Channel conflict
Encyclopedia
Channel conflict occurs when manufacturer
s (brand
s) disintermediate their channel partners
, such as distributor
s, retailer
s, dealer
s, and sales representatives, by selling their products direct to consumer
s through general marketing
methods and/or over the internet
through eCommerce.
Some manufacturers want their brands to capture the power of the internet but do not want to create conflict with their other distribution channels, as these partners are necessary and viable for any manufacturer to maintain and gain success. The Census Bureau of the U.S. Department of Commerce reported that online sales in 2005 grew 24.6 percent over 2004 to reach 86.3 billion dollars
. By comparison, total retail sales in 2005 grew 7.2 percent from 2004. These impressive numbers are attractive to manufacturers, however they have not been able to participate in these sales without harming their channel relationships.
According to Forrester Research
and Gartner
, despite the rapid growth of online commerce, an estimated 90 percent of manufacturers do not sell online and 66 percent identified channel conflict as their single biggest issue hindering online sales efforts.However, results from a survey show that click-and-mortar
businesses have an 80% greater chance of sustaining a business model during a three-year period than those operating just in one of the two channels.
Among others, the reach will be enhanced by creating another selling channel. Nowadays, E-commerce wins in popularity as second distribution channel, because of the low overhead expenses and communication costs. Their advantage is at the same time their disadvantage, since consumers can communicate less expensive and more easily with each other too. Therefore, price and product differentiation is getting tougher than ever.
Channel conflict can also occur when there has been over production. This results in a surplus of products in the market place. Newer versions of products, changes in trends, insolvency of wholesalers and retailers and the distribution of damages goods also affect channel conflict. In this connection, a company's stock clearance
strategy is of importance.
To avoid a channel conflict in a click-and-mortar, it is of great importance that both channels are fully integrated from all points of view. Herewith, possible confusion with customers is excluded and an extra channel can create business advantages.
Manufacturing
Manufacturing is the use of machines, tools and labor to produce goods for use or sale. The term may refer to a range of human activity, from handicraft to high tech, but is most commonly applied to industrial production, in which raw materials are transformed into finished goods on a large scale...
s (brand
Brand
The American Marketing Association defines a brand as a "Name, term, design, symbol, or any other feature that identifies one seller's good or service as distinct from those of other sellers."...
s) disintermediate their channel partners
Distribution (business)
Product distribution is one of the four elements of the marketing mix. An organization or set of organizations involved in the process of making a product or service available for use or consumption by a consumer or business user.The other three parts of the marketing mix are product, pricing,...
, such as distributor
Distributor
A distributor is a device in the ignition system of an internal combustion engine that routes high voltage from the ignition coil to the spark plugs in the correct firing order. The first reliable battery operated ignition was developed by Dayton Engineering Laboratories Co. and introduced in the...
s, retailer
Retailing
Retail consists of the sale of physical goods or merchandise from a fixed location, such as a department store, boutique or kiosk, or by mail, in small or individual lots for direct consumption by the purchaser. Retailing may include subordinated services, such as delivery. Purchasers may be...
s, dealer
Franchising
Franchising is the practice of using another firm's successful business model. The word 'franchise' is of anglo-French derivation - from franc- meaning free, and is used both as a noun and as a verb....
s, and sales representatives, by selling their products direct to consumer
Consumer
Consumer is a broad label for any individuals or households that use goods generated within the economy. The concept of a consumer occurs in different contexts, so that the usage and significance of the term may vary.-Economics and marketing:...
s through general marketing
Marketing
Marketing is the process used to determine what products or services may be of interest to customers, and the strategy to use in sales, communications and business development. It generates the strategy that underlies sales techniques, business communication, and business developments...
methods and/or over the internet
Internet
The Internet is a global system of interconnected computer networks that use the standard Internet protocol suite to serve billions of users worldwide...
through eCommerce.
Some manufacturers want their brands to capture the power of the internet but do not want to create conflict with their other distribution channels, as these partners are necessary and viable for any manufacturer to maintain and gain success. The Census Bureau of the U.S. Department of Commerce reported that online sales in 2005 grew 24.6 percent over 2004 to reach 86.3 billion dollars
United States dollar
The United States dollar , also referred to as the American dollar, is the official currency of the United States of America. It is divided into 100 smaller units called cents or pennies....
. By comparison, total retail sales in 2005 grew 7.2 percent from 2004. These impressive numbers are attractive to manufacturers, however they have not been able to participate in these sales without harming their channel relationships.
According to Forrester Research
Forrester Research
Forrester Research is an independent technology and market research company that provides its clients with advice about technology's impact on business and consumers. Forrester Research has five research centers in the US: Cambridge, Massachusetts; New York, New York; San Francisco, California;...
and Gartner
Gartner
Gartner, Inc. is an information technology research and advisory firm headquartered in Stamford, Connecticut, United States. It was known as GartnerGroup until 2001....
, despite the rapid growth of online commerce, an estimated 90 percent of manufacturers do not sell online and 66 percent identified channel conflict as their single biggest issue hindering online sales efforts.However, results from a survey show that click-and-mortar
Bricks and clicks
Bricks and clicks is a business model by which a company integrates both offline and online presences, sometimes with the third extra flips...
businesses have an 80% greater chance of sustaining a business model during a three-year period than those operating just in one of the two channels.
Among others, the reach will be enhanced by creating another selling channel. Nowadays, E-commerce wins in popularity as second distribution channel, because of the low overhead expenses and communication costs. Their advantage is at the same time their disadvantage, since consumers can communicate less expensive and more easily with each other too. Therefore, price and product differentiation is getting tougher than ever.
Channel conflict can also occur when there has been over production. This results in a surplus of products in the market place. Newer versions of products, changes in trends, insolvency of wholesalers and retailers and the distribution of damages goods also affect channel conflict. In this connection, a company's stock clearance
Stock clearance
Stock clearance is an activity by a company where ownership of products and materials move on to another legal entity. These products and materials in stock clearance will not form the basis of a companies’ key activities...
strategy is of importance.
To avoid a channel conflict in a click-and-mortar, it is of great importance that both channels are fully integrated from all points of view. Herewith, possible confusion with customers is excluded and an extra channel can create business advantages.
Type of channel conflicts
Channel conflict is of three types.- Vertical channel conflicts,
- Horizontal channel conflicts,
- Multilevel channel conflicts.