2-6-1 Promotion through Distributors on the Mainland
Distribution channels are venues through which products pass from the manufacturer to the hands of the consumer. This process involves a number of intermediaries, including agents, wholesalers, retailers and direct sales outlets.
Many manufacturers hope to promote their brands on the mainland, but one of the difficulties they encounter is the sheer size of the country and the diverse regional disparity. Different regions have different cultures and consumption habits. For this reason, advertising, PR and other promotional activities in different regions differ and direct sales are by no means easy. It is particularly difficult for SMEs due to manpower, cost and time constraints. Thus, most enterprises appoint distributors or agents to indirectly distribute their products to a wide area. These distributors and agents are also responsible for market development, brand promotion, warehousing and transport.
It is precisely because of China's vast territory and diverse market disparity that multi-level distribution becomes the characteristic of promotion through distributors on the mainland. However, as the distribution system and its supervision in the mainland still leave much to be desired, the accounts of many companies are unclear which lead to all kinds of financial problems. If necessary, enterprises should demand cash on delivery to minimise risks and protect their business.
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Modes of Cooperation between Goodway Co
and Its Distributors
Hong Kong Goodway Electrical Co began selling its products in Guangzhou through distributors from 1991 to 1992 and did not embark on all-out development and expansion on the mainland until 1995. Since its former distributors failed to make payments on time, Goodway changed its terms of cooperation with the new distributors. Under the new terms, the distributors must pay for 50% of the goods delivered as well as other market fees up front while Goodway adopts the policy of "cash on delivery".
As far as the mode of promotion is concerned, Goodway provides the advertising theme and lets its distributors arrange promotions. Goodway is responsible for image advertising, such as TV commercials and billboards, while its distributors are mainly responsible for sales promotions and regional promotions because they are experienced in these respects, know the local dialect and culture and are in a better position to do so. As for promotional expenses, which account for 30-40% sales, Goodway will bear half of the expenses while the remainder is borne by the distributors.
Goodway believes the quality of distributors is an important factor which has a direct impact on brand promotion. Its advice to SMEs is that they must have a clear idea of the background of different distributors and the products they represent, find a reputable distributor, and establish a sound relationship with it.
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| Source: Synovate Ltd - company interview |
The choice of suitable distributors has an important bearing on product sales. Before choosing a distributor, it is necessary to extensively collect information on the reputation, market experience, product knowledge, product portfolio, market coverage, geographical advantage, mode of cooperation, marketing capability and financial situation of the distributor and set the standards for the evaluation and comparison of different distributors. The following are points to note for enterprises:
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As the local staff of the mainland subsidiaries of Hong Kong enterprises have more contact with the distributors, there is a chance that they may have closer ties with the distributors than with the parent company; and as such they may not put the interests of the parent company first.
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Distributors may exchange trade information among themselves and this may pose a threat to enterprises.
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Breach of contract is common among small distributors on the mainland. Enterprises must work out contingency measures.
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Impact of Bad Distributors on Enterprises
A German chemical products manufacturer found a Chinese sole agent to distribute its products in China a few years ago, but sales were not as ideal as expected. Then, a distributor in Shanghai presented the company with a detailed proposal, claiming that it has a good client network and offered high sales projections and agent fee. Thus, the German company decided to cooperate with the Shanghai distributor and stop using the former sole agent. It entrusted the new distributor to distribute its products in fast growing central provinces such as Sichuan.
However, the relationship between the manufacturer and the distributor deteriorated in the subsequent two years. There was no communication at all and sales dropped by 50%. What was worse, the manufacturer discovered that the distributor had never marketed its products in Sichuan. This case study highlights the importance of choosing one's distributors carefully. Manufacturers should not have their eyes on short-term returns only and must not overlook the importance of cultivating a long-term partnership, as this would directly affect sales and seriously damage cooperative ties.
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