Summary of Key Points
Recently, many offline fast-moving consumer goods (FMCG) distributors, especially those involved in distribution, have been complaining that the prices of branded products on e-commerce platforms like Pinduoduo are even lower than their purchase costs after discounts are applied. As a result, these small businesses are turning to online purchases directly, making it increasingly difficult for them to continue operating. The underlying reason is not simply due to platform subsidies but rather a proactive strategy by the brands themselves. On one hand, brands are caught in a “prisoner’s dilemma” driven by growth anxiety; they feel compelled to offer discounts to maintain sales volumes, even if it means footing the financial cost themselves. On the other hand, brands force distributors to stock excessive inventory, leading to frequent price discrepancies and high control costs. To address this, brands lower their online prices at the expense of distributors’ profits. While this approach may stabilize sales in the short term, it harms both the distributors’ trust and the brand’s long-term reputation. It is recommended that distributors choose brands that do not overstock, provide after-sales support, and maintain stable pricing.
Detailed Analysis
1. The “Survival Crisis” of Offline Distributors: Online Prices Lower than Purchase Costs, Leading to Business Losses?
Many distributors are facing a tough situation. They used to make money by supplying products to small stores, but now, with online prices being lower than their purchase costs, it’s more profitable for small businesses to buy directly from e-commerce platforms. For example, snack distributors, who already face competition from offline stores, can no longer convince them of the higher prices offered offline. With fewer orders, small stores simply stop dealing with these distributors and opt for online purchases. This phenomenon of online prices being lower than purchase costs has become a new normal that distributors cannot ignore.
2. The “Reluctant Measures” of Brands: Why Lower Online Prices?
Brands are not acting foolishly; they are driven by growth anxiety. Here’s the logic:
- Prisoner’s Dilemma: If a brand does not offer discounts, competitors will, leading to a loss of online sales and market share, as well as negative consumer perceptions of high prices. Everyone fears losing out, so they compete to offer discounts, resulting in minimal profits but at least stable sales.
- The Chain Reaction of Declining Sales: A drop in sales can cause significant problems, such as demotivated sales teams, underutilized production facilities (potentially affecting product quality), reduced marketing effectiveness, and a negative brand image. In an economic downturn, these issues can be fatal for a brand. Therefore, brands are willing to subsidize to maintain sales volumes.
3. The Root Cause of Price Discrepancies: The Vicious Cycle of Distributor Inventory Theft and Brand Overstocking
The low online prices are also influenced by distributor inventory theft. Here’s how it works:
- Brand Overstocking: Brands force distributors to stock more than they can sell, leading to unsold products that are then sold online at lower prices to avoid losses.
- High Control Costs: With hundreds or thousands of distributors, it’s impossible for brands to monitor each one effectively. They may use specialized personnel and technology to detect low-price sales but still cannot prevent it. In the end, brands give up and lower their online prices, essentially accepting the existence of these discounted products.
4. The “Double-Loss Outcome” of This Strategy
While brands may stabilize short-term sales by lowering prices, they also suffer in the long run:
- Damage to Distributors: The blame for low online prices often falls on distributors, despite being caused by the brand’s overstocking and poor control.
- Long-Term Consequences for Brands: Distributors are crucial for brands to reach consumers through small stores and community outlets. Losing their trust leads to a weakened presence in these markets, making it harder for consumers to find and purchase products, thus impacting the brand’s market position.
5. The Current “Survival Rules” for Distributors: How to Choose Brands?
The FMCG industry is undergoing a process of elimination, with ineffective brands and distributors being phased out. Distributors need to be cautious and choose reliable partners with:
- No Overstocking: Brands that do not force them to sell unsold products.
- After-Sales Support: Options like returns for unsold goods to reduce inventory risks.
- Strict Price Control: Brands that prevent online prices from falling below purchase costs, protecting distributors’ profits.
Only by partnering with such brands can distributors survive the industry’s challenges and thrive in the long term.
Conclusion
The “price war” in the FMCG industry reflects the anxiety of brands and the desperation of distributors. However, only those who value their partners and adopt a long-term approach will be able to succeed. (End of article)