Channel conflict is a conflict of interests arising between the channel network which is selling the products to the end customer and the manufacturer. It might also be conflict arising within the channel as well.
Channel management is a form of sales wherein you hire a network of dealers and distributors to get your products across to customers. Many of the top product companies regularly use channel management and a channel network. Start ups and small businesses which are coming up with product ideas, are manufacturing the products, but to get the products to end customers, they need the right channel members in the right place. To understand the different roles that channel members play, read this article.
Channel management involves different levels of channels. Distributor or C&F will be at the top level, dealer below him and retailer at the bottom most levels. Naturally, wherever there is manual involvement, conflict is bound to arise. And channel sales is no different. One of the major skills of an efficient channel manager is conflict management. But before we understand how to manage conflict, we need to know the reasons for channel conflict. What causes channel conflict?
Reasons for Channel Conflict
1) Internal Competition
Let’s face it. In today’s day and age, the number 1 challenge for top manufacturers and the number 1 reason for channel conflict is internal competition. When a brand is made, more and more dealers want to deal in the brand. As a result, there are natural issues which crop up such as price inconsistency, wrong models being sold off, or anything else which is probably not in the policies of the company. All this happens, because the competition is so high within the brands, that dealers do anything to get a margin or to make a sale. This causes channel conflict not only between the dealers and the company, but within the dealers as well.
Example – Bajaj Appliances has it tough to maintain the price of its appliances like Mixer grinders or geysers or any other. One retailer who buys in bulks gives the company decided pricing to the customer. However, another retailer in the same region buys in bulk but gives pricing below the company decided price just to liquidate the material faster. He wants to become famous by telling people that he sells branded goods at lower prices. Thus, due to this internal competition, the first retailer might threaten to close selling of Bajaj brand. Managing this internal competition becomes difficult for most established companies.
How to control this channel conflict – Keep very clear control of dealers. Keep a track of their sale prices and whenever you make changes in price, take feedback from dealers with regards to prices floating in the market.
2) Strategic differences
Many a times, a start up might launch a product, thinking that they are a premium brand. A dealer or a distributor might think differently and might sell off the product at a lower price. The dealer does not agree with the company and does not think that the product is premium. A vice versa scenario is also pretty likely. In this case, the company might ask the dealer to penetrate the market and liquidate the inventory. But the dealer, looking at the extra features, might not look at the long term and strategic decisions of the company, and might stick to higher pricing, thereby causing loss of sale and losing the sale to competition.
Differences in goals or strategy can cause a misalignment between the objectives of the dealer and the objectives of the company. As a result, this causes a channel conflict with the company trying to achieve different objectives and the dealer trying to implement different goals.
Example – We have seen in real estate where developers have overpriced their properties only to see consumers returning back without finalising the sale. The developer ultimately realises that their agents and dealers were right all along. They couldn’t make a sale because the price was exorbitant and hence the developer drops the price. Alternatively, many a time it also happens, that a developer keeps the price high and real estate agents think that the product wont move. But instead, the building gets sold out.
How to control this channel conflict – The key to this, or several other conflicts, is communication. Communicating your long term strategic plan to the dealer can help the dealer understand your motives. At the same time, you will also get market feedback from the dealer and understand why the dealer thinks differently for your product.
3) Operational conflicts
There are many reasons that operational conflicts can arise between a distribution channel and the manufacturing company. Accountancy of the manufacturing company might be improper, causing mismanagement and time wastage on the side of the dealer. Alternatively, the companies service levels might not be upto mark, thereby increasing the pressure on the sales channel because the customer will obviously contact the sales channel in case of defects. Many times, if the operational conflicts are not controlled, the dealer might become irritated and frustrated and leave selling the brand altogether. Start ups and small businesses especially need to take care of operational difficulties being faced by their channel dealers. The smoother the operation, the better will be overall sales figure.
How to control operational channel conflict – Continously looking at operational issues and ensuring that they don’t arise again is a key for the firm to move forward. At the same time, patience is important and communicating the progress to the channel dealer is equally important. The objective of the company should be to make the operations as automatic as possible and minimize manual intervention.
4) Conflicting Role of channel members
As explained in one of my articles, there are many different roles and functions of channel members. However, conflict can occur if these roles get overlapped or there is confusion of which channel member is managing what. Many a times, a corporate channel dealer might be different then a consumer channel dealer. But dealers being dealers, they want all the customers under the sun and dealers are supposed to be aggressive in nature. So when you assign a fixed role to a dealer or a fixed territory to a dealer, it is quite likely that another dealer will invade in his territory or might even take his role lightly. At such times, the role of channel members has to be reinforced by the channel manager.
Example – If a person managing HUL dealership in one territory is unable to achieve his targets, it is likely he will try to sell a bulk material in the territory next to him. Naturally, the dealer next door will be pissed off if he comes to know about it. This causes channel conflict as the dealer directly approaches the company and expects the company to take action.
How to control this conflict – Strict measures and policies should be in place beforehand for territory impeachment or breaking of rules. However, truth be told, this is happening all across the world, and mostly a manager acts when things get out of hands. Dealers are businessmen and they are mature enough to let go if it is a small amount. However, once such things start happening regularly, the sales manager has to step in and stop it. Else he will lose the channel member who was performing correctly as per company rules.
5) Conflict due to change
Another factor which is always constant is change. A company launched a new model which the dealers did not like but they are forced to sell it. Or the company took off a favourite model of consumers, because the model was cannibalizing all others and the dealers did not like it because they were earning good margins on the sale of that product. Whatever changes a company might make, be rest assured that some channel members might like it whereas others might oppose it. But change is constant and hence such conflicts keep arising and companies have to deal with them as smoothly as they can.
Example – When the trend of modern retail started, many sales and service dealers and small retailers were worried with the change. They began haggling and negotiating aggressively with the companies. Ultimately, it all settled down after a couple of years. However, today is the age of E-commerce and now the Modern retail guys are fighting with companies for price. Because E-commerce is beating them easily and delivering products to end customers. This is change of business environment at its best.
How to control this conflict – The only way to control this conflict is to apply the fundas of change management to the book. Change things slowly. And those who are being left out have to change and upgrade themselves too. There is no alternative to it.
6) Conflict due to dependency
There are companies which exist solely as an OEM or in the form of exclusive dealers. These companies manufacture products only for one company and their livelihood depends on the purchases by that company. Example – Maruti / Volkswagen or any other such top automobile or large companies have exclusive vendors which supply materials to them. Now, if these firms take any action or want any change from these exclusive dealers, there is high potential for conflict.
A company like Volkswagen might have multiple businesses providing products only to Volkswagen and not to anyone else. If Volkswagen were to change the pricing or the credit policy for all its OEM’s together, then it will create a conflict for these vendors and therefore it might be an issue for Volkswagen as well. This is another common reason for channel conflict.
How to control this conflict – The best way to control this conflict is to beforehand take consultancy from your exclusive dealers and also to communicate them the reason for your changes. You never know the feedback you will receive and the insights which these exclusive dealers might have. They might be able to redo the process and give better result at lower prices or might be able to give better engineered products at slightly higher prices. So two way communication is always necessary to avoid dependency channel conflict.
Overall, Above are the 6 reasons for channel conflict which are observed across most companies dealing in channel sales or channel management. The takeaway from this is that = “The lesser the channel conflict, the more the productive work done”. Hence, a company should always be striving to keep channel conflict at a minimum and it should take care of its dealers just like it takes care of customers. After all, your channel dealers are internal customers too.
Have you faced channel conflict in your organization? What is your experience with such conflict?