One day, you introduced the company's latest notice to distributor Lao Liu—to accelerate expansion, the company decided to provide strong coverage policy support to distributors. The plan is roughly as follows:

In-store package:

  • Newly opened stores receive 10 cases of Product A for free.

Display:

  • Stacked display 3x3, totaling 9 cases, with the first layer cut open for display, maintained for 6 months. If sales occur, the store must restock to replenish the display.
  • Freezer display: open 1 case and place in the freezer; no display duration required.

Referral reward:

  • For every bottle cap recovered by the store manager or staff, they receive 2 yuan, to encourage the store to recommend and sell this product.

In-store basic merchandising:

  • Posters
  • Price tags

Expense reimbursement:

  • Monthly reimbursement; this month reimburses last month. Provide supporting materials; reimburse as much as achieved.
  • Display is reimbursed over 6 months; materials must be submitted each month; reimburse as many stores as submitted.

You confidently said to Lao Liu, "The company has given such strong support for the first time. I believe it will definitely impress terminal customers and help you gain a large number of new stores. You can definitely achieve the coverage target of 3,000 stores in a month!"

Lao Liu was not very excited; he just exchanged pleasantries, "Not bad, not bad. Let me study it first..."

However, two weeks passed, and the market did not advance as you expected. According to data fed back from the distributor, only a little over 100 new stores were covered, and sales did not improve significantly. "Could it be that competitors have started to attack? Or is there a problem somewhere..." You were anxious to find the reason, so you decided to first talk to Lao Liu to understand the situation.

You asked just one question, and Lao Liu began to pour out various difficulties: competitors are suppressing, terminal relationships are not good, product awareness is insufficient, terminal bosses are dissatisfied with the product pricing, etc. But most of these problems existed before; without strong policy support, they could still add one to two hundred stores per month. Now with more investment, there is no better performance. There must be other reasons that Lao Liu did not mention. After some communication, Lao Liu finally told the truth: he actually did not implement the company's policy at all and continued to use the original method for distribution. Lao Liu believed that this policy posed many risks to him:

Capital risk: Lao Liu thought that the investment of 10 cases per store was too large. Each case costs about 50 yuan at arrival, so each store requires an investment of 500 yuan. According to the coverage target of 3,000 stores, he would need to advance 1.5 million yuan in funds, which is a huge financial pressure. At the same time, the risk of bad debts at the terminal could also increase rapidly, and he did not know how much money would not be recovered. He thought that changing to 6 cases per store would still be attractive enough, and the capital investment could be reduced by 600,000 yuan.

Reimbursement risk:

  • Which expenses can be claimed?
    • Only the 10 cases of product for store entry?
    • Or also the bottle caps from these 10 cases? 10 caps/case * 2 yuan/cap * 10 cases/store = 200 yuan/store. Based on 3,000 new outlets, that is nearly 600,000 yuan in expenses!
    • If the company gives a terminal promotion plan, such as buy 5 get 1 free, are the bottle caps from the free product also reimbursed?
  • Which product is reimbursed? Is the expense reimbursed for Product A? Or Product B? Or is it unrestricted?
    • A is a new product, while B has been sold for some time and has some sales.
    • Although B's arrival price is similar to A, B's terminal retail price is 25% lower. Lao Liu felt that reimbursing B might sell better.
  • What evidence is required? Originally, an entry agreement and display photos were required, but would the following situations be reimbursed?
    • If the display position is not ideal, e.g., the product is displayed in a corner, is it reimbursed?
    • If the store has empty bottles and empty boxes on display but does not restock, e.g., the boss drank them himself, is it reimbursed?
    • If there is no display and no restocking, e.g., competitors come to collect goods and the store boss does not replenish, how to handle?
    • If there is no display but restocking, e.g., the store is under pressure from competitors and no longer displays but continues to replenish, is it reimbursed?

Sell-through risk:

  • After the product is placed, if it does not sell and approaches expiry, how to handle? Does the company bear the return or exchange, and how much? Or does the company provide a plan to promote sell-through?

Profit risk:

  • If performance targets are not met and rebates are not obtained, the free products are not counted in sales volume. But a large amount of product is given away in the market, and consumer demand is limited, which may affect original sales, thus failing to meet performance targets and losing sales rebates.
  • Are the 10 cases for distribution counted in the sales volume of salesmen and delivery personnel? Who pays for this sales commission? Lao Liu gives away the product for free, with no profit on it, and is unwilling to bear the commission for free goods.
  • But distribution affects the routine work of salesmen and delivery personnel, thereby affecting their personal income. If free goods do not count for commission, no one will be willing to distribute.

