Channel conflict occurs when two or more channel partners are competing against each other for the same business. Channel conflicts can arise when there are multiple sales channels, or when channel partners are selling competing products.
Channel conflict can also occur when one channel partner is selling a product that is similar to another channel partner’s product. Channel conflict can be resolved by managing the channel conflict, or by resolving the underlying sales issue. Channel conflict can also be prevented by carefully choosing channel partners, and by providing them with training and support.
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Channel conflict is a term used to describe any disagreement between different elements of the distribution channel. Channel conflict can occur at multiple levels within the distribution channel, such as vertical level conflict (i.e. between a manufacturer and retailer) or horizontal conflict (i.e. between two retailers at the same level of the channel).
It is an argument, disagreement, dispute, or any other similar issue that may develop among two or more channel partners owing to the decisions and behaviors of one or more of the partners. Channel conflict generally happens in sales and distribution when two or more channel partners are selling the same product or service, or when channel partners are selling products or services that compete with each other.
Multiple channel conflict is often caused by competing interests and can lead to reduced efficiency for all parties involved. To avoid or reduce channel conflict, manufacturers need to stay in communication with all retailers in the distribution chain and be aware of any potential issues that could arise.
What are the Reasons for Conflict?
A company establishes a network of distributors and dealers in order to get the products to the end consumers. However, because this network is operated manually, it will always have friction. This friction comes in the form of channel conflict, which arises due to various reasons. Price differentiation can be one reason and territory encroachment can be another. However, if you look at the overall picture, there are many different reasons for channel conflicts but there are only three different types of such conflicts.
It is important that a company which sells its products through channel marketing, understanding the different types of channel conflicts and thereby take steps to manage channel conflicts. Let us understand the typical distribution channel first.
A typical channel will flow like this
Manufacturer >> C&F >> Distributor >> Retailer >> End consumer
In the above case, the manufacturer is level 1, the C&F or carrying or forwarding agent is level 2, the distributor is level 3, the retailer is level 4 and the end consumer is level 5. Understanding the levels is important to understand which level the channel conflict is arising from or is it on multiple levels. Let us delve deeper into these conflicts.
One of the most common type of channel conflicts to occur are the horizontal ones. Horizontal channel conflict is a conflict between two players at the same level in the distribution channel. So a conflict between 2 distributors or a conflict between 2 retailers is known as horizontal channel conflict.
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There are two stores in a region which are given a territory each. Store 1 is given territory 1. Store 2 is given territory 2. Now the channel conflict occurs, when store 1 services customers from territory 2 or vice versa. This means that the channels are not following rules set by the company and hence it is creating conflict.
There is a difference between competition and horizontal channel conflict. If store 1 and store 2 were both performing optimally so that they can show the best figures to the company and win the prize for the best channel dealer, then they are competitors. However, if they are breaking the company rules and encroaching each others territories, then this is clearly channel conflict. And it has to be managed by the company by setting a rule or a policy.
Such channel conflicts are one of the most common kinds of conflict in channel management. These arise due to human nature. Distributor in territory 1 might be more aggressive and the one in territory 2 might be passive. Thus, encroachment happens and is not controlled till the distributor 2 raises his voice against the injustice. Such Horizontal channel conflicts can happen at various levels in the channel and it is not necessary that it happen at retailer level only or the reason be encroachment only.
Another type of conflict seen in channel management is the Vertical channel conflict. Where the horizontal channel conflict exists between players within the same level of the distribution channel, the vertical channel conflict happens at different levels of the distribution channel. A typical conflict might be between the retailer and the distributor, or it might be between the distributor / C&F and the company.
Lets take the example of an Ice cream company. To motivate its dealers, many ice cream companies provide FREEZERS at discounted price along with the ice cream to their retailers. These freezers are used to keep the ice cream at frozen temperatures. Now, an ice cream company notices that Region 1 is not performing well and it can motivate region 1 by providing the freezer completely free. So it gives freezers for free in the market with ice cream so that ice cream sale rises. It actually does and because retailers are taking the freezer for free, they are stocking more ice cream and selling more ice cream. The company is happy.
However, Region 2 now gets news that this is happening in region 1 and that freezers are being provided for free to all retailers in region 1. The retailers of region 2 immediately revolt and ask for further discounts on freezers or to give the freezers completely free. They don’t understand that sales in region 2 is already high and margins are low for the company. Ultimately, this creates a vertical channel conflict for the company. Now the company has to decide whether it will support region 1 or region 2.
As you can see, handling vertical channel conflicts is far difficult for companies as compared to handling horizontal conflicts. Horizontal conflicts always happen at a lower level then the company. But vertical channel conflicts might involve the manufacturer or the distributors themselves. Hence, managing vertical channel conflicts becomes important for the company.
Another example of vertical channel conflict is a Distributor preferring one retailer over the other. In such a case, retailer 1 might get extra credit, he might get deliveries faster, he might get further discounts, whereas due to whatever reasons, retailer 2 might not get such benefits. It might be due to the distributors relations with Retailer 1 or it might be due to the nature of retailer 2 (haggling, rudeness). But this can be another real live example of vertical channel conflict.
Also Read The 7 Important Steps Retail Planning Process you Should knowBecause of their very nature, vertical channel conflicts happen rarely, but once they happen, they have a long lasting effect. In the recent decade, we have seen some fantastic examples of Multi channel conflicts.
When Small retailers and businessmen were thriving in business, Modern retail came in the picture. Large hypermarkets and malls were started where people could do all their shopping. An altogether different distribution channel was created. Due to their bulk buying power, these hypermarkets were giving huge discounts and making huge sales as well.
