Gree ended distributor price wars by making rival dealers co-owners

In 1990s China, air-conditioner makers sold through competing regional distributors who poached each other's territory, dumped stock and wrecked retail prices. Gree's answer, piloted in Hubei in 1997 under sales chief Dong Mingzhu, was the joint-stock regional sales company: Gree and the province's biggest dealers pooled capital into one sales firm that controlled all local wholesale.

The clever part is the incentive design. A dealer who used to win by undercutting a rival now owned shares in the same company as that rival — price chaos came out of his own dividends. The dealers stopped competing on price and started cooperating on territory and service. The structure grew into a three-tier system: 26 regional sales companies, then agents, then dealers, which became Gree's profit engine and was hailed in Chinese business press as a new marketing model.

Gree doubled down in 2007: ten of its most important regional dealers formed Jinghai Internet and took a 10% stake in Gree Electric itself, becoming its second-largest shareholder. Dealer and manufacturer interests were now bound at the board level — two dealers sat as non-independent directors.

Stop policing channel conflict; make the rivals shareholders

Co-ownership makes a price-cutting dealer hurt his own dividends, so discipline needs no policing.

One regional wholesaler ends cross-territory dumping and stabilizes retail prices.

The dealers' stake in Gree itself (10% via Jinghai Internet in 2007) aligned channel and factory for 15 years.

Advance-payment terms inside the system gave Gree industry-leading cash flow to fund manufacturing.

When channel partners sabotage each other, contracts and audits are weak; shared equity converts the prisoner's dilemma into one balance sheet, aligning pricing without constant enforcement.

The model powered Gree to the top of China's air-conditioner market for two decades. Its rigidity later became the problem: from 2019 Dong Mingzhu dismantled the provincial tier to push online direct sales ('Gree Dong Mingzhu stores'), sparking open conflict — Hebei's lead dealer quit Gree for Philips in 2022 and Jinghai cut its stake. The mechanism that built the channel had to be unbuilt for e-commerce.