Market distribution strategy distribution notes!

How to activate channels and distributors and improve the efficiency of product promotion ? In this article, the author summarizes the ideas and solutions for designing a distribution system. Let’s take a look.

1. Introduction: What is distribution? Where does the value of the distribution system come from?

There are at least two stakeholders involved in the distribution system: the brand and the distributor.

From the traditional agency model to the rise of social networks today, individual users can also be used as distribution channels to promote products. Distribution itself has long been integrated into our lives.

With the rise of social networks, everyone has his or her own social circle. Economic pressure has prompted most people to want to make some quick money through side jobs. Due to factors of energy and ability, a certain group of people choose to earn commissions by using their own social circles to introduce friends to purchase products.

The reasons why brands are keen on developing distribution channels:

1. Reduce costs

As the Internet dividend has bottomed out in recent years, the cost of acquiring customers has continued to rise. I remember the advertising report for the education industry in the second half of 2020 that I studied some time ago. With the rise of social e-commerce, distributors can utilize the fan (acquaintance) relationship chain of social platforms to acquire customers at a very low cost. Moreover, the acquaintance economy itself can lower the psychological defenses of purchasing users.

2. Increase product sales

The purpose of the distribution model is to increase high-quality sales channels. If users are willing to become your KOC and help you reach more users, sell more products, and increase sales and revenue, why not do it?

2. Brief description of distribution system

As an Internet person, "distribution model" is a very familiar term. Establishing effective sales channels is the core of distribution. Products are sold to sellers through certain channels, that is, the products must reach them through a certain distribution method.

Let's take a look at the role and function of distribution channels in the entire sales chain:

• Sales role: The channel purchases products from the product side through wholesale procurement and then sells them to consumers through its own channels;
• Recommended role: With the rise of social e-commerce/private domain traffic, channel parties with traffic promote products to consumers and obtain commissions.

Regardless of the role you play, to put it simply: distribution = paying someone to help you sell things.

This model is also widely used in the current e-commerce environment. For example, large and small platforms such as Taobao, JD.com, and Pinduoduo all have distribution mechanisms. Compared with the traditional offline distribution forms of [wholesale and retail] and [multi-level distribution], the new online distribution model does not have such high requirements for the value of channels and can achieve universal assistance: promotion collection/channel commissions.

Online channel distribution can be roughly divided into the following two methods.

1) Promotion and collection process: some authorized stores such as Taobao and JD.com

1. The buyer creates a distribution purchase order to the distributor;
2. After receiving the distribution buyer's order, the distributor creates a promotion purchase order for the supplier;
3. After the order is confirmed, the supplier will ship the goods directly to the buyer;
4. After receiving the goods, the buyer pays the distributor the distribution buyer's order, and the distributor then exercises the right to collect on behalf of the buyer;
5. After receiving the payment, the distributor pays the supplier the promotion purchase order amount;
6. After receiving the payment, the supplier pays the distributor a commission.

2) Channel commission process: Taobao and Pinduoduo distribution

1. Distributors obtain exclusive product links from suppliers;
2. The distributor promotes the product link to the buyer, and the buyer creates a purchase order through the link;
3. After the order is confirmed, the supplier will ship the goods directly to the buyer;
4. After the buyer receives the goods, that is, after the supplier receives the payment, the commission will be automatically paid to the distributor's account.

From the above two settlement methods, we can see the difference in the forms of distribution channels. Therefore, if the distribution channels are managed purely by a unified system of system and structure, it can only play a one-sided role in certain circumstances.

As business stages and business environments change, the distribution system also needs to be adjusted accordingly to correct channel behavior and meet strategic needs.

Distribution itself is the sale of products through channels, and every link in channel sales represents its own brand and market image. Therefore, when designing the corresponding distribution system, we should carefully consider each link and the deep demands behind it. No matter how the distribution system is adjusted, its ultimate goal is to meet the demands of corporate strategy and development changes.

In the next chapter, let’s talk about the specific design ideas of the distribution system - this article focuses on the distribution system of ② channel commission.

3. Design ideas of distribution system

1. From the perspective of interests

How to make channels or distributors more motivated to promote products for the company?

The core of the distribution model is the allocation of resources, so guiding user (channel) behavior through the setting of tiered rewards becomes the key.

