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I. Preface

1. Reshaping Channels

What is a channel? Simply put, a channel is the path through which products flow forward and funds return in reverse. It is the connector between products and consumers, the bridge between enterprises and the market, and a vital resource for any company.

As one of the four key sales elements, channels hold an important position in actual sales work. For new enterprises, the primary issue is establishing channels. For established companies, further development often involves channel expansion. Large enterprises push for deeper channel penetration, while small and medium enterprises seek broader channel coverage. Channel construction is a major task for all sales departments. To some extent, the width, depth, and smoothness of channels determine a company's growth rate.

Every operating enterprise has its own sales channels. Channel advantages often translate into competitive advantages. A well-established, reasonably distributed sales channel first ensures the implementation of business strategies, second reduces new product promotion costs and speeds up market introduction, third accelerates capital turnover and rationalizes resource use, and fourth lowers market operation costs and drives steady sales growth.

In actual sales work, channels exhibit the following characteristics:

  • Coexistence: Channels are often shared with competing brands; they are not inherently exclusive.
  • Dynamism: Channels are always changing, can shift at any time, and may disappear.
  • Flexibility: Channels can be long or short, depending on how you shape them.
  • Timeliness: Channels follow changes in consumer trends; they have a shelf life.

From these characteristics, it is clear that channel construction is not a one-time effort but a continuous process of development and shaping. A key task for sales personnel is channel building.

Sales channels are visible yet intangible. In practice, salespeople often struggle with how to establish a complete, smooth channel that truly fits their products. This article aims to address this comprehensively from a practical standpoint.

2. Rethinking Channels

Channels may seem simple in daily sales work, but they are often misunderstood. Common misconceptions include:

Misconception 1: Channel equals network.

What is a sales network? It is the product coverage formed by interconnected sales outlets. A sales network is one-way product flow and is only a component of a channel. A channel emphasizes two-way circulation. If a network is like the body's meridians, a channel is the central nervous system. Channels emphasize the operating system, while networks focus on coverage.

Equating network with channel leads to overemphasis on quantity and neglect of quality. Channel quality lies in the normal, rhythmic circulation of logistics and cash flow. Companies care more about cash flow speed, which is the foundation of survival. Network building must focus on the product as the point of effort; not all products are suitable for deep distribution, and networks cannot be extended indefinitely.

Misconception 2: Channels can be shared.

Channels have individuality derived from product characteristics. Channels are typically tailored to products, and there is adaptability between them.

Many companies overlook this individuality. When launching new products, they often use existing channels, leading to mismatches. For example, Daliyuan, originally a snack food company, entered the beverage industry with strong promotion but achieved poor results, partly due to channel mismatch.

Channels cannot be shared with all products. Launching a new product means building a new sales channel. Only by establishing a channel that matches the product can promotion efforts be effective.

Misconception 3: Channels are constant.

Most salespeople focus on channel maintenance. Once a channel is established, they are reluctant to change it. In fact, channels are time-sensitive and must adapt to changes in the market, products, and customers. Channel construction is a process of continuous adjustment and enrichment.

Many large and medium enterprises slow down after reaching a certain scale, partly due to channel aging. Channels are never constant and need constant renewal; otherwise, aging channels become obstacles to development.

Channels need to be re-examined. To evaluate channel quality, consider four key points:

1. The High Point:

The flow speed of a river depends on the drop at its source. The greater the drop, the faster the flow. The high point of a channel refers to its origin and the height it occupies in the industry. The first step in channel construction is creating momentum. Among many similar products, find the product's highlight. The focus of momentum-building is to enhance the product's driving force.

Strong companies invest heavily in advertising at product launch to expand brand influence and raise the channel's high point. But relying solely on advertising is one-dimensional. The high point also comes from the company's industry position, business philosophy, marketing strategy, and the sales team's effectiveness.

2. The Connection Points:

Channels consist of multiple interconnected links. Although many companies emphasize channel flattening to reduce links, products inevitably pass through several stages before reaching consumers. If any link breaks, the channel collapses.

Channel maintenance focuses on connection points: the link between the manufacturer and distributor, between distributor and secondary wholesalers/retailers, and between retailers and consumers. The stronger the connections, the smoother the channel.

Consolidating connection points depends on service quality. What is service? It is keeping difficulties for yourself and bringing joy to others. Truly understanding service ensures smooth channels.

3. The Leverage Points:

Leverage points refer to the driving force at each channel link. Channels encounter various resistances from internal and external market forces, competitive comparisons, industry events, and sales cycle changes, all affecting product flow speed.

