth doing business with you. This emotional connection comes from both the distributor boss and employees; neither can be missing. The boss can ensure service and attitude, but employees are uncertain because most distributors have extremely simple internal management, and employee HR management is often chaotic. Employees feel underpaid, work in poor conditions, learn nothing, have no career advancement, and have lower social status than manufacturer sales staff. Naturally, their work enthusiasm is low, making it hard to guarantee meticulous service and good attitudes toward customers.
If the boss doesn't take care of employees, employees won't take care of customers. To fundamentally improve employee service and attitude, as well as their responsibility, you need to turn employees into a certain degree of "bosses."
Case Study: In the distributor circles of northern Jiangsu, everyone knows Boss Zhang, who deals in alcoholic beverages. He distributes dozens of liquor brands, plus dried fruits and snacks, achieving annual sales of tens of millions. His sales network covers northern Jiangsu and even extends to Shandong and Henan. In the northern Jiangsu liquor distribution circle, if Boss Zhang takes on a liquor brand, it means the product will definitely sell. If he ever says "bye-bye" to a brand, that brand might as well withdraw from northern Jiangsu entirely. As his business grew, so did his staff: over 20 key salespeople and more than 70 regular salespeople and stock clerks. The office was bustling every day. Almost daily, key salespeople complained about insufficient staff and demanded more hires. But each new hire costs tens of thousands of yuan annually in wages, benefits, and bonuses. If he didn't hire, he feared affecting sales. Seeing the salespeople running around busily, he kept adding staff, growing from the initial dozen to over 70. Over time, Boss Zhang began to wonder: Are all these people really working diligently? He couldn't see if anyone was slacking off. Although meetings emphasized improving work efficiency, sales didn't increase much, while personnel costs grew. Managing dozens of people became overwhelming. Worse, employees kept defecting to competitors and poaching his customers. Departing employees also negatively affected current staff. Boss Zhang increasingly felt he must decisively resolve this complex internal HR issue.
Through a friend's introduction, Boss Zhang and several other distributor friends hired a management consulting firm as advisors (hiring one alone would be too costly) to seek solutions. After research, the experts pointed out that as a business grows and staff increases, HR must form a dedicated management system, establishing employee management, evaluation, assessment, and incentive systems. Employees should not only receive economic compensation and skill improvement but also see a clear future direction to stimulate their initiative, shifting from "I have to do" to "I want to do." Based on business development, establish an organizational structure where the boss manages managers, managers manage supervisors, and supervisors manage employees, maximizing internal self-management. In Boss Zhang's company, he acted as a super salesperson, handling everything himself, without focusing on building a more effective organizational structure or having means to evaluate, assess, and motivate employees. Many employees became passive followers, doing only what the boss directed. All major decisions were the boss's, so employees didn't care about future direction, cost control, or effective resource utilization. Moreover, over time, employees felt their earnings were limited, lacked opportunities to improve their earning skills (business skills), and had no one to guide their future. They either drifted along or left to start anew.
For a distributor like Boss Zhang, who has reached a certain scale and handles many products, the boss's role should not be that of a super salesperson but an operations director.
Following the consultants' advice, except for a few products he needed to manage personally, Boss Zhang divided his over 100 product categories into 14 projects. The 14 key salespeople became project managers, each selecting team members from the remaining salespeople to form 14 project teams operating relatively independently.
With the consulting firm's help, Boss Zhang established a comprehensive performance appraisal system based on the company's operations, assessing project managers on both internal management and external operational capabilities.
Internal Management Capability Assessment: Now, let's discuss the "benefits." The regular profit for downstream customers (mainly distributors and retailers) comes from the distributor's product mix. By leveraging local knowledge and understanding market trends, distributors continuously bring new profitable products to downstream customers, who naturally appreciate that. Besides product benefits, what other functional benefits can more effectively strengthen relationships?
In business, whether you're a distributor or a sub-distributor/retailer, the ultimate goal is profit. But profit requires both internal management and external operations. Due to limited capabilities, these internal management and external operational issues are the main challenges for downstream customers. Let's break down the main problems:
1. Accuracy in Following Trends Sub-distributors and retailers are often trend-followers, chasing whatever sells well. But there's a problem: with limited funds and sales channels, if they misjudge market trends and stock up on products that become unsellable, the losses can be significant for those with limited capital.
2. Management Issues Even small businesses have management issues. Sub-distributors and retailers typically have shorter industry experience and fewer opportunities to learn management, so their internal personnel and business management often remain at a low level. This increases internal friction and limits efficient resource utilization.
3. Development Direction Issues Many sub-distributors are not content with being small; they aspire to become distributors, directly connecting with manufacturers as first-tier distributors. But the step from sub-distributor to distributor is not easy; it requires not only strength but also strategic and mindset upgrades.
4. Handling Product Incidents Products mass-produced on assembly lines sometimes have quality issues. With consumers becoming more rights-conscious and government crackdowns on counterfeit and substandard products intensifying, sub-distributors and retailers face huge losses if they mishandle such incidents. For example, during the Anhui milk powder incident, many sub-distributors and retailers went bankrupt due to product confiscation and fines. The severity of product quality issues depends on handling skills.
5. Downstream Customer Management Some sub-distributors have their own customers—terminals, direct consumers, or even closed terminals or channels. Effectively managing and utilizing these downstream customer networks is a technical skill. Different management approaches yield different results; improving management skills means improving profitability.
These five points are the main issues troubling downstream customers—their needs. Identifying needs enables effective selling. Who can meet these needs? Manufacturers find it hard to solve these problems effectively: they're too far away, have a different perspective, lack suitable management methods and experience for sub-distributors and retailers, and don't have the time or energy to help. Distributors are the most suitable problem-solvers: they're close to sub-distributors and retailers, share similar values and perspectives, and communicate more harmoniously; the cost of solving is limited—distributors don't need to spend much; and solutions are mature—distributors have likely faced similar issues and can replicate and guide proven models. In short, distributors guide sub-distributors on how to manage business more effectively, develop it, and avoid risks.
Of course, in business, distributors don't teach for free; there are benefits. This thought-based management approach brings multiple benefits: it greatly enhances sub-distributors' loyalty, strengthens execution, ensures compliance with requirements on stocking, price system maintenance, and controlling cross-region sales, enabling distributors to improve sales network quality and reduce management costs.
Moreover, this approach of managing from a teacher's perspective is somewhat non-replicable; other distributors find it hard to copy. For sub-distributors and retailers, fundamentally improving their management and profitability is more valuable than pure cash benefits—"Give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime."
By arranging product mix and promotion, plus a composite management approach of reputation, benefits, and emotional connection for downstream customers, distributors can largely solve the problem of slim margins without volume and move toward high margins and volume.
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