It would be a bit boring to explain in detail here, so let’s take Pinduoduo’s fission red envelope + turntable lottery event at the end of April 21 as an example to explain in detail.

(In this part of the explanation, it is not convenient to share the whole case of the distribution system, so the fission activity is used as a case to describe the user communication psychology and share it with readers. The purpose of distribution is not simply to sell goods. The induction of fission activities is similar to the guidance of user channel distribution.)

The activity is in the form of a combination of fission red envelopes + turntable lottery. The routine is still the old routine. After the user reaches the withdrawal limit through a series of operations, he can withdraw cash to the WeChat account.

The interesting things about this activity are:

1. Through the closed loop of winning probability in the later stage of the activity - the turntable stage (to prevent users from winning without achieving expected behavior), unlike Pinduoduo's previous new user acquisition and fission activities, it does not explicitly require you to invite new users to register.
2. The red envelope gold is converted according to the double standards, and you can directly win cash or exchange it for gold coins (10 gold coins = 0.01 yuan).

1) Phase 1: Startup

Click on the sharer participation link to help and get high cash. Cash can be withdrawn directly to WeChat, but the standard must be met. As shown in the figure, 497 yuan in cash is obtained, and 500 yuan is required to withdraw.

Phase 1: Induce participation in the activity (i.e., priming).

2) The second stage: induction

How can participating users get another 3 yuan to reach the withdrawal standard of 500 yuan? Don’t be impatient, the psychological induction here is not over yet.

Users need to complete the following operations first to further obtain red envelope money;

1. Click the wheel to draw the red envelope;
2. Receive free bonus money in time sharing;
3. Forward to friends for help and win red envelope money.

The second stage: Induce users to take action through benefits, lower their psychological defenses, and give them a feeling that they will succeed soon, making participating users more willing to complete the next task.

3) The third stage: core task stage

After completing the tasks in stages 1 and 2, participating users can receive red envelopes worth more than 499 yuan.

Pinduoduo is not a charity, and at this time it needs these deeply involved users to help achieve its goals.

The activity has two goals: attracting new customers and promoting activation.

If you invite new users to help, you will get 6 chances to turn the wheel; if ordinary users (i.e. old users) help, you will only get 1 chance to turn the wheel.

At this stage, as a deeply involved user, you can reach a red envelope amount of 499.9 yuan after easily inviting more than 20-30 users to help. That’s right, you can withdraw 500 yuan with only 1 cent left! As shown below:

The third stage: guiding users to complete core tasks, bringing red envelope money one step closer to success, and motivating users to complete activity goals.

4) The fourth stage: increasing difficulty (closed loop of activities)

At this stage, you only have 1 cent of the bonus left to withdraw 500 yuan.

The difficulty of the game has increased dramatically (how could I let you take money so easily, you little brat?).

At this moment, open the hidden cards at the beginning of this article: lottery and gold coins.

In this round, you must complete the action of inviting help (there is no other option) before you can get the chance to draw a lottery. The cash reward column has been deleted (hidden) from the lottery prizes, which means that you are restricted to winning gold coins and exchanging them for cash to complete the remaining red envelope gold.

Not only that, the probability of winning the lottery also increases, and there are more [blessing items] in the prize plate. This means that even if you successfully invite friends to help, you may not win the gold coins. In addition, although 1 cent is the smallest unit of red envelope money, gold coins are not. So even if you win a gold coin, its smallest unit may not be one, but 0.1 or 0.01, which means that if you want to complete the final gold coin exchange, you may need to overcome all difficulties and get hundreds of friends to help you succeed.

This game mechanism greatly increases the difficulty for participating users to obtain rewards, and realizes a two-dimensional (gold coins and cash are closely linked) game closed loop.

The fourth stage: The difficulty of the game increases dramatically, the difficulty for users to complete the game increases, and a closed loop of activities is achieved.

5) Activity analysis and summary

From the above overall activity process, I believe readers have already seen that the gradual progress from stages 1 to 3 encourages users to deeply participate in the activity and achieve the purpose of the activity (attracting new users and promoting activation).

In the first stage, the difference in the red envelope amount before withdrawal is used to stimulate the initial participating users' desire for bargains, thereby encouraging users to participate in the activity.

