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Channel conflict can be defined as any scenario where two different channels compete for the same sale with the same brand. Conflict can take the form of a direct sales force competing with an independent distributor, two different types of competing distributors, two like distributors competing for the same sale, or all of the above.
A few facts about achieving an appropriate balance between coverage and conflict:
Channel conflict can be defined as any scenario where two different channels compete for the same sale with the same brand.
In reality, managing conflict is an imperative in a soft market. Channels are more sensitive to conflict because of the perceived impact on their bottom line. Therefore, they are quick to act to manage the conflict—which usually means less emphasis on the guilty brand. Few manufacturers can afford the loss in effective market coverage that this unilateral channel decision can result in. Thus, the need for the manufacturer to proactively address the issue.
Conflict can take the form of a direct sales force competing with an independent distributor, two different types of competing distributors, two like distributors competing for the same sale, or all of the above. A limited amount of channel conflict is healthy. It indicates that you have adequate market coverage. However, once the balance between coverage and conflict is lost, destructive channel conflict can quickly undermine your channel strategy, market position and product line profitability. Conflict can show up in the market in a variety of ways. A point of confusion for many manufacturers is whether problems are truly symptoms of destructive channel conflict or other marketing or channel strategy issues.
When faced with potential indicators of destructive conflict, you should audit your market position to identify the true cause and then quickly act to address it.Channel conflict is managed by a combination of economics and controls. Economic solutions compensate channels fairly for functions performed and help direct channels away from actions that create destructive conflict. Controls put structure around a channel strategy to limit the potential for undue destructive conflict.
Channel conflict is a situation in which channel partners have to compete against one another or the vendor's internal sales department.
Channel conflict is an integral part of your channel strategy, so you must examine your market position and channel strategy before attempting to manage it. Taking a closer look at the problem often reveals that the perceived channel conflict issue masks a larger channel strategy issue. So prior to executing solutions to address channel conflict, the manufacturer is encouraged to examine all elements of its overall channel strategy, including pricing, end user segmentation, channel support programs, company policies, etc.
Destructive channel conflict is managed through economics and structural controls. Economics motivate the channels to avoid conflict. Structural controls lay the ground rules within which conflict is managed. With each tactic, communication before conflict arises is critical.
Channel conflict occurs when manufacturers (brands) disintermediate their channel partners, such as distributors, retailers, dealers, and sales representatives, by selling their products directly to consumers through general marketing methods and/or over the Internet.
Channel conflict is the most important thing to avoid, and one of the easiest traps to fall into. “At worst, it’s the result of greed within the vendor company. Though they say they want to work with the channel, when they run across a juicy deal, they don’t want to give it to the partners.”
Unfortunately, when a partner gets burnt by this kind of deal stealing, their motivation to put effort into their own deals is greatly diminished. Why should they work hard for a deal that their so-called partner might steal through price undercutting or some other unfair tactic?
5 Tactics to Avoid Sales Channel Conflicts
There are many ways to proactively avoid conflicts between your internal sales team and your channel partners, depending on the kinds of situations you anticipate. Here are a few options to consider:
1) Adjust your pricing structure
If you’re worried about direct sales reps undercutting your channel partners, you might consider a pricing structure that includes channel-specific discounts and a fixed price point for direct sales.
2) Adjust your compensation
You may choose to compensate your internal sales reps so that it doesn’t make any difference to their commissions whether the sale goes through the channel or direct. Or you may even take it a step further and offer them an additional incentive for channel sales.
3) Establish assigned segments and/or territories
Other methods that can help reduce channel conflict include segmenting products by seller type (direct or channel), or making certain geographical or vertical territories exclusive to certain sellers.
4) Utilize a lead registration system
HubSpot, like many other SaaS companies with channel programs, uses a lead registration system to help ensure that there is only one sales process for each lead. “Currently, partners can register up to 500 active leads,” explains HubSpot VP Sales Peter Caputa. “Registration lasts for twelve months, and they can re-register a lead if it’s still active after that period.”
5) Avoid direct sales altogether
It may be a little extreme or only work for particular situations, but the most straight-forward way of avoiding sales team vs. channel partner conflict is to commit to a channel program 100%.
Situation when a producer or supplier bypasses the normal channel of distribution and sells directly to the end user. Selling over the internet while maintaining a physical distribution network is an example of channel conflict.
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Channel conflict occurs when manufacturers (brands) disintermediate their channel partners, such as distributors, retailers, dealers, and sales representatives, by selling their products directly to consumers through general marketing methods and/or over the Internet
E-commerce is the most popular second distribution channel because of its low overhead expenses and communication costs. This advantage is also a disadvantage, since consumers can also communicate less expensively and more easily with one another in the online marketplace. Therefore, price and product differentiation is more challenging in online markets
Channel conflict can also occur when there has been over production. This results in a surplus of products. Newer versions of products, changes in trends, insolvency of wholesalers and retailers and the distribution of damaged goods also affect channel conflict. In this connection, a company's stock clearance strategy is important.
To avoid a channel conflict in a click-and-mortar business, it is necessary to ensure that both traditional and online channels are fully integrated. This reduces possible confusion with customers while providing the business benefits of a dual channel.
Manufacturers today sell their products through a broad array of channels. 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. In turn, such conflict almost invariably finds its way back to the manufacturer.
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