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Channel conflict Mangement

Channel conflict occurs whenmanufacturers(brands)disintermediatetheirchannel

partners, such asdistributors,retailers,dealers, andsales representatives, by selling their

products direct toconsumersthrough generalmarketingmethods and/or overtheinternetthrougheCommerce.

Some manufacturers want their brands to capture the power of the internet but do not want

to create conflict with their other distribution channels, as these partners are typically

necessary for a manufacturer to gain and maintain success. The Census Bureau of the U.S.

Department of Commerce reported that online sales in 2005 grew 24.6 percent over 2004 to

reach 86.3 billiondollars.[1]By comparison, total retail sales in 2005 grew 7.2 percent from

2004.[1]These impressive numbers are attractive to manufacturers, however they have not

been able to participate in these sales without harming their channel relationships.

According toForrester ResearchandGartner, despite the rapid growth of online commerce,

an estimated 90 percent of manufacturers do not sell online and 66 percent identified

channel conflict as their single biggest issue hindering online sales efforts[citation

needed].However, results from a survey show thatclick-and-mortarbusinesses have an 80%

greater chance of sustaining a business model during a three-year period than those

operating just in one of the two channels. Among others, the reach will be enhanced by

creating another selling channel. Nowadays, E-commerce wins in popularity as second

distribution channel, because of the low overhead expenses and communication costs. Their

advantage is at the same time their disadvantage, since consumers can communicate less

expensive and more easily with each other too. Therefore, price and product differentiation is

getting tougher than ever.[2]

Channel conflict can also occur when there has been over production. This results in a

surplus of products in the market place. Newer versions of products, changes in trends,

insolvency of wholesalers and retailers and the distribution of damages goods also affect

channel conflict. In this connection, a company'sstock clearancestrategy is of importance.

To avoid a channel conflict in a click-and-mortar, it is of great importance that both channels

are fully integrated from all points of view. Herewith, possible confusion with customers is

excluded and an extra channel can create business advantages.[3][4][5][6]

Manufacturers today sell their products through a huge array of channels, from

supermarkets to the internet and everywhere in between. Since most manufacturers sell

through several channels simultaneously, channels sometimes find themselves competing to

reach the same set of customers. When this happens, channel conflict is virtually

guaranteed. Such conflict almost invariably finds its way back to the manufacturer. This can

also be termed as a situation when a producer or supplier bypasses the normal channel of

http://en.wikipedia.org/wiki/Manufacturinghttp://en.wikipedia.org/wiki/Manufacturinghttp://en.wikipedia.org/wiki/Manufacturinghttp://en.wikipedia.org/wiki/Brandhttp://en.wikipedia.org/wiki/Brandhttp://en.wikipedia.org/wiki/Brandhttp://en.wikipedia.org/wiki/Disintermediatehttp://en.wikipedia.org/wiki/Disintermediatehttp://en.wikipedia.org/wiki/Disintermediatehttp://en.wikipedia.org/wiki/Distribution_(business)http://en.wikipedia.org/wiki/Distribution_(business)http://en.wikipedia.org/wiki/Distribution_(business)http://en.wikipedia.org/wiki/Distribution_(business)http://en.wikipedia.org/wiki/Distributorhttp://en.wikipedia.org/wiki/Distributorhttp://en.wikipedia.org/wiki/Distributorhttp://en.wikipedia.org/wiki/Retailinghttp://en.wikipedia.org/wiki/Retailinghttp://en.wikipedia.org/wiki/Retailinghttp://en.wikipedia.org/wiki/Franchisinghttp://en.wikipedia.org/wiki/Franchisinghttp://en.wikipedia.org/wiki/Franchisinghttp://en.wikipedia.org/wiki/Sales_representativehttp://en.wikipedia.org/wiki/Sales_representativehttp://en.wikipedia.org/wiki/Sales_representativehttp://en.wikipedia.org/wiki/Consumerhttp://en.wikipedia.org/wiki/Consumerhttp://en.wikipedia.org/wiki/Marketinghttp://en.wikipedia.org/wiki/Marketinghttp://en.wikipedia.org/wiki/Marketinghttp://en.wikipedia.org/wiki/Internethttp://en.wikipedia.org/wiki/Internethttp://en.wikipedia.org/wiki/Internethttp://en.wikipedia.org/wiki/ECommercehttp://en.wikipedia.org/wiki/ECommercehttp://en.wikipedia.org/wiki/ECommercehttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/Channel_conflict#cite_note-Microsoft_Word_-_2004Report0523.doc-1http://en.wikipedia.org/wiki/Channel_conflict#cite_note-Microsoft_Word_-_2004Report0523.doc-1http://en.wikipedia.org/wiki/Channel_conflict#cite_note-Microsoft_Word_-_2004Report0523.doc-1http://en.wikipedia.org/wiki/Channel_conflict#cite_note-Microsoft_Word_-_2004Report0523.doc-1http://en.wikipedia.org/wiki/Channel_conflict#cite_note-Microsoft_Word_-_2004Report0523.doc-1http://en.wikipedia.org/wiki/Channel_conflict#cite_note-Microsoft_Word_-_2004Report0523.doc-1http://en.wikipedia.org/wiki/Forrester_Researchhttp://en.wikipedia.org/wiki/Forrester_Researchhttp://en.wikipedia.org/wiki/Forrester_Researchhttp://en.wikipedia.org/wiki/Gartnerhttp://en.wikipedia.org/wiki/Gartnerhttp://en.wikipedia.org/wiki/Gartnerhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Bricks_and_clickshttp://en.wikipedia.org/wiki/Bricks_and_clickshttp://en.wikipedia.org/wiki/Bricks_and_clickshttp://en.wikipedia.org/wiki/Channel_conflict#cite_note-2http://en.wikipedia.org/wiki/Channel_conflict#cite_note-2http://en.wikipedia.org/wiki/Channel_conflict#cite_note-2http://en.wikipedia.org/wiki/Stock_clearancehttp://en.wikipedia.org/wiki/Stock_clearancehttp://en.wikipedia.org/wiki/Stock_clearancehttp://en.wikipedia.org/wiki/Channel_conflict#cite_note-3http://en.wikipedia.org/wiki/Channel_conflict#cite_note-3http://en.wikipedia.org/wiki/Channel_conflict#cite_note-5http://en.wikipedia.org/wiki/Channel_conflict#cite_note-5http://en.wikipedia.org/wiki/Channel_conflict#cite_note-5http://en.wikipedia.org/wiki/Channel_conflict#cite_note-5http://en.wikipedia.org/wiki/Channel_conflict#cite_note-3http://en.wikipedia.org/wiki/Channel_conflict#cite_note-3http://en.wikipedia.org/wiki/Stock_clearancehttp://en.wikipedia.org/wiki/Channel_conflict#cite_note-2http://en.wikipedia.org/wiki/Bricks_and_clickshttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Gartnerhttp://en.wikipedia.org/wiki/Forrester_Researchhttp://en.wikipedia.org/wiki/Channel_conflict#cite_note-Microsoft_Word_-_2004Report0523.doc-1http://en.wikipedia.org/wiki/Channel_conflict#cite_note-Microsoft_Word_-_2004Report0523.doc-1http://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/ECommercehttp://en.wikipedia.org/wiki/Internethttp://en.wikipedia.org/wiki/Marketinghttp://en.wikipedia.org/wiki/Consumerhttp://en.wikipedia.org/wiki/Sales_representativehttp://en.wikipedia.org/wiki/Franchisinghttp://en.wikipedia.org/wiki/Retailinghttp://en.wikipedia.org/wiki/Distributorhttp://en.wikipedia.org/wiki/Distribution_(business)http://en.wikipedia.org/wiki/Distribution_(business)http://en.wikipedia.org/wiki/Disintermediatehttp://en.wikipedia.org/wiki/Brandhttp://en.wikipedia.org/wiki/Manufacturing

