(Yicai) Jan. 11 -- Leading Chinese powdered milk companies have not increased their sales targets for dealers this year amid a sluggish market but they have reduced the proportion of third-party commissions that they will pay and are branching out into tie-ups with mother and baby care firms to drum up sales, Yicai learned.

Before, milk power firms would put pressure on their dealers to expand market share, but this year they are not stepping up their requirements as the whole industry is in difficulty, Song Liang, an independent dairy sector analyst, told Yicai.

But they are cutting back on the subsidies they grant. Infant formula companies used to help dealers develop the market by shouldering some of their marketing costs. Dealers have been relying on these allowances more and more in recent years as sales have become harder with falling profits.

“A big infant formula producer that is one of my main clients normally hikes the sales target every year,” sales agent Wang Cong told Yicai shortly after attending an infant formula dealer’s conference. “This year it didn’t do so, but it has cut the amount on commissions to third-party sales agents that it will pay to 1.5 percent from 8 percent, causing discontent among dealers.”

Large milk power companies are now also linking arms with big mother and baby care firms to launch tailored products. By doing so, the milk powder market is likely to diverge quicker, said Cao Tianwei, general manager at industry media Zhongying Shangqing.

Milk powder brands are offering considerable support for large mother and baby product chains, Cao said. Smaller brands are not receiving as much support but this might negatively impact big milk powder brands and possibly benefit these smaller firms, he added.

For example a small infant formula company Zhiyou Bright Dairy and Food decided not to team up with a big mother and baby care product maker but rather chose to focus on independent stores and small chains. Unexpectedly, the tactic achieved good results, and the brand is preparing to increase its sales target this year.

Editors: Xu Wei, Kim Taylor