In the second stage, through simple tasks, users will get closer to the final red envelope money, and the activity difficulty is simple; in this stage, the activity difficulty is simple.

In the third stage, relevant core tasks will be officially released to highly engaged users who enter this stage. Users will invite friends/new users to assist and help achieve the purpose of activity fission. In this stage, the activity difficulty is medium.

In the fourth stage, the difficulty of the activity increases significantly, and a considerable proportion of participating users will lose confidence in completing the activity and give up on it. Ju has made some analysis on this activity, for your reference only (after all, we cannot get Pinduoduo’s internal algorithm).

• In the early stage of the activity, the prizes of the fission activity met the psychological needs of the participants and aroused their interest in participation;
• In the middle of the activity, simple and effective user tasks are used to bring the red envelope gold close to the redemption threshold, allowing participants to deeply participate in the fission activity and make them believe that they are about to receive activity rewards;
• In the later stage of the event, the difficulty of the event increased dramatically. It is estimated that the probability of winning the [Blessing Item] will increase, and the probability of winning the [Gold Coin] will decrease. It is estimated that 0.09 gold coins will require attracting 30-50 new people, or fissioning 100-200 people to reach the withdrawal threshold of 500 yuan, which means that at least 180-300 draws are required.

The cost of the event prize is 500 yuan. If one user completes the event goal, the cost of attracting new users is 10-20 yuan per person or the cost of activation is 1.7-2.8 yuan. Taking into account the actual success rate, this cost can only be further compressed, and ultimately the overall activity cost can be controlled through a closed loop of activities.

6) Rethinking distribution from the perspective of fission

Whether it is traditional investment promotion, online distribution, or fission activities, promoting goals and helping to achieve goals requires starting from the other party's interests. Although the above case is Pinduoduo's fission activity, the type is universal. Distribution is about dealing with people/channels, getting them to join through benefits, and then using the psychological principles of threshold building and the user’s gaming psychology to enable them to continuously upgrade (deep involvement).

So, let us return to the topic. The design of the distribution system must start from the perspective of the interests of both parties!

Just like the tiered rewards in the above case, early prizes are easy to obtain, which satisfies the user psychology. Only after participating users have tasted the benefits will they take more actions. When the number of users reaches a certain level, the threshold needs to be raised.

Phased rewards also help control initial cost investment and gradually guide subsequent users to make additional investments.

2. Pay attention to laws and regulations

Current laws stipulate that distribution cannot exceed three levels, so the distribution system is designed to have a maximum of three levels.

The general criteria for determining whether something is illegal is whether it exceeds three levels of distribution.

In the three-level distribution, there needs to be clear products (online/offline), and you can’t just recruit people without doing anything.

4. Distribution System Design Example

Design of levels and level benefits

1) Entry threshold

Is there an entry threshold set in the distribution system? All I can say is that each has its pros and cons.

If no entry threshold is set, the advantage is that users with channels can widely recruit downstream distributors through various channels, and new users have a wide source; the disadvantage is also obvious. Without an entry threshold, it will be difficult to screen seed users and may cause problems in channel management chaos.

Taking Amway as an example, the minimum agency fee is 70 yuan. After payment, you will receive a gift voucher worth 70 yuan and operational support (such as opening an online store, live teaching, free training, etc.). This is not a promotion of Amway, because all operational support is assisted by superior distribution, not supported by Amway headquarters, and a portion of your future sales profits will also be shared with your superiors.

The initial cost paid by users will motivate new users to earn back the money they paid, and can also enhance their motivation to sell goods to a certain extent (of course, please be careful about the legal boundaries between distribution and pyramid schemes).

2) Level benefits

As mentioned in the previous chapter, distribution needs to consider the interests of both parties involved. Therefore, the level benefits need to be comprehensively considered in combination with one's own business scope and distribution channels/user needs, and corresponding incentives should be given to each level.

It has been mentioned before that the design of rights and interests can be designed in a tiered reward manner. Now let’s talk about the distribution channels.

Different channels correspond to different scenarios and needs. Let’s take a slightly extreme example.

① If traditional large traders participate in distribution, they will quickly become high-level agency channels.

Although they already have extensive sales channels, they are often unwilling to actively contribute their channels to the system. If at this time, you negotiate with them with the C-end distribution cooperation share, the result will be self-evident. To achieve cooperation, it is often necessary to provide rebate benefits that are far higher than the C-end distribution share ratio.