As a result, many companies were boycotted by small retailers because they felt left out and they could not cope with the price. This created a huge multiple channel conflict with small retailers standing in unity against the tyranny of large markets. Ultimately, the companies had to come in and settle the dispute by maintaining the price across multiple channels. So they set a standard price of products, whether it was selling in hyper markets or small retail.
Now, the same thing is repeating but the players are three fold – Small business, Modern retail and E-commerce. E-commerce went a step ahead of modern retail and even small businessmen got back at modern retailers by offering even lower prices on online platforms. There was no store to be leased, no rent to be paid, not a dollar to be spent but only material had to be bought and it had to be shipped. The lower the price of buying, the lower the selling price.
In the times of E-commerce, Hypermarkets had leased huge spaces for which they were paying sky high rents. When E-commerce started, hypermarkets dropped a bit in demand and today all of them are fighting each other. It is a constant multiple channel conflict for each company because if there are lower prices anywhere, it immediately gets public and then the other channel starts complaining or demanding lower prices. Furthermore, one channel might complain about the other and vice versa.
Channel conflict is a common issue in business and one that can have a huge impact on both customer and consumer confidence. For example, vertical channel conflict, it’s when a company sells to customers through two or more different channels. Channel conflict can be caused by price competition, limited customer access, brand confusion, different goals, and objectives, or miscommunication between channels.
There are many different causes of channel conflict, but some of the most common include:
Channel conflict can have a number of different consequences, both for the partners involved and for the businesses that they are representing. Some of the most common consequences include:
Channel conflict can lead to reduced sales for the businesses involved. This is because channel conflict can lead to confusion and misunderstanding among partners, which can make it difficult for them to sell products and services.
Channel conflict can also lead to lower profits for the businesses involved. This is because channel conflict can lead to reduced sales and increased costs.
Channel conflict can also lead to reduced market share for the businesses involved. This is because channel conflict can make it difficult for businesses to compete in the market.
Channel conflict can also lead to increased costs for the businesses involved. This is because channel conflict can lead to increased communication and coordination costs, as well as legal costs.
Channel management is key to preventing channel conflicts from arising. Channel conflict can be caused by several factors such as inadequate communication, different objectives between the company and its partners, or a lack of trust and understanding between the two parties.
Channel management to resolve conflicts can be done in many ways, including:
One of the most important things that businesses can do for channel conflict management is to establish clear roles and responsibilities for all of the partners involved. This will help to ensure that everyone is clear about their role in the channel and what they are responsible for.
Another important thing that businesses can do to manage channel conflict is to communicate regularly with all of the partners involved. This will help to ensure that everyone is on the same page and that there is no miscommunication.
Another important thing that businesses can do to manage channel conflict is to be flexible. This means being willing to change the way that things are done to accommodate the needs of the partners involved.
Another important thing that businesses can do to manage channel conflict is to resolve conflicts quickly. This will help to prevent the conflict from escalating and causing more damage.
Channel conflict can sometimes be resolved through mediation, arbitration, or diplomacy. This means that businesses can hire a third party to help resolve the conflict.
Channel conflict can also be managed through dealer councils and trade associations. These groups can provide support and advice to businesses that are dealing with channel conflict.
Channel conflict can also be managed by strengthening your brand. This can be done by offering exclusive products or services that are not available through other channels.
Channel conflict can also be managed by controlling your supply chain. This means that you can control who has access to your products and services and how they are distributed.
Channel conflict can also be managed by using technology to your advantage. This means that you can use online tools to communicate with partners and track their activity.
Also Read A Study on McDonald's Arch Deluxe Burger Brand FailureFor preventing channel conflict, you may try out the following ways
A company ABC has distribution channels in retail, direct sales, and online. The company’s retail channel offers a lower price than the direct sales channel, which leads to customers opting for the cheaper option of buying from the retail channel and causing conflict between the two.
Another example of vertical conflict is when a product is sold on an online marketplace and the manufacturer has an authorized reseller selling the same product at a discounted price. This can cause conflict between the two as it devalues the product and puts pressure on the margins of both parties.
Channel conflict can also arise if a company offers different prices for its products in different countries or regions, leading to customers taking advantage of the cheaper price and causing conflict between the channels.
Channel conflict is bad for business because it creates competition between different channels for sales. This can lead to pricing wars, confusion among customers, and a decrease in brand loyalty. Channel conflict can also erode the relationships between different distributors, suppliers, and retailers, which further diminishes trust and cooperation. Ultimately, channel conflict disrupts the entire supply chain and reduces the overall profitability of a business.
The most commonly cited source of channel conflict is when a supplier or manufacturer sells directly to customers, cutting out the resellers and distributors in the supply chain. This can create an unfair competitive advantage and disrupt the relationships between each link in the chain, leading to a decrease in overall sales. Such a conflict can also be caused by differences in pricing strategies, promotional activities, and customer service practices.
Channel conflict is a common problem that can occur when businesses are trying to sell products or services through a channel. Channel conflict can lead to reduced sales, lower profits, and reduced market share for the businesses
Channel conflict can be a major problem for businesses, but it can be managed if the right steps are taken. By establishing clear roles and responsibilities, communicating regularly, being flexible, and resolving conflicts quickly, businesses can minimize the impact of channel conflict on their operations.
Channel conflict can also be managed by using technology to your advantage, controlling your supply chain, and offering exclusive products.
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Hitesh Bhasin is the CEO of Marketing91 and has over a decade of experience in the marketing field. He is an accomplished author of thousands of insightful articles, including in-depth analyses of brands and companies. Holding an MBA in Marketing, Hitesh manages several offline ventures, where he applies all the concepts of Marketing that he writes about.
