Gree made its distributors part-owners to escape retail squeeze

By the early 2000s, Chinese appliance manufacturers sold mostly through a handful of dominant national retail chains — Gome and Suning chief among them — whose bargaining power let them dictate pricing, delay payment, and run promotions that ate manufacturer margins. Fighting back meant either accepting the squeeze, trying to build parallel retail from scratch, or hoping a competitor blinked first in the resulting price wars; none of it changed the underlying leverage imbalance.

Gree, led on the sales side by Dong Mingzhu, restructured its own distribution instead of fighting the big retailers directly. Starting with a pilot in Hubei in 1997 and standardized nationally by 2002, Gree co-founded regional sales companies with its major distributors and took a direct equity stake in each — turning distributors from customers Gree had to win deal by deal into part-owners whose returns depended on Gree's pricing discipline holding across the whole region.

Took equity in regional distributors, aligning their profit with Gree's pricing, enabling a credible walkaway from Gome.

Distributors' profit became tied to Gree's pricing discipline, not just volume.

Gree gained an alternative channel that wouldn't collapse without Gome.

Credible threat to walk away deterred retailers from future price cuts.

When a powerful channel squeezes you, restructure incentives so the channel's profit depends on your margin, not on breaking it.

In 2004, when a Chengdu Gome store unilaterally slashed Gree air-conditioner prices in defiance of Gree's pricing policy, Dong Mingzhu pulled all Gree products from Gome stores nationwide within the day rather than let one retailer set the market — a stance Gree could afford precisely because its equity-aligned distributor network gave it a channel Gome didn't control. Gree stayed out of Gome for roughly three years and went on to become the world's largest air-conditioner maker by revenue.