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. For manufacturers that use multiple channels of distribution, effectively managing channel conflict is critical to growth and customer experience.
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. The first is Direct channel conflict which is experienced between manufacturer and channel partners based upon their differing goals and objectives. The second is inter-channel conflict, and this is experienced between competing channel partners in the same business segment.
Each type of conflict is driven by an underlying cause, which often comes with warning signs. For example, has your market recently moved through a “transition” point? In other words, has your market developed from introduction to growth, from growth to maturity? Another cause could be if there were any recent changes made to your channel strategy, e.g., adding channel members, adding new types of channels. Another good question to ask is whether requests from the direct sales team or channels for special prices increased significantly, or if gross margins eroded significantly in any channel segments? Was there a decrease in dollar revenue per direct sales rep or channel, or have you experienced significant loss of market share or declines in customer satisfaction in any customer segments?
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. These should be agreed internally within your company and discussed with partners during the enablement phase. Questions such as who will lead channel account coverage and support and what are the boundaries? How will we define end-user segmentation for direct versus the channel? Will it be by named accounts or deal size or products. How do we agree who to team with in the field, how, and with which deal type? Who will be compensated on what deals? How will we handle non-standard deals? How will the organization manage and compensate multiple partners in a deal? And most importantly, how will we resolve various types of channel conflict? Who will lead this and what is the process?
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.
Managing channel conflict should not be left to each individual partner account manager. Senior management should take a proactive approach and provide the channel management team with a strategy and guidelines for how the organization as a whole plans to mitigate conflict before it disrupts the business.