First, leverage comes from profit distribution among links. Profit is fundamental for all levels of distributors. Only by offering greater benefits can companies motivate distributors to invest more manpower and resources. This is what we often emphasize in pricing strategy.

Second, leverage comes from market expansion. An increase in overall market capacity, formation of consumer trends, and higher market share all accelerate channel operation.

Third, companies set sales targets and reward/punishment measures for distributors to apply pressure at each link.

Fourth, sales management intensity, including policy execution, promotion implementation, and sales personnel quality.

4. The Deepest Point:

Simply put, the deepest point is the depth of channel extension. As mentioned with the high point, the height of the source and the depth of the terminal determine channel flow speed.

In sales, we often use the "ditch-digging" strategy: to channel water, first dig the ditch deep. The deeper the channel extends, the lower the purchase cost and the higher the sales probability.

The deepest point depends on channel depth and breadth. The channel's end is like a reservoir; the larger and deeper it is, the more water it holds.

If a company is an iceberg and the market is the sea, the channel is the river connecting them. A blocked channel causes floods, which is a disaster for the company.

3. Ten Golden Rules for Building Sales Channels

The importance of channels is undeniable. How can a company build its own sales channel? Based on over ten years of sales experience, I have created ten golden rules.

Golden Rule 1: Create a product-centered profit model.

What should a company promote first? Not the product, but the profit model. The first target is not consumers but distributors. Distributors care whether selling your product will make money and what the return rate is.

For a new product launch, no matter how much promotion you do or how you tout advantages, everything is unknown at the start. How to make every link in the channel profitable is the primary consideration.

Some say it's simple: just set the price system and reward policies. But that's not all. Profit for distributors depends on a certain sales volume. How the product performs in the market is still unknown. If the product doesn't sell, how can they make money?

Some say business always involves risk. The key is how much risk distributors can bear. This requires a profit model tailored to the product.

The profit model is customized based on product characteristics, consumer targets, habits, and distributor capabilities. For example, "Jiujiu Duck Neck" turned a local snack into a nationwide phenomenon. Duck neck is a common appetizer for ordinary people; specialty stores don't need luxurious decoration or large space, suitable for residential areas. Thus, investment is low and returns are high, so stores spread rapidly across major cities.

A profit model should include:

  1. How to introduce the product to the market? Find the entry point and how distributors will present it to consumers.
  2. How to get consumers to accept the product? Besides advertising, include specific promotion plans.
  3. The input-output ratio for distributors: how much manpower and resources are needed, whether it's within their capacity, how to avoid risks, and what returns to expect.
  4. Sales methods: whether distributors use specialty stores, circulation markets, or direct sales.

Golden Rule 2: Pilot market first.

Many companies start large-scale recruitment and channel building before the product is even off the production line. Even if they find distributors in some markets, progress is difficult. Any sales strategy, method, or promotion plan is just theory at the start and lacks persuasion for distributors. Seeing is believing. This requires building a pilot market.

Benefits of a pilot market:

  1. Test whether the sales strategy, business model, and promotion methods are feasible and improve them during implementation.
  2. Build an efficient and stable sales team; salespeople can learn and gain experience through actual work.
  3. Enhance persuasion for distributors; a pilot market serves as a reference and boosts confidence.
  4. Increase the company's and product's influence; a pilot market occupies a high point in the channel.

Without a pilot market, you look for customers; with one, customers look for you. When building a pilot market, note:

  1. Choose a location within 300 kilometers of the company. The closer, the higher the trust and the lower the operating cost.
  2. Focus on direct sales, with agency as a supplement. Only by directly contacting all sales links can you encounter real problems and improve your system.
  3. The pilot market must be representative, covering large, medium, and small cities. Market size often determines sales model and competitiveness. Different types of markets need their own pilot markets for credibility.

Golden Rule 3: Create a sensation in the industry.

Creating a sensation means generating momentum. Before a new product launches, make it a hot topic and a new business opportunity in the industry.

The first step in channel construction is selecting distributors. Unless you use direct sales, most companies rely on intermediaries. Whether distributors choose your product among many similar ones, or you choose the most suitable distributor among many, is crucial for channel creation.

How to create a sensation? Methods include:

  1. Use social hotspots and major events to build atmosphere for the new product launch. Social hotspots and major events can change lifestyles and attract nationwide attention. Combining your product with these events makes it a focus. Major events are a double-edged sword. Everything has two sides. You need a keen eye to see opportunities. This year has seen many major events: the Beijing Olympics, the Wenchuan earthquake, and the melamine incident in the dairy industry. The key is whether companies can seize the moment to make their products stand out.

  2. Partner with strong media to share the attention effect. A blockbuster movie, a high-rated TV series, or a widely-read news article can attract many eyes. If a company can seize the opportunity to support new product promotion, results can be unexpected.

