Channel conflict can be detrimental to channel success and sales. With these having much impact on the success of your channel and its members, there is a need to resolve the problems as soon as they arise or even avoid them altogether from becoming a reality. Thus, managing channel conflict is of utmost importance.
What is channel conflict?
This happens when channel partners, who supply a particular product or service (manufacturers), disintermediate their current channel partners. Since channel partners are acting as their retailers, distributors, sales representatives, and dealers, it is but right that they give the agreed compensation, especially if the channel partners were instrumental to the closing of the deal or sale.
Unfortunately, channel conflict can arise when manufacturing channel partners sell their products or services directly to consumers over the Internet or other marketing methods. In the end, this kind of action creates clash or grievance among the participating channel partners and hinders harmonious cooperation with each channel partner. Without a doubt, managing channel conflict must be done as soon as it is discovered.
What are the causes of conflict?
Managing channel conflict requires you to determine the actual causes. Here are two possible causes:
In the case of direct channel conflict, you must understand and determine the cause of the conflict. Also, know what type of channel conflict it falls under. This way, you determine the root of the problem and the channel partners involved in this. As a result, you know who to talk to and mediate with to resolve the channel conflict at hand.
Indirect Sales Network
On the other hand, there are a lot of unique problems involving this channel conflict cause. To prevent further damage, the channel captain must immediately address any conflict and resolve it as soon as possible.
Here are the most usual causes of channel conflict in relation to indirect sales:
1. Mixing Direct Sales With Indirect Sales
In simple terms, any channel vendor who tries to sell directly to the public and sells to channel partners as well as a channel conflict in the making. As such, it is understandable that many channel partners will go against working with such IT vendors. Though there are some exceptions to this, there are many more that will end up in a conflict. So why bother to mix both, right?
2. Providing Channel Partners Too Much Control In Pricing
Tempting though it can be to be lax in pricing, this has to be avoided, especially if there are too many IT vendors and channel partners involved. What can happen is that partners may undercut each other or sell below the agreed pricing so they can close the deal. What do they get from such a loss? They recoup the loss using the value-added services. To avoid this reason for channel conflict, you must make it a point to know the pricing your channel partners put on your products or services. Set rules on discounts so all vendors can price yours at the same value and you never have to worry about being de-valued.
3. Marketing or Strategy Blunders
This channel conflict happens when the IT vendor and some channel partners have diverse visions for a product or service or even the kind of market it should be offered to. Each vendor or channel partner gives a different pitch on who can use the product or service and the scope that it will have. As a result, confusion and/or negative brand perception on your product or service is eventually formed. However, with clever marketing, this conflict can turn to your advantage if you successfully resolve the confusion and its resulting conflict.
4. More Channel Partners Serving Fewer Clients
This cause of conflict happens when an IT vendor has bad geographic or demographic targeting. In this case, one possible thing that can happen is that the vendors lose interest in promoting or selling your product as there aren’t’ that many clients. On the other hand, vendors themselves compete directly with one another to sell your product or service. This direct rivalry can result in a bad channel conflict and even to you as channel captain since they can reflect as channel mismanagement.
5. Struggle To Adapt To Change
Old procedures have been effective and have brought you this much success. So, why bother to change? Why should you innovate your product or services or how to implement policies and procedures? Channel conflict will arise if some channel partners insist on sticking to the old ways while others follow the adaptations. As a result, buyers are confused about who to believe and your brand is viewed negatively since there is no unity in your channel partners. The solution? Proactive communication so everyone will agree and do the same sales pitch.
What are the types of channel conflict?
Channel conflicts are also categorized into three major types and these have sub-types. You must understand these various types often happen within the distribution channel.
A normal distribution flow requires that each participant depends on the next. Any disruption on this flow can create channel conflict.
First, a vertical channel conflict happens when two parties develop a clash or dispute in any part of the flow. There are two main causes for this.
- Direct Sales and Indirect Sales – These are explained in detail above. However, to summarize, this happens when manufacturers sidestep distributors to sell directly to the consumers. Often, manufacturers and retailers have a dispute since they both sell to consumers.
- Over Saturation – This happens when manufacturers give their product or service to too many distributors. When there are too many sellers and not that many buyers, you can imagine the friction that the rivalry will ensue.
Second, a horizontal channel conflict happens between two distributors creating conflict among themselves. Some causes of this are:
- Loss Leader – A channel distributor lowers the price of the product or service to boost sales. Once consumers buy from them, they upsell other products to recoup their initial loss. Channel conflict arises when another distributor learns of what the other has done and so does something similar.
- Turf War – Several wholesalers or retailers sell in one small area or location. Manufacturers have not set specific territories and so all these channel partners do whatever they can to sell the same product or service.
Third, a multiple channel conflict happens when the manufacturer has two or more channels competing for the same product or service. A conflict is created if both the manufacturer and channel vendors sell the same product to just one market but don’t sell these at the same price.
How do you overcome channel conflict?
To overcome channel conflicts when you participate in direct to consumer sales without clashing with your distributors, you can offer the following:
- Exclusive Products: Take advantage of products or services that are exclusively given to you. Exclusive items or services generate stories, increase demand for your products or services, and showcase your brand. This way, you avoid channel conflicts with retailers and other resellers. Since it’s exclusive to you, you aren’t competing directly with them nor are you selling at a loss. Simply put, you offer a unique product or service and you sell directly but still allow others to sell. In the end, providing a personalized product or service requires creativity so that you can provide items that are unique and exclusive to you.
- Product Giveaways: Who doesn’t like freebies, right? Having product giveaways can create value for your consumers. This can encourage them to choose your product or services, especially if what you offer is at par with the others in the market. While some will go after your freebie, once the product or service is tested and they like it, they will buy more even if the freebie is not available anymore. As a result, you sell your product, your vendor sells your product, and your consumers are happy with your product. Everyone’s happy! As a result, you manage channel conflict.
- Kits and/or Bundle Set: This is very appealing to your customers so it almost always works. Combining products or services at a reasonable price allows your partners to sell these kits and sets and allows your consumers to have more of your product or service.
To conclude, how you overcome channel conflicts can vary from case to case. But what is important is that you must be fair and open in your dealings. Plus, there has to be a sincere commitment to further the success of your channel partners’ businesses and not just yours. After all, this is what a community is all about. For its members to help each other out to attain success together.
The Bottom Line
Managing channel conflict is ideally accomplished when you prevent channel conflicts altogether. By nipping it at the bud as they say. Employ superior communication to determine and overcome these conflicts. Communicate rules and regulations regarding sales channels and make sure that all channel partners know them and the repercussions of committing them. Also, emphasize the goal to grow their business by growing the channel and their fellow channel partners. In the end, your business can prosper faster and better if you have allies and not rivals.