② C-end KOC and small B-end channels: such as WeChat business, mothers, purchasing agents, self-media, Taobao, and platform stores. Each channel has its own unique characteristics and attributes. When designing tiered benefits, you need to design them based on the attributes of the channel and market conditions (studying competing products is really great at this moment).

3) Closed-loop clause

① Promotion mechanism

The promotion mechanism of the distribution system is the same as the membership system. A reasonable mechanism needs to be established to gradually strengthen the role of distributors in the distribution system.

The core is to increase the sunk costs of distribution channels and strengthen the self-motivation of distributors. When he invests more cost in the product, his stickiness and trust in the product will increase proportionally.

The promotion mechanism is to provide more distribution commissions or rewards to distributors/channels who are willing to work harder, so the promotion mechanism is essentially an incentive mechanism.

For distributors, the most important requirement is to attract more downline teams through their own connections and relationships, so as to obtain corresponding commissions through referrals/consumption from downline teams.

Therefore, when designing a promotion mechanism, you can consider the following dimensions:

• Reach a certain sales amount;
• Reach a certain team size/channel volume;
• Reach a certain team size and determine the number of downstream distribution channels;
• Combination: reaching a certain sales amount and a certain number of team members;

The level benefits after promotion generally set a higher commission ratio for higher levels, plus additional value-added business benefits, such as reduced shipping/postage, priority pickup, regional exclusivity, etc.

② Reward mechanism

As the saying goes, "No gain, no early rise", I believe that no distributor is willing to promote the platform for free.

The driving force that motivates distributors to continue selling products and attract new customers is material.

The core of the reward mechanism is to enhance the trust and integration of distribution channels through rewards.

In addition to the level rewards mentioned in ①, it also includes additional material rewards and spiritual rewards.

Material rewards

When excellent distributors achieve the target transaction amount/new customer acquisition within a certain period of time, monthly/quarterly/annual rewards can be set up to stimulate them to continue to devote their efforts to the brand.

The core of distribution lies in stability and sustainability.

Spiritual Rewards

According to Maslow's hierarchy of needs, when material conditions are met, spiritual rewards are higher than material rewards.

Just like material rewards, spiritual satisfaction can serve as an additional subsidy to material rewards and meet distributors' spiritual needs for reputation and fame.

For example: Shenzhen Sanqi Unlimited Network Technology Co., Ltd., the TOP2 agent of Xiaohongshu, won the Xiaohongshu Outstanding Contribution Award for Effective Advertising in 2020 (although Ju thinks that the design of this medal needs to be improved).

③ Demotion regulations

Degradation means that when a distribution channel fails to meet the level requirements set by the entity within a time period or serious errors occur during the distribution process, which affects the brand value, the brand may downgrade the channel or terminate the distribution cooperation relationship.

The core is to constrain the behavior of distribution channels, be goal-oriented, and enhance their sales capabilities and new customer acquisition capabilities.

Therefore, when designing downgrade regulations, the following dimensions can be considered:

1. Failure to achieve the minimum target sales/order volume within a certain period of time;
2. Channel support capabilities do not meet level requirements.

④ Relegation regulations

The relegation rule means no downgrade, which means that no matter how active the distribution channel is in the future, the distribution level of the channel will not be lowered.

Such regulations can reduce the psychological pressure on distribution channels, but will increase management difficulty. If the quality of distributors at all levels cannot be fully guaranteed in the future, higher activation costs will be incurred later.

5. Postscript

Distribution is not only used in the e-commerce industry, but is also widely used in industries such as online education, healthcare and even food delivery platforms.

The distribution system is not that intimidating because it is an integral part of business history, sometimes just under a different name. Only by fully understanding the nature and core of distribution and the psychology involved by all stakeholders can we flexibly operate the distribution system.

The design of the distribution system is not static. Factors such as policy pressure, market changes, channel changes, user choice, product quality and brand connotation all require changes to the modular design of the distribution system to a greater or lesser extent.

Marketers often have to adjust their distribution systems according to different situations, while also preventing public relations problems that have a ripple effect. This requires careful consideration during the design process.

This article contains a lot of content, and we welcome your comments.

Author: Mr. Orange's work notes

Source: Mr. Ju's work notes