Multi-channel systems, where brands sell the same product across multiple distribution channels, are becoming more common. Where established brands may once have offered their product through one primary distribution channel, emerging brands increasingly have to diversify across several distribution channels in order to stay relevant in new and evolving markets — this is especially true in the B2C marketplace. Unfortunately, this also means that channel conflict is becoming a more common issue.
Channel conflict occurs when identical products from the same brand are offered through multiple distribution channels. As your business grows, it is important to make plans for managing channel conflict before this problem almost inevitably arises. You should have a plan in place to turn any conflict into a positive for all players.
Three types of conflict are particularly common: vertical channel conflict, horizontal channel conflict, and multi-channel conflict.
Horizontal channel conflict — in the realm of business and marketing — refers to a situation where entities at the same level of the distribution channel, such as competitors or retailers, clash over resources, customers, or market share. This conflict typically occurs when businesses that are supposed to be cooperating within the same channel end up competing with each other instead.
Without getting lost in specifics, it's important to understand that horizontal channel conflict can have significant repercussions on a company's profitability and relationships with its partners. Here's a real-world example of horizontal channel conflict to illustrate this concept more vividly.
Horizontal channel conflict can manifest when two sellers on a platform like Amazon vie for the Buy Box for the same product listing — the coveted Buy Box placement can significantly impact sales. When these sellers engage in undercutting each other's prices or employing aggressive marketing tactics, it creates friction and negatively impacts both their businesses.
Vertical channel conflict, on the other hand, occurs when entities at different levels of the distribution channel, such as manufacturers and retailers or wholesalers, experience discord in their business interactions. This type of conflict often happens as a result of disagreements over pricing, distribution, or marketing strategies and can have a significant impact on the overall efficiency of the supply chain.
To further illustrate the concept of vertical channel conflict, let's explore another real-world example:
Picture that a manufacturer of consumer electronics introduces a new, innovative product. They want to launch it exclusively through one particular retailer — we'll use Best Buy. However, other retailers who have been selling the manufacturer's products for years become disgruntled and feel they are being unfairly excluded from the opportunity to sell this new item. This disagreement can lead to tensions and disputes within the distribution channel.
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Channel conflict can, undoubtedly cause problems for a business. However, it is also possible to mitigate the negative effects by transforming elements of such conflict into a benefit for all stakeholders. This is why having a plan for managing and resolving channel conflict is critical.
It is important to recognize that not all channel conflict is inherently bad. In fact, a lack of any channel conflict could be an indicator that a business does not have sufficient market coverage. For example, a limited number of “border wars,” in which members of the same network compete for sales in the same account, can indicate that a business is reaching sufficient market coverage and approaching the point of over-saturation.
However, when channel conflict does become destructive, there are several possible steps to managing it that will ultimately make all stakeholders better off.
First, when deciding to expand your business, make a realistic assessment of both the risks and the opportunities that may arise from the decision. Then use this assessment to make a plan to pre-empt conflict.
Make sure that you notify your existing distributors of your intention to expand. While it may be tempting to keep the expansion quiet, it will be more beneficial in the long-run to clearly explain your goals to existing distributors. Share with them how the planned expansion will strengthen the brand, therefore benefiting them.
When you share your vision with existing distributors, be ready to accept their feedback and criticism. Existing distributors who are nervous about potential competition may be unhappy about expansion regardless of whether a problem is likely to arise. Develop a plan ahead of time to ease such concerns. For example, making sure to price the product in a fair way across channels and not favoring any particular channel over another will allow all players to compete with one another on a fair playing field and minimize issues.
Additionally, creating joint promotions and marketing campaigns for all channels to use can help develop trust and a sense of partnership across channels, while allowing you to save time and resources on developing multiple campaigns.
Consider assigning distinct territorial boundaries for brand representation to eliminate geographically-based conflict among brick-and-mortar retailers. You may also develop and implement a system across channels to attribute leads to particular entities. This allows the entity that develops a particular lead to close a sale.
Although it is a more expensive option, private labeling for particular channels is one way to safely grow your business. This method is becoming increasingly popular among retailers and distributors. As an alternative to private labeling, you might also consider assigning particular products within your brand to specific channels. This can help to minimize competition.
For B2C businesses specifically, the challenge of channel conflict lies in balancing direct sales, online platforms, and retail partnerships. Here are a few ways you can explore the unique dynamics of B2C channel conflict, as well as some effective conflict resolution strategies.
The rapid growth of eCommerce has accelerated the problem of channel conflict. While eCommerce used to be prohibitively expensive except for the largest brands, it is now possible — and cost-effective — for almost any sized business in the B2C arena to sell products online. However, eCommerce sites are often in competition with brick-and-mortar retailers, leading to channel conflict.
If your B2C eCommerce site is one distribution channel among many, there are also several options to successfully manage and resolve channel conflict. Much like private labeling, exclusive branding can increase the value of your product for potential customers. Products that are custom-designed or personalized, for example, help your customers see your products as unique.
Additionally, bundling and offering products in kits makes a set of products more appealing to customers. This allows you to offer discounts on particular products in combination with others. Finally, product giveaways create value for your customers while driving sales. While this tactic might be viewed as a means of undercutting your retailers, it actually is beneficial to all parties. This is because it makes your product more memorable for customers and generates exposure.
Channel conflict is one of the major pitfalls you are likely to encounter as your business grows and evolves. Developing a plan for managing channel conflict will allow you to minimize the pitfalls and transform potential conflicts into a positive for all players — especially your customers.
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To prevent horizontal channel conflict, establish clear pricing policies and guidelines for promotions. Encourage open communication and cooperation among your retailers. Consistent branding and marketing strategies across all channels can also help minimize conflicts.
Mitigating vertical channel conflict involves setting distinct roles and responsibilities for each channel. Manufacturers can offer exclusive products or promotions to retailers and ensure pricing strategies are transparent and fair. Building strong relationships and providing support to retailers can also help alleviate conflicts.
Yes, technology can play a significant role in managing channel conflict. Tools such as price monitoring software, inventory management systems, and customer relationship management (CRM) platforms can help ensure consistency across channels and provide valuable insights for decision-making.
Communication is crucial in resolving channel conflict. Regularly engaging with your channel partners, understanding their concerns, and working together to find mutually beneficial solutions can prevent and resolve conflicts effectively. Transparency in policies and practices also fosters trust and cooperation.
Balancing DTC sales with retailer relationships requires a strategic approach. Offer unique products or services on your DTC channel that do not directly compete with your retailers. Ensure fair pricing and avoid undercutting retailer prices. Collaborate with your retailers on joint marketing efforts and provide them with support to enhance their sales.
Effectively managing channel conflict can lead to stronger relationships with channel partners, increased sales, improved brand loyalty, and a more cohesive market presence. It also enables a more streamlined and efficient distribution network, ultimately benefiting your business’s bottom line.