For manufacturers that use multiple channels of distribution, effectively managing channel conflict is critical to growth and customer experience.
Channel conflict occurs when manufacturers (brands) bypass their channel partners, such as distributors, retailers and dealers by selling their products directly to consumers through general marketing methods or over the Internet. It can also be seen when there has been over production of goods, resulting in a surplus of products. Selling over the Internet while maintaining a physical distribution network is another good example of channel conflict, as customers can choose to buy directly from the manufacturer online.
There are a number of driving forces that are increasing the prevalence of channel conflict. The “New Buyers Journey” for example means that buyers are researching options on their own (usually online) and making their buying decisions before they even engage with a seller. Similarly, Inbound marketing is impacting the traditional roles of the manufacturer and their dealers. While in the past dealers were there to market your product in their region or territory, the new Buyers Journey is altering this reality.
The end customer can now easily be “sold to” directly by the manufacturer, by-passing traditional dealers. This often adds to complexity in managing channel relationships when local customers that used to rely on dealers go around them entirely.
Although there are many types of channel conflict, two cases are the most common:
- Direct channel conflict – experienced between manufacturer and channel partners based upon their differing goals and objectives.
- Inter-channel conflict – experienced between competing channel partners in the same business segment.
Each type is typically driven by an underlying cause such as one of the following:
- Has your market recently moved through a “transition” point?
- g., from introduction to growth, from growth to maturity.
- Were any recent changes made to your channel strategy?
- g., adding channel members, adding new types of channels.
- Have requests from the direct sales team or channels for special prices increased significantly?
- Gross margins eroded significantly in any channel segments?
- Any decrease in dollar revenue per direct sales rep or channel?
- Have you experienced significant loss of market share or declines in customer satisfaction in any customer segments?
- Have you experienced a decrease in your number of channels as a result of channels dropping your line?
Now that we understand the type of conflict that our organization is facing, and what may be causing this, we can begin to address the issue. Firstly, it is important to recognize that totally eliminating channel conflict may not be realistic or even desirable. For a start, conflict indicates that you have adequate market coverage. Also, a certain amount of conflict may lead to constructive competition and improved performance across the wider business. So realistically, the goal is to manage and mitigate the drivers of conflict so that it does not become destructive, rather than attempting to eliminate it entirely.
Setting clear rules at the start of the relationship with partners is the foundation of good conflict mitigation. The following perspectives should be agreed internally within your company and discussed with partners during the enablement phase:
- Channel account coverage and support
- Who will lead this?
- End-user segmentation for direct vs. channel
- By named accounts, deal size, products.
- Who to team with in the field, how, and deal type.
- Who gets paid on what deals within your firm
- How to handle non-standard deals
- How to handle multiple partners in a deal
- Under what conditions do you take a deal direct
- How direct vs. channel conflict will be resolved/managed
- Who, how, when?
A good conflict resolution strategy will initially attempt to understand the nature and intensity of the conflict, and then trace the source of the conflict. It will then progress to discovering the impact of the conflict and finally will move to developing a plan for resolution of the conflict.
“Deal Registration” can also play a very effective role in managing channel conflict. In order for deal registration to play an effective role you will need to have a certain structure in place:
- Establish clear guidelines for deals where partners work with vendor reps.
- Set reasonable deal expiration timeframes.
- Avoid predatory conflicts between partners.
- Keep registration and approval process timely and streamlined.
- Maintain visibility into approval and payment processes for partners.
- Prevent direct sales and partners from working on competing deals.
- Align deal registration incentives with corporate incentives.
Channel conflict is something that needs to be taken very seriously by any manufacturing organization that works with channel partners. However, absolute elimination of the conflict should not be the goal. Instead, mitigating and managing the conflict to produce the best results for the business should be the clear objective.