While occasional channel conflict is good, constant conflict is not.
Managing channel conflict is critical to building and sustaining a healthy multi-channel sales organisation. While occasional conflict is unavoidable, too much of it could be a sign that you’ve saturated the market. The situation can get nasty fast.
If left unmanaged, channel conflict will hurt the customer experience, erode profit margins and cause your channel partners to disengage.
Here’s a simple example:
A manufacturer of hair care products had previously only sold their merchandise through a network of retail shops; until the day they launched an online retail store and offered discounts to direct consumers.
Customers who previously bought from the retail stores started buying directly from the brand’s e-commerce store. Which, in fairly short order, eroded the retail customer base. While customers were thrilled to ‘cut out the middleman’. The wholesalers, dealers, sales representatives and retailers were not. And you can understand why.
Where conflict lurks
It’s easier to avoid conflict altogether than to fix it, so it’s useful to consider the different ways it can manifest.
Channel conflict can be classified into four categories, depending on the flow and the parties involved.
- Vertical level conflict: This occurs when a channel partner from higher up the value chain enters into a dispute with a channel partner from a lower level. For example, a conflict between wholesalers and retailers. This is often the most common form of conflict experienced.
- Horizontal level conflict: This occurs when conflict occurs between channel partners within the same level. For example, pricing issues between retailers in different territories.
- Inter-type channel conflict: This occurs when there are mix-ups within merchandising. For example, when retailers are deliberately adding a new product line to challenge the smaller, more concentrated retailers.
- Multi-channel level conflict: This occurs when a manufacturer uses multiple channels for selling products and one of the channels encounters issues with one of the others.
Multiple business owners selling the same product often face the dangers of pricing wars. This usually looks like one channel undercutting the price hoping to make it up in additional sales, causing other channels to push their pricing down.
This can lead to confused customers, sales stagnation and loss of value in your product.
The team at The Good says this; ‘every decision should begin with a concern for the customer.’ Because when your customers are happy, your sales increase, creating a streamlined channel.
There is also the risk of ruining relationships with your channel partners, reducing morale along the way.
Unfortunately, when a partner experiences too much conflict or gets badly burnt from ‘deal stealing’, they will likely start to lose motivation to put effort into other deals. Why should they work hard for a deal when another company selling the same products will come and undercut them?
Which is why channel conflict should be avoided.
5 Ways you can avoid channel conflict
Here are five ways to adjust your sales strategies to avoid potential channel conflict.
- Change your pricing structure.
It might be tempting to give partners more leeway in pricing, but too much freedom can create problems, particularly if multiple partners are serving the same market.
If you’re worried about your sales reps undercutting your channel partners, consider a pricing structure that includes channel-specific discounts and a fixed price for direct sales.
Change your compensation
Consider compensating your internal sales reps in a way that their commissions aren’t affected should a sale go through the channel or direct. Additionally, you could offer them additional incentives for sales.
Establish assigned territories
A significant cause of channel conflict is when there are too many partners serving too few customers. This can happen when a vendor has poor geographic or demographic targeting when signing up sales partners.
You can avoid this by making geographical or vertical territories exclusive to particular sellers.
- A robust communication strategy
Communication is the foundation of good relationships with your partners. By being transparent about goals and targets, you’ll avoid confusion around performance expectations.
Channel partners should have access to updated marketing strategies and materials at all times. This includes training, which can help improve the overall understanding of your products and services, and can help avoid familiar sources of conflict.
Training and equipping your partners with the proper tools will increase their confidence and their performance.
- A well-defined deal registration process
Your deal registration process, and its rules, is where your partner relationships solidify. Having all partners use the same platform / system can help make it clear who originated a lead and avoid another common source of sales channel conflict. The best deal registration process is fair, transparent and offers incentives for participation.
Focus on relationships
The best way to reduce the possibility of channel conflict is to build strong relationships based on trust, transparency and respect for your brand and customers.
Creating long-term, profitable channel relationships is an on-going process. A channel incentive program can provide a good foundation for the productive communication and positive reinforcement you need to strengthen your network and build harmonious, productive relationships.
Get in touch to find out how a channel incentive program can improve your channel partner relationships and your business.