---
title: "Will Digitalization Create Channel Squeeze?"
description: "Digitalization squeezes stores in two ways: platforms that are rarely used sink to the bottom and are effectively squeezed out, and digitalization limits store owners' choice of products, squeezing out products that cannot enter stores. This results in non-well-known brands and their distributors being pushed out of channels in the digital era, forming a digital barrier that is higher than traditional channel barriers."
author: "刘春雄"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2021-04-15"
language: "en"
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---

# Will Digitalization Create Channel Squeeze?

> Digitalization squeezes stores in two ways: platforms that are rarely used sink to the bottom and are effectively squeezed out, and digitalization limits store owners' choice of products, squeezing out products that cannot enter stores. This results in non-well-known brands and their distributors being pushed out of channels in the digital era, forming a digital barrier that is higher than traditional channel barriers.

**-01-**
**Digitalization squeezes stores in two ways:** First, because stores normally use a limited number of ordering platforms, many platforms that are not frequently used sink to the bottom and are effectively squeezed out; second, because digitalization restricts the "store owner's choice" in stocking, products that cannot enter the store are squeezed out.
**The result of channel squeeze is that many non-well-known brands and their distributors, which rely on channels for survival, are pushed out of channels in the digital era.**
I call the phenomenon of digital platforms being squeezed out the digital barrier of channels. **The digital barrier is higher than the traditional channel barrier.**
**-02-**
In the past, the number of SKUs a store could accommodate was determined by the number of shelves. Besides the must-have categories and brands, store owners had a lot of free choice to select some non-well-known brands.
I used to divide best-selling products in stores into two categories: **preferred brands and recommended brands.** Preferred brands are well-known brands that consumers prefer and are must-sell items in stores; recommended brands are products that store owners identify with and have high gross margins, and because of the high margins, they get priority recommendation from store owners.
**Recommended brands are the store owner's SKU free choice.**
After channel digitalization, if a store orders from an ordering platform, there are two options: **must-use ordering platforms, and must-select categories and brands.**
**Theoretically, the number of ordering platforms is unlimited, but the ordering platforms that stores commonly use are limited, and many ordering platforms sink to the bottom because they are not commonly used. Then, brands on those sunken platforms, unless they are must-have brands, have no chance to place orders.**
How many ordering platforms does a small store commonly use? 10? 30? 50? Or 100?
**It is definitely not unlimited; even if it is many, there is a ranking. Those ranked lower have fewer opportunities.**
It is widely recognized that phones cannot accommodate too many apps. How many mini-programs a store can accommodate is still undetermined.
**The number is undetermined, but it is certain that the number is limited. So, if manufacturers used to compete for shelves and displays, now they must compete for the frequency of ordering platform usage.**
**Similarly, the number of mini-programs that users' phones can accommodate is also limited. Manufacturers are all intercepting users, but if the platform sinks to the bottom after interception, it is still worthless.**
Some might say that in the future there will be a software similar to a "folder" that integrates all ordering platforms into one system. Such technology is not difficult, but just like a manufacturer's products are listed on Tmall or JD.com, what matters most is that they can be seen at first glance when opening the webpage.
My conclusion is: **The competition among ordering platforms has already begun, and there will definitely be a large number of platforms that sink to the bottom and are forgotten by stores. Ordering platforms will definitely create channel squeeze.**
**-03-**
Let's look at the impact of digitalization on store owners' SKU selection rights. Besides must-have items, owners have choice over non-must-have items.
After 2013, we noticed a phenomenon: in first-tier cities, there are no longer second-, third-, or fourth-tier brands. Small and medium brands can only survive in lower-tier markets. That is to say, the "recommended brands" phenomenon I once proposed now only exists in lower-tier markets.
**In central cities, consumers' "self-selection" without interference has become the norm. Even in small stores, consumers still choose by themselves. Although KA stores have manufacturer promoters, only large enterprises can afford to send promoters regularly. Therefore, small and medium brands have no market opportunities in central cities.**
**Why do small and medium brands have opportunities in lower-tier markets? There are three main reasons: first, small and medium brands have high gross margins; second, distributors' customer relationships are effective; third, in street-side stores, acquaintances are regular customers, and store owners' recommendations are effective.**
I once asked some small store owners: What products sell well? The owner replied: "Whatever I want to sell sells well."
**It can be said that the personal influence of small store owners determines the survival space of small and medium brands.**
Currently, the personal influence of small store owners faces three major challenges: first, the challenge of the shopping ecosystem, where recommendations by store owners in central cities are seen as interference; second, big brands have bought display space even in small stores; third, the BC integrated operation after digitalization will challenge the influence of small store owners.
**The store owner's right to choose products is greatly challenged in the digital era, because BC integration creates a pull on the channel.**
**-04-**
Next, let's talk about the impact of BC integrated operation on small and medium brands.
**Consumers are the store owner's private domain. In the private domain, acquaintances are regular customers. This is also the bargaining chip that store owners used to "demand" from manufacturers.**
Do small store owners have private domains? How can they maximize the value of their private domains? They recommend whoever has the highest gross margin, whoever has the best customer relationship (customer relationship is also a benefit), and whoever pays for display space.
This is the way to monetize the store's private domain.
The monetization of store private domains generally occurs in "self-selected brands" with relatively high gross margins. This is the survival opportunity for small and medium brands.
**But stores also face a problem: the private domain is limited, and it does not grow, or even declines.**
When stores encounter problems, they shift them upstream to the supply chain. So now, store costs are getting higher and higher.
**Let's look at the BC integrated operation system. As long as users are online, users are both the store's private domain and the brand's private domain.**
This is a very important concept. **When users are online, it means that brands also have private domains.**
The store's private domain can be brought into the store through communities, or monetized through transactions after entering the store.
The brand's private domain can be used to direct traffic between adjacent stores. The brand has the ability to guide users online to which store they go to. Of course, the premise for directing traffic is that there is guidance between adjacent stores.
**This is an ability that brands have never had before, that is, the ability to influence the B-end from the C-end.**
**If brands can guide online, they have the ability to influence the B-end.**
**The brand's private domain is a balance to the store's private domain. The result of the balance is: after digitalization, big brands have the ability to balance, while small brands without digitalization have to pay a greater price to influence stores.**
**Therefore, it can be said that digitalized brands will definitely squeeze non-digitalized brands in the channel.**
**-05-**
Will distributors be squeezed in the era of channel digitalization? **Of course they will.**
Digitalized ones will squeeze those that are not digitalized, and those that do digitalization well will squeeze those that do poorly.
**Big brands will definitely do digitalization, while most small brands lack the ability to do so. Therefore, if distributors want to survive in the channel, they also need to do digitalization, which I call "digitalization of large distributors."**
The digitalization of large distributors can drive the digitalization of the small brands they represent.
**Brands' digital platforms and distributors' digital platforms must compete for the attention of stores to avoid sinking and being forgotten. Similarly, large distributors should use BC integrated operation to empower stores, influence stores, and form brand pull.**
**Even for unknown brands, as long as they operate the C-end well, they can still influence the B-end.**
**As long as they can influence the B-end through the C-end, they can control the store's free choice of products.**
**-06-**
**Shelves are limited, and small brands are squeezed by big brands.**
**Commonly used platforms are limited, and those without platforms are squeezed by those with platforms, and those with poor platforms are squeezed by those with good platforms.**
**Digital platforms will form new competitive barriers, and if you are not careful, you will be squeezed out of the channel.**


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