“Channel Conflict” is a business term for the situation when two-channel parties such as manufacturer, wholesaler, distributor, retailer, etc. compete against each other for the end sale. In other words, channel partners prevent each other from achieving their objectives.
There are three types of channel conflict:
- Vertical – conflict happens between different levels in the same channel.
– When manufacturers sidestep distributors to sell directly to clients. This can even happen when manufacturers give their product to too many distributors and there are not that many buyers.
- Horizontal – a conflict between the same level in the same channel.
– When a distributor lowers the price to boost sales. When another distributor learns of what the first one has done and does the same is when this type of conflict arises.
- Multichannel – between the different market channels participating in the end sale.
– Happens when the manufacturer is having two or more channels competing for the same product or service. Conflict arises if both manufacturer and channel vendors sell the same product on just one market but not at the same price.
Many will say that the easiest way to avoid channel conflict is to have only one channel. But let’s be honest, unfortunately, even for the most channel-centric companies, channel conflict is inevitable. That is because conflict can arise even internally between teams. The reason for most conflicts to happen is poor management.
To avoid channel conflict, prevention is key! Forethought goes a long way when it comes to creating long-lasting, profitable partnerships. The only bad decision is to decide to do nothing.
In the end, each side wants the customer to be happy. Uncomfortable clashes between partners are not a good image to show to your clients (as this can cause delayed orders or clients not getting the best price). With all healthy relationships, when partners invest and have solid communication with each other, the chance to let one of the parties down is very small. Good communication is the baseline for work and partnerships. This means establishing clear rules of engagement, especially when a company is seeking wider market coverage. If those rules of engagement indicate which channel may sell to which customer and under what terms, partners will decide upfront whether or not they will pursue a particular customer. This way we avoid disappointment when expectations are not met.
Combining channels is a winning strategy as neither channel by itself is perfect. One of the greatest ways to avoid channel conflict is to embrace and merge sales channels so they can go in the same direction.
In 2014 Samsung Electronics experienced a multi-channel conflict when entering the Indian market. The company of course wanted to sell its products through multiple channels online and offline for maximum coverage. But the offline channel partners soon found out that e-retailers were providing big discounts and that affected the offline sales with big differences in sales. As a solution Samsung provided the right to sell 48 models exclusively through the offline distribution channel, thus, re-energizing the brick-and-mortar channel partners as customers often just want to buy on their terms as easily as possible. This kind of promoting and exclusivity is one of the greatest solutions used by many brands in different ways not when a channel conflict arises but to keep a good relationship between partners.
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