channel conflict mangement
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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.