Channel conflict refers to a situation in which business patterns clash in some of their operations, such as distribution networks, in such a manner that it causes stress to the relationship effectively turning them into both competitors and partners simultaneously. In the internet –driven business world, channel conflict is a well-known phenomenon. As the online medium has forced separate players closer together, it has rustled in many of them stepping on each other’s toes.
Also called disintermediation, channel conflict is a problem that many in the e-commerce world aggressively took on as a consequence of devising an online strategy. In the process, the chain of business relationships become scrambled and confusing. Drastically lower transaction costs and higher margins for merchants make internet based direct customer sales irresistible. While companies fret over alienating their resellers, they risk losing valuable time and market share to aggressive competitors that move to become online distribution fixtures. These simple economics lay at the heart of channel conflict forester research, a Cambridge, Massachusetts based market research firm, found that 66 percent of the consumer goods manufactures it surveyed listed channel conflict as the chief barrier to online sales.
However, the fact of channel conflict appears to be inevitable as more companies set up shop online. Companies set up shop online. Companies have thus begun turning to strategies that will enable them to manage channel conflict and eventually turn it into an advantage. Along with the advent of e-commerce, many merchants moved their distribution outlets online to reach customers directly and save on transaction costs. This caused powerful distributor networks, which often enjoyed extremely valuable relationship with the merchants, to take offense at the abandonment of their businesses. For example, manufacturers who have established brand name recognition and loyalty may want to reap greater returns on their sales by bypassing retailers, with whom they may have built lasting relationships that contribute greatly to both parties success, meanwhile, distributors –perhaps the most endangered victims of disintermediation – are increasingly challenged to prove they add immediate value and justify their margins.
According to information week; one method was for distributors to forego the assumption of ownership over inventory and instead charge manufactures a transaction fee. While assuming order –management and other value added duties. Meanwhile, a whole new crop of distributors rose up to encroach on the e-commerce distribution channels marketing themselves as e-commerce services that handle logistics and other tasks specially for dot-coms.
In old-fashioned, linear distribution networks, channel conflict would arise when manufacturers and distributors established sales and distribution channels to the same group of customers. The proliferation of the internet greatly exacerbated this problem, as individual companies sought to derive greater value from their sales by going directly to customers. By the end of the 20th century, however, channel conflict included all the areas of tension in which partners in one area using the same channels of operation. While partnerships in the early stages of business are goods, particularly for companies trying to turn themselves into e-merchants eventually the collaboration can give rise to channel conflict, as each partner pulls in the direction it finds most relevant and attempts to play those channels to its strengths. What makes channel conflict in e-commerce so potentially devastating is that the internet allows for extremely comprehensive, often seamless cooperation between partners.
Thus, the roots of channel conflict run that much deeper. More important than what the firm values in these. Case is what the customer values in each segment of business. If customers have come to appreciate, expect, and depend upon a certain type of services and presentation they received through an experienced retailer, a manufacturer may be shooting itself in the foot by trying to sell direct to customers over the web. No matter how important the drive to establish an online presence and an internet based distribution scheme, the ultimate goal is to turn channel conflict into channel harmony.
Channel harmony creates a synergy out of the conflict. For example, an online store might seek to take advantages of the fact that it has a physical store front, and vice versa, separate manufactures and retailers are learning to create symbiotic relationships that include the web as a distribution channel. The trick is to establish creative frameworks in which both manufactures and retailers can keep a hand in and enhance the overall efficiency and profitability of the process. This distribution channels are moving away from traditional linear models and toward more collaborative agreements. Channel harmony refers to the complementary environment in which a customers use of one channel has a ripple effect throughout the organization or partnership.
Channel conflict occurs when manufactures (brands) disintermediation their channel partners, such as distributors retailers, dealers, and sales representatives, by selling their product direct to consumers through general marketing methods and/or over the internet through e-commerce.
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 typically necessary for a manufacturer to gain and maintain 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 haring their channel relationship.
According to forester researcher and Garther, 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 (citation needed). However, results from a survey show that chick- 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 win in popularity as second distribution channels because of the low overhead expenses and communication costs. Their advantage is at the same time their disadvantage 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 over.
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 wholesales and retailers and the distribution of damages goods also effect 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.
Manufacturers today sell their products through a huge array of channels, from supermarkets. To the internet and everywhere in between since most manufactures sell through several channels simultaneously, channels sometimes find themselves competing to reach the same set of customers. When this happens, channel conflict is virtually guaranteed. Such conflict almost invariable finds its way back to the manufacturer. This can also betermed as situation when a producer or supplier by passes the normal channel of distribution and sells directly to the end user. Selling over the internet while maintaining a physical distribution network is an example of channel conflict.
Conflict comes in many forms some are mildmerely the necessary friction of a competitive business environment. Some are actually positive for the manufacturer, forcing out-of-date or uneconomic players to adapt or decline. But some are truly risky, capable of undermining the economics of even the best products. Dangerous conflict generally occurs when one channel targets customer segments already served by an existing channel. This leads to such a deterioration of channel economics that the threatened channel either retaliates against the manufacturer or simply stops selling its product. In either case, the manufacturer suffer. This is also known as disintermediation which is finance: elimination of financial intermediaries (banks, brokers) between the suppliers of funds (savers/investors). Disintermediation occurs when inflation rates are high but bank depositor can get better returns by investing in mutual funds or in securities. Internet: elimination (by the online sources) of the traditional middleman the intermediary between the seller and the buyer (such as an agent, broker, or reseller) or between the source and the recipient of information (such as an agency, official, or gate keeper)
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