After hearing Lao Liu's reasons, you might be furious. The company gives so much investment, yet Lao Liu still nitpicks. In the past, you would probably say, "Take it or leave it; if you don't, I'll find someone else!" But even if you changed people, the problem would not disappear. This is because it is the normal logic for distributors to think about business. For any investment, they first think about risk, then how much money they can make, and finally long-term development. If Lao Liu did not think about business this way, he might have been eliminated by the market long ago. Only cautious optimists have survived to this day. Moreover, Lao Liu has worked hard for most of his life to save this little property; he is unwilling to risk his property for your ideals and career. This is also the reason why distributor friends are becoming more conservative. It is not that they do not have money; precisely because they have money after much difficulty, they guard it more closely. Therefore, when the company's policy has many risks that distributors perceive, they will use various methods to make it impossible to implement.

So, to improve distributor execution, you must first eliminate their concerns. How to do it? Here are three suggestions:

First, you must understand business and understand that for any action, the distributor will turn it into an investment in their mind. Investment means risk, requires return, and can be calculated clearly: how much money to spend, how much capital to invest, and how much profit to generate. How much can be earned, how much can be lost, and whether it is within the distributor's tolerance. Only when the accounts are clear will they cooperate better with you.

Second, you must be a responsible person, care about the distributor's business development, and be able to fulfill promises to the distributor. For the four major risks that Lao Liu worried about above, you should think ahead for him, confirm with the company, and then tell Lao Liu.

For example:

Interpreting capital risk:

  • You mentioned giving 6 cases; we have discussed it, but we are worried about the effect, so we finally decided to give 10 cases. Since we are spending the money, we might as well do it properly. What do you think, Lao Liu?
  • As for the bad debt risk, I know your market well. The bad debt rate over the past 2 years has been less than 1%. Assuming we expand coverage, referring to similar markets, their bad debt rate is about 2%. So the maximum bad debt on 1.5 million is 30,000. If the business team follows up closely, with the current visit frequency, it can be controlled even better.
  • Although there may be a 30,000 bad debt risk, that is a loss for one year. Assuming 3,000 new outlets in the future, based on the lowest average of 1,000 yuan per store per month for similar customers, the new sales volume in one month would be at least 3 million. If calculated with a more ideal output of 2,000 yuan per store per month, it would sell even more. With a 15% gross margin, your monthly gross profit can cover this potential bad debt risk.

Resolving reimbursement risk:

  • Reimburse all expenses, including the 10 cases for store entry and all bottle caps. The market moves forward, and it is impossible to distinguish which caps belong to which products. It is better to give the distributor peace of mind.
  • Reimbursement is not limited by product; the reimbursement expenses enter a fund pool and are used according to company rules, can be used for any product.
  • What evidence is required:
    • Even if the display position is not ideal, reimburse as long as consumers can see it.
    • Even if the store has empty bottles and empty boxes on display, reimburse as long as product exposure is guaranteed.
    • If there is no display and no restocking, do not reimburse. This is originally Lao Liu's responsibility, and such situations will not be many.
    • If there is no display but restocking, as long as it can be proven that the store has continuously restocked for more than 6 months and the number of cases restocked is greater than 10, reimburse; otherwise, do not reimburse.

Resolving sell-through risk:

  • In the second month after distribution, the company will have a consumer promotion plan to promote product sell-through and increase store owners' confidence.
  • However, the company does not accept returns or exchanges. Lao Liu can use the company's promotion plan to digest near-expiry product inventory.
  • The current natural sell-through rate is nearly 20%, meaning it will take at most 5 months to digest the distributed products, leaving about 1/3 of the shelf life. With the promotion plan, the near-expiry risk can be completely resolved.

Determining profit risk:

  • Although free products are not counted in sales volume, your sales target was signed at the beginning of the year. Even without these supports, the task must be completed. Now with policy support, the number of covered stores increases, and sales will definitely increase rather than decrease.
  • Distribution sales should be counted in the commission for salesmen and delivery personnel, and this money should be paid by Lao Liu. These commissions are at most 3,000 stores * 10 cases/store * 3 yuan/case = 90,000 yuan. The gross profit from new sales is enough to cover this cost.

Finally, you must have a clear plan to help the distributor allocate resources to achieve the set goals. For example, in the first month, discuss the plan details with the distributor and the business team, anticipate problems that may arise during execution, and prepare contingency plans; calculate the gaps in personnel, vehicles, and corresponding resources, and recruit personnel and hire vehicles in advance.

Through thorough business interpretation, responsible communication, and detailed execution plans, turn uncertainty into known risks, allowing distributors to invest with confidence. Only then can you avoid the phenomenon of distributors refusing money and achieve efficient execution.

Source: Weizhi (ID: gh_98f8e108c99d) Author: Liu Huaming, Senior Consultant at SMI, MBA from Sun Yat-sen University, specializing in regional expansion challenges across modern and traditional channels.

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