  3. Borrow momentum. Use the strength of the strong to grow yourself. A new product is like a newborn baby, very weak. It needs to borrow momentum, even if it's like a fox borrowing the tiger's might, to boost confidence among distributors and consumers.

Golden Rule 4: Industry mergers.

Mergers within an industry are common corporate behavior. Market competition is a cruel process of big fish eating small fish, fast fish eating slow fish. To some extent, industry mergers are about integrating and optimizing sales channels.

China has vast territory and diverse customs. Market expansion faces many difficulties and takes time. Local products often have strong influence and high market share. Industry mergers can turn enemies into friends, integrate existing sales resources, and quickly establish stable channels.

Common examples include beer industry mergers. Qingdao, Yanjing, and China Resources have accelerated market expansion by merging local breweries. Multinationals acquiring well-known domestic companies, like Danone acquiring Robust and Coca-Cola acquiring Huiyuan, aim to integrate original sales channels to occupy broader market space.

During mergers, note:

  1. Cultural integration between merging companies. Corporate culture is marked by regional characteristics and inseparable from local customs. Mergers often bring cultural conflicts. The key is finding common ground.
  2. How to achieve 1+1=2 or more. Find the connection point between the product and the original channel. As mentioned, channels are designed for products; how to utilize the acquired company's channel for existing products requires channel transformation.
  3. Stability of the acquired company's sales team. Many companies' control over channels lies with grassroots salespeople. Losing mid- and low-level sales staff can be fatal to the channel.

Golden Rule 5: Strategic alliance with distributors.

Companies and distributors are business partners with both common interests and conflicts. Companies focus on long-term benefits, while distributors focus on immediate gains. The relationship is based on a contract, usually one to three years, sometimes up to five. Cooperation is short-term, making it hard for companies to show distributors the future. Distributors face many choices and find it hard to stay loyal. This is the root cause of unstable or hard-to-expand channels.

Strategic alliance means forming a loose economic union between the company and distributors. They remain independent, but the company incorporates distributors into its management system.

Three forms of strategic alliance:

  1. Cooperation alliances with retailers. Large domestic chains are growing. Manufacturers and retailers combine strengths to launch exclusive product lines. Retailers promote them heavily due to exclusivity, while manufacturers ensure supply. Both benefit.
  2. Agreement-based franchising for distributors. Through agreements, distributors become franchisees, part of the company's sales system. This strengthens control and fosters growth and loyalty.
  3. Strong alliances with advantageous companies in other industries. Form sales unions with non-competing companies, using mutual market resources for joint development. Without competition, cooperation is easy if common interests exist.

For example, a Sino-American joint venture producing fingerprint locks partnered with real estate developers nationwide. Developers installed fingerprint locks in high-end residences, enhancing quality and sales, while the company quickly opened the market, exceeding 100 million yuan in sales that year.

Golden Rule 6: Fully utilize social resources.

Every year, various trade fairs are held nationwide, such as the Sugar and Wine Fair, Pharmaceutical Fair, and Canton Fair. These are stages for companies to showcase and recruit distributors, and opportunities to build channels.

Trade fairs attract distributors from all over. Many companies use them for recruitment, but results vary due to single methods, similar approaches, outdated concepts, and insufficient preparation.

These fairs attract manufacturers nationwide, leading to competition and mutual undermining. Distributors are overwhelmed with choices. Companies need unique approaches and thorough preparation.

To succeed in recruitment at trade fairs:

  1. Establish a recruitment working group led by senior management. Train on recruitment processes, policies, and schedules. Unify thinking, standardize steps, and improve quality.
  2. Categorize products and highlight key ones. More products aren't necessarily better. Highlight the most distinctive and representative products to attract distributors.
  3. Ensure promotional style matches the company and product. Various promotional activities at fairs can be chaotic. Don't deviate from the company's and product's tone, but be creative. This requires careful preparation.
  4. Strike while the iron is hot and follow up. Recruitment at fairs is only the first step. Follow-up service is crucial. Without timely follow-up, initial efforts are wasted.

Golden Rule 7: From bottom up, from easy to difficult, start from the basics.

Skip intermediate links and start sales directly from the terminal. This model is used by many companies. Advantages: shorter sales cycle, stronger control, and more solid foundation. Disadvantages: sales front is stretched, costs increase, sales team becomes too large, and management difficulty rises.

