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Marketers understand that there are different types of products—some are harmful, some are beneficial, and some fall somewhere in between. What we often focus on are the harmful products, and it’s a common misconception that controlling them is always negative. In reality, strategic stockpiling isn’t just about harming the market; it can also bring about dual benefits for both distributors and market expansion.
Picking Up Goods to Revitalize Weak Markets
Guangdong Z Paper Group is one of the leading companies in the global household paper industry. However, their sales management has historically been in a broad and unrefined phase, relying heavily on large distributor systems without much detailed or process-oriented management.
Over the past five years, the monthly sales volume in Nanning, Guangxi, hovered around 800,000 yuan, whereas other provincial capital markets had already surpassed 3 million yuan in monthly sales. At the beginning of 2006, after Sales Director Wu took office, he conducted a thorough market analysis and discovered that the Nanning dealers and salespeople were colluding for mutual benefit. The profit margin for supermarket products was 25-35%, while dealers demanded less than 15% profit for special pricing. The typical profit per roll was about 15 yuan at the factory price, with a retail price of 23 yuan in supermarkets. This lack of competitive pricing meant sales had plateaued for a long time. The dealer himself admitted it was “low investment, high return,†and the sales team didn’t bother to address or improve the situation.
In February 2006, General Wu first reassigned the Nanning salesperson and hired a new manager for the region, instructing them to resolve the issue of inflated product prices within three months. The newly appointed manager, Chen, was an experienced salesperson who had previously established a national model market in Xiamen, Fujian Province, and became a benchmark for the company to emulate.
After Manager Chen assumed his role, he initially tried negotiating with the Nanning dealer to adjust prices. However, the dealer was not easily swayed. He argued that if he could adjust prices, why hadn't you done so earlier? He claimed the Nanning market was unique, with supermarkets refusing price adjustments. In essence, he felt powerless, controlled by others, with no leverage. Previous salespeople had exploited him similarly, though they too had pocketed some of his profits. The salespeople simply thought, "Why take things so seriously? Eventually, I’ll transfer my commission." This mindset led to complacency and half-hearted efforts.
Manager Chen, however, was different. He couldn’t afford to let General Wu down. Trained by General Wu, he was determined to find a solution to this entrenched problem.
Seeing that negotiation with the dealer wasn’t working, Manager Chen resorted to a "backdoor" approach. He mobilized dealers from Qinzhou to supply Nanning at a markup rate of 6%. (These Qinzhou dealers had already been supplying Nanning covertly.) He then directly supplied two batches of merchants to supermarkets in Nanning. Within two months, these merchants had successfully stocked over 50 supermarkets of various sizes. These supermarkets sold the product at 20 yuan retail, while the Nanning dealers charged 23 yuan. This created a noticeable price gap of 3 yuan between Nanning dealers and the new suppliers. When supermarkets noticed such a significant price discrepancy, they questioned the Nanning dealers. Reluctantly, the Nanning dealer approached Manager Chen to complain about the Qinzhou dealers. Instead of addressing the complaints, Manager Chen criticized the Nanning dealer, pointing out that the price disparity was precisely why Qinzhou dealers could penetrate the market. He urged the Nanning dealer to seriously consider adjusting prices.
After some back-and-forth, the Nanning dealer realized they were losing ground and could no longer compete. They reluctantly agreed to adjust the prices.
Manager Chen then issued a price adjustment notice to all supermarkets under the guise of the manufacturer, stating that due to a reduction in raw material costs, the company planned to implement a national price adjustment starting in May, followed by the implementation of a new price list. This list specified the wholesale price, suggested retail price, and suggested special offer price. With this, the supermarket chaos subsided, and the price adjustment proceeded smoothly.
Using this strategy, Manager Chen increased the monthly sales volume of the entire Nanning market from 800,000 yuan to 2.3 million yuan within six months. Later, he implemented brand-specific and sub-channel strategies in the Nanning market, further stabilizing the market order and creating another model market for the company.
Picking Up Goods to Encourage Dealers to Improve Management
Dongguan Lide Paper Distribution Department was established in 1986, and its founder, affectionately called "Fat Tsai," is over 40 years old. His distribution history is long and experienced, embodying the old-school dealer business model. He distributes three major first-tier paper product brands, with Brand A selling approximately 3.5 million yuan per month, making him the general distributor of Brand A in Dongguan. He also handles five second-tier paper brands, along with sanitary napkins, diapers, laundry detergent, and more, positioning him as a "large-scale" distributor. Below him are five secondary distributors who handle product distribution. Essentially, Lide serves as a transit hub between manufacturers and retail terminals. These secondary distributors primarily operate traditional channels and are less involved in modern supermarket channels. Since Lide is financially robust, each secondary distributor has received substantial financial support, making them content to remain intermediaries and reluctant to deal directly with manufacturers, out of fear of offending "Fat Tsai."
Dongguan is a unique city with over 13 million people, including a local population of 2.6 million. The remaining residents are all migrants. Consumer goods spending surpasses many provincial capitals. There are eight local supermarket chains and convenience stores: Jiarong, Meiyijia, Huada China Resources, China Everbright China Resources, Huasheng, Tianhe, Dahe, and Daxin. The circulation channels in Dongguan are well-developed, with goods flowing through secondary distributors and tertiary businesses to tens of thousands of small retail terminals.
Dongguan Lide Paper Products Business Department relied on these five secondary distributors for distribution and sales. They never considered direct supermarket sales, as their company only employed a driver, a porter, and a merchandiser until 2007.
At the end of 2006, Shenzhen dealers who also handled Brand A paper products decided to expand outward after careful consideration. Their initial move was to open an office in Dongguan. Fat Tsai felt little concern, believing that Shenzhen dealers would pose little threat, as they only focused on supermarket and home channels in Shenzhen and lacked financial support for expanding through secondary distributors. He dismissed this development as insignificant.
However, by March 2008, Fat Tsai began noticing that Shenzhen dealers were not limited to supermarkets. They were actively targeting circulation channels, causing concern among the five secondary distributors. These distributors panicked and complained to Company A about the Shenzhen dealers’ stockpiling practices. Company A, already skeptical of Fat Tsai's lack of engagement with supermarket channels, turned a blind eye to the situation and even tacitly supported the Shenzhen dealers' smuggling activities.
Realizing his complaints fell on deaf ears, Fat Tsai decided to take matters into his own hands. He resolved to establish his own company, restructure the market, and adopt a more professional approach to management and operations. His first step was hiring professional managers and recruiting businesspeople at high salaries. Second, he purchased five delivery trucks and began direct sales to seven major supermarkets. For medium-sized supermarkets, he also initiated direct distribution operations. Third, he actively sought manufacturer support for sales personnel to guide and assist terminal operations. This decision stemmed from Fat Tsai's concerns not only about the A-brand business agents but also the potential competition from other brands against Shenzhen dealers or other distributors. Additionally, he wanted to ensure the loyalty of his existing secondary distributors.
Through this initiative, Fat Tsai was forced to reconsider his previous business model and explore new profit models and management methods. In this new framework, issues like whether management could keep pace, whether human resource allocation was appropriate, and how terminal operations could align—all challenges he had previously ignored—became urgent priorities.
Ironically, this experience with harmful goods didn’t lead to losses but instead spurred improvements in his management and operations, proving to be a positive development.
The two cases above are examples of my personal experiences using stockpiling to revitalize markets and improve dealer management. As these examples illustrate, every method has its pros and cons. Stockpiling is merely a tool, not an end result. Sometimes, using this tool as part of a strategic plan can effectively control the market and drive sales growth.
June 21, 2025