Summary of Key Points
Honore's current channel strategy is not about simply "narrowing" or "widening" its channels; rather, it involves a targeted approach that differs by product and market segment. For mid-to-high-end models (such as the 600 series), Honor uses "narrow channels" to focus on quality distributors, preventing price chaos. For low-end models, it adopts "wide channels" to achieve market coverage and scale. This shift reflects a reflection on the past practice of aggressive expansion, which led to price distortions and inventory issues. It also aims to address competitive pressures from Huawei's return to the market and the presence of other brands like OPPO and VIVO. Through channel reforms (such as abolishing the national distribution model, implementing the "three controls and one distribution" policy, and establishing brand stores), Honor has regained a place among the top five players in the market, but it still has a way to go. The battle for channels is a long-term effort.
1. Mid-to-High-End Models: Narrow Channels for Price Stability; Low-End Models: Wide Channels for Scale
Honor's channel strategy is tailored to different product segments:
- Mid-to-High-End Models (Digital Series, Magic Series): These products are supplied only to carefully selected quality distributors, taking into account factors like cooperation history and sales performance. Why? These models are the core of the brand's success and profit generation. If goods flow freely to the secondary market, distributors might sell them at lower prices, damaging the brand's reputation and discouraging those who are committed to selling genuine products. Narrow channels help maintain price stability and motivate quality distributors to promote the products effectively.
- Low-End Models: Any distributor willing to cooperate can obtain the products, with the option to place orders freely. Since the low-end market is highly competitive on price, the focus is on volume sales to ensure profitability.
For example, in the Zhejiang market, the 600 series is only available to key distributors, while lower-end models are distributed to a wider range of stores.
2. From Aggressive Expansion to Precise Channel Management: Lessons Learned
In its early days as an independent brand, Honor rapidly expanded its channels to capture the market share left by Huawei, briefly becoming the industry leader. However, this expansion came with challenges:
- Channel Disruption: Distributors resold products in unauthorized areas and engaged in price wars, squeezing profits and reducing their enthusiasm.
- Competitive Pressure: With Huawei's return, many large distributors switched to its products (with market shares ranging from 30% to 80% in some regions), while OPPO and VIVO had a strong presence in rural markets, with twice as many sales promoters and even social security partnerships with local stores.
As a result, Honor had to adjust its channel management strategies, implementing measures such as blacklists and the "three controls and one distribution" policy (controlling distributors, stores, prices, and product allocation) to restore order.
3. Specific Steps in Channel Reform
Honor has taken two crucial actions:
1. Eliminating Intermediate Links: It abolished the national distribution model, with some products being supplied directly by the manufacturer or through provincial agents, reducing the number of intermediaries and allowing for better cost control and direct channel management.
2. Establishing Brand Stores: Honor has opened flagship stores and authorized experience centers that serve as platforms for product display, user experience, and customer service (for example, the Alpha store in Shenzhen, which showcases AI-powered smart living solutions). This approach is important because consumers place more emphasis on the shopping experience, and brand stores help Honor close the gap with Huawei in this regard.
For instance, in the Zhejiang market, the 600 series has seen significant success due to the "three controls and one distribution" policy, which was also effective for previous models like the 400 and 500 series.
4. Progress and Challenges
Progress: Honor's market share has improved, and it once again ranked among the top five in IDC's rankings (replacing the "others" category) this quarter.
Challenges:
- Competitive Pressure from Huawei: The strong brand appeal of Huawei attracts more distributors, affecting Honor's sales.
- OPPO and VIVO's Advantages: These brands have a stronger presence in rural markets, with more stores and promoters, making it difficult for Honor to gain a foothold there.
- Brand Store Gap: Honor still lags behind Huawei in the number of experience centers, with some cities still lacking such facilities.
- Profit Competition: Competitors like Huawei and Xiaomi offer comprehensive product portfolios (phones, tablets, wearables), providing higher profits for distributors. Honor needs to improve its offerings in this area.
In summary, Honor's channel reforms have been effective, but it still faces challenges in achieving its goal of becoming one of the top three brands. It must continue to optimize incentive policies, expand its brand store network, and highlight its unique strengths (such as its AI strategy). The battle for channels is a long-term endeavor, and Honor needs to persevere.