Channel conflict

What is it?

Channel conflict exists when you have multiple channels and some channels feel that they are competing with other channels for the same customers.

Channel conflict can be both internal (e.g. your salesforce vs your website) or external (your value added reseller vs your hardware distributor).

When is it useful?

Diagnose channel conflicts whenever you are considering opening a new channel, or changing the focus of your existing channels.

If one of your channels is underperforming, diagnose any channel conflicts as the possible cause.

When you  enter a new market, it is more disruptive to the incumbent if responding to your entry would generate channel conflict for them.

If channel conflict exists, you want to know what to do about it.

Sometimes, you will want to reduce the conflict. You may do this by changing your terms of trade with the channels, backing off one channel, changing pricing structure, reallocating your sales support, or granting some form of exclusivity to a channel (often geographical, or for a certain sort of customer). All these will make the channel happy to push your product again.

Othertimes, your strategy requires you to follow through with your new channel priorities, the best you can do is try to persuade the old channel to keep pushing you product until the new channel cannibalises them.

An Example?

Xiameter is a online portal to sell Silicone for DowCorning. When it was created, the internal salesforce were upset, because they theough they were being bypassed and/or replaced. This was addressed in the short term by resetting bonus targets for the salesforce, but did not remove the longer lasting anxiety that the portal would expend to address higher value added selling,

Snapple drinks company distributes drinks through distributors, each one with regional exclusivity. They realise that they have some big and growing key accounts (e.g. national supermarket chains) who would prefer to buy directly from Snapple. If they centralise these sales and take control, the distributors will be upset at losing business (they they may have legal rights in their territory too). Snapple has to take control of these accounts or their competitors will win share in this growing channel; they pay their distributors a bonus to compensate them.

AIA has built a very strong agency sales force for selling Life Insurance in Thailand. Developing the sale of insurance online or promoting the Bankassurance (selling life insurance through bank branch partnerships) will cause their agency salesforce to get upset, as they think AIA is taking their customers away. As a result, AIA are far more likely to use the online platform to support the sales of their agency salesforce than push it as a competitor.

How do you do the analysis?

The best way to diagnose channel conflict is through channel interviews. Are they complaining about how your company “goes round them”, “cuts them out”, or they find themselves competing with other channels?

You can also map out channel economics to see if they have a legitimate economic issue, or if they are just griping. Use your information on the retail prices, wholesale prices and cost structure of each channel to calculate the margins that they are making on your products. If they don’t have the financial incentive to push your products, they are likely to shrink.

The best way to determine whether you should resolve or suffer channel conflict is to look to the end customer. How do they want to buy? Is it changing? Conduct interviews/surveys to find out. At the end of the day, these end users pay your bills, not the channel.

Strategically, you have no choice – you have to emphasise the channel that your end customers want to buy from. You have to shift from physical channels if your end customers want to go online. Don’t back off this focus because of channel conflict; however, there may be some tactical sweeteners you can throw in to make this bitter pill easier for your old channel to swallow.

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