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Concept
Channel conflict
Summary
Channel conflict occurs when manufacturers (brands) disintermediate their channel partners, such as distributors, retailers, dealers, and sales representatives, by selling their products directly to consumers through general marketing methods and/or over the Internet.
Some manufacturers want to capture online markets for their brands but do not want to create conflicts with their other distribution channels. 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. By comparison, total retail sales in 2005 grew 7.2 percent from 2004. These numbers made the online marketplace attractive to manufacturers but raised the question of how to participate without harming existing channel relationships.
According to Forrester Research and Gartner from 2007, despite the rapid growth of online commerce, an estimated 90 percent of manufacturers did not sell their products online. Of these, 66 percent identified channel conflict as their single biggest issue. 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.
E-commerce is the most popular second distribution channel because of its low overhead expenses and communication costs. This advantage is also a disadvantage, since consumers can also communicate less expensively and more easily with one another in the online marketplace. Therefore, price and product differentiation are more challenging in online markets.
Channel conflict can also occur when there has been overproduction. This results in a surplus of products. Newer versions of products, changes in trends, insolvency of wholesalers and retailers, and the distribution of damaged goods also affect channel conflict. In this connection, a company's stock clearance strategy is important.
To avoid a channel conflict in a click-and-mortar business, it is necessary to ensure that both traditional and online channels are fully integrated.
Official source
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