Strategy

Channel conflict: How to identify, manage and prevent it

Florimond de Tinguy
Florimond de Tinguy March 18, 2022
Channel conflict: How to identify, manage and prevent it

The world of commerce is greatly benefiting from new technologies and digital transformation opportunities. The solutions to sell online have never been so numerous and migrating one’s activity online is now simple and accessible to all businesses. While the obsession with omnichannel sales is opening up all sales channels, it is also accelerating online sales capabilities.

This evolution, which is beneficial for all brands, manufacturers and retailers (B2C and B2B alike), nevertheless hides risks. One such risk is that of the so-called channel conflict (also known as “channel cannibalization”), which is increasingly observed. Channel conflict, if poorly managed, can become a serious downside of the capabilities offered by an omnichannel approach.

Below, we’ll deep-dive into the notion of channel conflict and into channel conflict management strategies.

What is channel conflict?

Channel conflict occurs when two or more sales channels and/or partners disagree. Traditionally, companies have four main channels at their disposal to sell to their customers. They can address consumers directly via an ecommerce site (i.e. their own or even a third-party online marketplace) or via a physical store, or establish a partnership with physical or online distributors.

When the decisions and actions of one partner affect the business objectives of another, channel conflict arises. There are three types of channel conflict: vertical conflict, horizontal conflict and multi-channel conflict. We shall analyze them one by one. 

  1. Vertical channel conflict refers to a disagreement between two parties at different levels of the distribution chain. For example, when a retailer decides to stop a distribution agreement to sell directly to consumers or when too many distribution partners sell the same products, creating counterproductive competition and price wars between them.
  1. Horizontal channel conflict occurs between two partners at the same level of the chain. For example, when several wholesalers compete in the same geographical area.
  1. Multi-channel conflict occurs when two or more channels of the same manufacturer compete in the same market and sell the same product at different prices. For example, stores and ecommerce operations compete with each other.

What are the causes of channel conflict?

The causes of channel conflicts are multiple. They can be the result of different objectives between the manufacturer and its partners, conflicting market visions, obsolete attribution models, dissociated marketing approaches such as a promotional campaign conducted differently on several channels. When the potential customer base is small, but the manufacturer allows multiple distributors, their motivation may be affected. 

Given the numerous sources of channel conflict, the risk presented to the customer is that their experience is fragmented. In the age of the connected and demanding customer, it is essential that the considerations and issues of each channel are invisible to them — shoppers do not care about what goes on behind the scenes, but they do care about convenience, prices and perks. Overall, the shopping experience and interaction with the business must be seamlessly unified across all customer touch points and channels.

How to manage channel conflict

Now that we’ve covered the origins and typology of this phenomenon, which allows us to correctly identify it, it’s time to analyze some proactive or reactive measures to it. Here are five strategies useful in channel conflict management, all centered on partner relationships.  

  1. One of the major sources of conflict is ambiguous pricing. Establishing a minimum advertised price is a critical first step in creating a sense of consistency and trust between partners.
  1. While it is tempting to multiply channels and distributors, there is a threshold beyond which the market becomes diluted. It becomes difficult to control all the distribution channels and the supply chain is affected. A smaller distribution, but one able to cover the full potential of the market, offers more control and reduces risk.
  1. An uncontrolled supply chain can lead to unauthorized distributors selling the products. Even if sales increase, there is a good chance that they will not follow the established rules and minimum price policy. Therefore, sourcing should be limited to authorized distributors.
  1. Offering exclusive products on your own ecommerce site is both a way to strengthen your own brand and a very good way to avoid conflicts by selling different products than those from partners and protecting yourself from underpricing.
  1. Communication with partners is another essential element. Clearly presenting your vision and business objectives and providing up-to-date information about your products is key. Decentralizing data to the entire network will benefit everyone. 

A new approach to channel management

For the last 15 years, the traditional commerce scheme has been based on strategies and platforms dedicated to each channel, each trying to address the end-customer in its own distinct and separate way. Today, an open approach is predominant. Each partner must be considered as an inherent part of the strategy with its own value. Additionally, each partner must be able to communicate freely with the brand to address the customer in the most coherent way possible.

New global approaches are emerging, in contrast to the model that consisted until now of intertwining technological layers. In these new approaches, technology plays the role of facilitator and enables the creation of a single buying journey, across multiple channels, that meets the expectations of the shopper, be it an individual in B2C settings or a business in B2B environments. 

Above all, these integrate seamlessly into the ecosystem of each stakeholder in the supply chain (i.e. manufacturer, distributor or brand). Their common denominator is their ability to independently activate the complete management of each sales channel by integrating ecommerce, OMS (Order Management System) and marketplace tools into a single solution. This is how any form of channel conflict can be quickly identified and reconciled.

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