Examples include Sanzhu Oral Liquid and Hongtao K in the past, and Wanglaoji and Hui'erkang Chrysanthemum Tea recently. This model seems simple but requires prerequisites:

  1. The company must have financial capacity to bear losses initially due to high sales costs. Only when sales reach a certain scale can it turn profitable.
  2. Products must have high profit margins to support large personnel costs.
  3. Sales targets are broad, competitors are not too strong, and products are easily accepted.
  4. The company has strong marketing management capabilities and ample human resources.

But note, this model is only short-term and must transition to traditional agency models. The purpose is to generate sales scale through terminal operations, then select distributors for delivery. By controlling terminals, the company controls the channel. Distributors handle delivery. With existing sales scale, selecting distributors is easier. Part of distributor profits can cover some sales costs.

Golden Rule 8: Break tradition, find new paths.

When discussing channels, most salespeople think of fixed types: wholesalers, trade markets, specialty stores, and retailers. Indeed, companies often use these fixed models but struggle.

Once thinking is fixed, breakthroughs are hard. Channels everyone uses are the most crowded. New companies and products might find it better to blaze new trails than squeeze into narrow gaps.

Methods for new paths:

  1. Occupy product channels from other industries. People often take common things for granted, but that's just because no one tries new things. Products without direct comparison are easier to accept. For example, selling candy in pharmacies seems odd but works well. After taking medicine, people have bitter mouths and want candy. Who says pharmacies aren't the best place for candy?
  2. Create new channels. Instead of crowding the same path, open a new one. In this information explosion era, new sales platforms emerge constantly, like online shopping and TV shopping. Dell sells computers online, creating the world's largest computer company.
  3. Change traditional channel sales methods. Traditional methods seem clear: wholesalers wholesale, retailers retail. If you swap them, unexpected results can occur. For example, cold drink companies set up wholesale points in community stores, offering bulk purchase discounts to residents, greatly boosting sales.

Golden Rule 9: Step by step, advance gradually.

Starting from the company, channels gradually expand from inside out, from near to far. This is a common channel construction model. Advantages: stability and low risk. Disadvantages: slow speed and long cycle. Many new companies with limited strength adopt this model.

This model seems simple, but the key is the marketing team's market operation capability. In practice, note:

  1. Focus resources to gain local advantages. Due to limited strength, new products lack market influence, and sales progress slowly. Marketing departments should concentrate resources on key markets, break through locally, and expand gradually.
  2. Pay attention to capital turnover for a virtuous cycle. During promotion, salespeople may be impatient and focus too much on new markets, leading to sales for the sake of sales. If payments aren't collected promptly, it's just inventory transfer, not real sales. Channels have quantity but no quality, which is fatal for new companies.
  3. Emphasize process over results. Channel construction is a long process throughout marketing work. It includes network creation, maintenance, and performance evaluation. Sales managers must not only focus on sales targets but also on every detail. Channel construction is fragmented and tedious; only by doing basic work well and advancing step by step can you build a stable, sound channel.

Golden Rule 10: Control the market, control the channel.

The market is like a wild horse; if you can control it, no matter how it changes, it works for you. This is the highest level of channel construction.

To control the market and channel, prerequisites include:

  1. The company is a leader in the industry.
  2. Product market share is among the top.
  3. The brand has strong influence.
  4. The company has accumulated substantial market resources.

For example, Hangzhou Wahaha's recent dispute with Danone attracted attention. Wahaha's president Zong Qinghou was confident mainly due to control over sales channels. After over 20 years of operation, Wahaha has over 2,000 distributors nationwide, establishing a stable, complete channel covering every corner. New products quickly succeed mainly due to this channel advantage.

How does Wahaha control channels? In 1997, it implemented a revolving fund system for distributors at all levels. Distributors must pay a certain amount of revolving funds monthly based on sales targets. The company ships goods based on fund amounts and pays 1% monthly interest. This system absorbs distributor funds, squeezes competitors, and ensures distributors focus on selling Wahaha products. By controlling distributors, it controls the channel.

In practice, methods to control the market and channel include:

  1. Control over distributor working capital, as Wahaha does.
  2. Exclusive access to special channels. For example, Wanglaoji is sold exclusively in many large and medium hotels in cities, buying out channels to block competitors.
  3. Use industry monopoly, patents, or technical advantages to form protective barriers. For instance, PetroChina uses monopoly to control the refined oil market. Some emerging high-tech companies use patents or technology to directly control channels. This is why people say: third-rate companies make products, second-rate companies make brands, and first-rate companies make standards.

Postscript:

This article summarizes my over ten years of experience in channel construction and the successful experiences of well-known domestic companies, hoping to inspire those working in the market. Channel construction is complex and long, hard to standardize. The methods mentioned here are not rigid; often multiple rules are used together. The key is for managers to seize opportunities and act creatively.