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points that they have within a particular type of distribution channel is balanced against the

size of the segment that the channel reaches.

Dedicated products: Many designers who have pushed for sales through outlet stores have

managed the conflict with their existing retailers by developing special products for these

outlet stores.

Similarly, many luxury brand companies, like Camus Cognac and Guylian chocolates, offer

special pack sizes and products that are attractive to travellers at duty-free airports in order

to minimise the conflict with their regular high street retailers.

On the Internet, manufacturers can offer those SKUs which retailers are usually not willing to

carry. At the extreme, some manufacturers dedicate different brands to different channels,

sometimes referred to as channel brands.

Expanding sales: Having a new 'hit' product helps facilitate channel migration. Goodyearmanaged the migration to the mass merchandisers with only a reasonable amount of conflict

by simultaneously restricting the distribution of its new Aquatred tyre to the independent

dealers.

This allowed the independent dealer to protect their profit-ability and sales volume through

the higher margin, higher value, Aquatred tyre. It is easier to expand channels when

revenues are growing as existing dealers are less likely to see absolute declines in sales

and profits.

Dual compensation and role differentiation: Some manufacturers agree to compensate

the existing channels for sales through the new channel. While it may be perceived as just

buying off the support of the existing channels for the channel migration, it can be useful if

the existing distribution is given a role to perform in support of the new channel.

For example, when Allstate started selling insurance directly off the Web, they agreed to pay

agents 2% commission if they provided face-to-face service to customers who get their

quotes off the web. However, since this was lower than the 10% commission that agents

typically received for offline transactions, many agents did not like it.

Yet, it does help lower the negative backlash. Using the existing channel partner can be a

useful complement.

Equitable treatment: Some retailers will be upset that the prices at which they purchase

from the manufacturer are higher than those charged to other retailers or the direct sales

force. There is often the feeling that the manufacturer is favoring other channels at their

expense.

While one may never fully be able to overcome these concerns, the best antidote is to treat

channels equitably and in a transparent manner. If the manufacturer's prices differ across

channels, it should be based on the functions that the particular channel member performs.

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So, yes, Tesco and Wal-Mart receive lower prices, but it is because they engage in practices

(buying large quantities, not demanding in-store help and promotions) that lower the

manufacturer's cost to serve them.

Final thoughts

The temptation for manufacturers is always to expand the number of distribution points as it

usually results in an immediate increase in sales. However, having too many channels chase

too few consumers results in channels dropping the level of support to the brand.

In the long run, this can have a deleterious impact on sales as well as brand image. On the

other hand changing customer preferences modify industry structures. Traditional industry

leaders have frequently neglected the fastest growing new distribution channels.

A delicate balance must be maintained between moving too quickly and unleashing

destructive channel conflict versus clinging too long to declining distribution networks.