There are different types of channel conflict and each needs to be dealt with differently. It is a complicated task requiring subtlety and sensitivity. Manufacturers would do well to ensure that their channel managers are well versed on this topic to ensure they are familiar with best practices.
Firstly, what is channel conflict? 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 and/or over the Internet. Selling over the Internet while maintaining a physical distribution network is an example of channel conflict.
There are two main types:
- Direct channel conflict – experienced between manufacturer and channel partners based upon their differing goals and objectives.
- Inter-channel conflict – experienced between competing channel partners in the same business segment.
Channel conflict is often exacerbated by manufacturers creating problems in the channel through a lack of foresight and weak channel management training. Some typical examples include:
- Manufacturers not honoring the rules of engagement regarding deal registration programs.
- Manufacturers shifting go-to-market strategy from indirect to direct sales.
- Manufacturer services arm competing against them.
- Lost deals to manufacturers direct sales team.
- Manufacturers violating policies intended to separate sales engagement and territory.
Obviously not all channel conflict if the fault of the manufacturer. There may also be some structural changes with the industry or within the company that have changed the landscape and are inadvertently now leading to conflict. Channel teams might ask themselves some of the following questions if they being to sense an uptick in conflict:
- Has your market recently moved through a “transition” point?
- g., from introduction to growth, from growth to maturity.
- Were any recent changes made to your channel strategy?
- g., adding channel members, adding new types of channels.
- Have requests from the direct sales team or channels for special prices increased significantly?
- Gross margins eroded significantly in any channel segments?
- Any decrease in dollar revenue per direct sales rep or channel?
- Have you experienced significant loss of market share or declines in customer satisfaction in any customer segments?
- Have you experienced a decrease in your number of channels as a result of channels dropping your line?
Failure to adequately address channel conflict can have serious consequences for a company. The impact on customers may delay a purchase to ensure they are getting the ‘best deal’, or even worse customers may regret a purchase that has already been made once they learn of the ‘better deal’.
It may impact on channel partners by leading to a decrease in morale within the channel or even lower employee engagement and mindshare for their employees who represent your product. It could also impact on your company through frustration with channel partners and missed revenue targets.
Once the channel manager or channel team have determined that they have, or are likely to have channel conflict, it is important to put a strategy in place to mitigate the conflict. Effective channel conflict mitigation tactics include:
- Channel account coverage and support
- Who, how?
- End-user segmentation for direct vs. channel
- By named accounts, deal size, products.
- Who to team with in the field, how, and deal type.
- Who gets paid on what deals within your firm
- How to handle non-standard deals
- How to handle multiple partners in a deal
- Under what conditions do you take a deal direct
- How direct vs. channel conflict will be resolved/managed
- Who, how, when?
Mitigating conflict between channel partners, or between direct sales teams and channel partners is a complicated area that is best conducted by setting out joint objectives through partner planning. It is important that channel managers understand the business model and investment criteria of channel partners, and be able to have a business conversation about investment initiatives.
Channel managers must also understand the key issues and business priorities that affect partners’ stakeholders, and have the influencing skills to encourage partners to change and invest as required.
Channel teams should also execute a channel partner lifecycle management strategy to identify, profile, recruit, enable, manage and transition channel partners in their territory. And finally, channel professionals must help partners to identify and resolve their own barriers to success, and enable them to generate higher revenue whilst also reducing their potential for conflict.