IF View - Issue NV-2

MARKETING CHANNEL CONFLICT

Marketing Channel Strategy Consultants
USA - EUROPE - AUSTRALIA - BRAZIL - HONG KONG

con•flict  
vi.
1 orig., to fight; battle; contend
2 to be antagonistic, incompatible, or contradictory; be in opposition; clash

Definition:

Marketing channel conflict can take the following forms:

  • Multi-channel conflict - occurs when two or more different marketing channels destructively compete against each other when selling to the same market;

  • Horizontal channel conflict - occurs when two or more partners of the same marketing channel destructively compete against each other.

Causes:

Channel conflict is an extremely difficult and potentially destructive marketing channel strategy and management issue.

Causes of channel conflict include:

  • Structural factors - badly designed channel structure and alignment to customer segments. The use of multiple channels (direct and indirect) and the inclusion of new or emerging channels without appropriate planning,

  • Resource scarcity - too many channels (or channel partners) compete for too few customers,

  • Goal incompatibility - the channel principal and channel partners have incompatible or misaligned goals,

  • Poorly defined roles and responsibilities - the channel principal and channel partners' roles and responsibilities are unclear or not matched to their capabilities.

  • Communications difficulties -goal incompatibility, perceptual differences and role incongruities may be caused by communications problems,

  • Poor channel management - unstructured channel management processes, such as partner recruitment, pricing structures, incentive systems and promotional strategies can all lead to channel conflict,

  • Weak channel performance assessment - channel principals fail to drive the desired channel-behaviour through clearly defined performance targets and roles. Enforcement of performance standards is weak.

What are the consequences?

Destructive channel conflict can have serious consequences on channel efficiency, channel effectiveness and channel partners' and principals' profits. Such consequences lead to significant channel partner churn and low partner loyalty to principals.

These consequences will lead to a negative impact on customers' purchasing behaviours.

However, some channel conflict is desirable, provided it is well managed. A lack of horizontal channel conflict indicates weak market coverage. Well managed channel conflict is better defined as channel competition and is not destructive.


How to manage channel conflict:

Some channel conflict is the result of emerging new channels such as the Internet. While excessive channel conflict can cause destructive behaviour, the solution is not in simply eliminating all channel conflict, but includes:
  • optimizing market coverage, and
  • managing conflict constructively
It is necessary to determine whether the decline in channel performance is:
  • a result of conflict with other channels,
  • destructive to overall profitability
In these circumstances, strategies to manage channel conflict include:
 
  1. Designing the channel structure to reflect the products/services being sold, customers' needs, locations, customers' buying behaviours and the profitability of each transaction;

  2. Establishing mutually agreeable and aligned business goals with the channel partners;

  3. Effective communications - Take every opportunity to communicate with channel partners, eg include channel partners in business planning events;

  4. Segment customers and align channels according to their ability to meet specific customer segment needs;

  5. Encourage specialisation among channel partners, and create customer segment specific campaigns and align these with specific channels;

  6. Clearly define channel roles and responsibilities, and use pricing solutions, rebates and incentives to encourage desired performance;

  7. Develop specific channel products or offers which are not available to all channels;

  8. Check behavioural performance through role audits, and regularly monitor channels for early warning signs of damaging behaviour;

  9. Ensure that partner agreements are clear and exercise your rights when necessary.

Summary:

Channel conflict can have many causes and result in profit erosion. However, not all channel conflict is unhealthy and can be incorrectly confused with channel competition.

Some channel conflict is a consequence of optimising market reach and market penetration.

To manage channel conflict, it is necessary to assess whether such conflict is leading to a fall in channel, channel partner or principal profitability.

There are many proven strategies to deal with channel conflict based on an evaluation of the root causes rather than the symptoms.

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