VI. Channel Conflict

Report
A case study, describing growth in the internet as a retail channel in 2002-3, with a detailed account of John Lewis’ (department store) development of its online offering, introduced this topic. Traditional retailers, such as John Lewis, took a long time to join the dot-com’s. Some of the reasons for this included: opting to wait and see and learn from the mistakes of others; waiting to clarify a strategic direction; needing to test and retest before launching so that internet quality matched retail outlet quality; and waiting for the necessary technology to come down in price.

Another reason that manufacturers perceived the internet as a threat instead of an opportunity has been their fear of distribution channel conflicts.

As a background to this, e-tailing is retailing conducted over the internet. While retailing is done in stores via intermediaries, or through catalogues, e-tailing makes it easier for manufacturers to sell directly to customers, cutting out intermediaries. As a result, the catalogue aspect of businesses has been decreasing yearly.

E-tailing has resulted in the phenomenon of multi-channel shoppers who switch between catalogue, store and online channels. Not only does the customer decide on the store, but on the channel. Tri-channel Shoppers are well-informed consumers, and servicing them requires high levels of coordination.

Items that sell well on the internet include brands with high recognition, digitized items (software, music, videos), inexpensive (office supplies, clothes) or frequently purchased items (groceries, prescription drugs), commodities with standard specifications (books, CDs, airline tickets), and packaged items that cannot be opened even in a store (foods, chocolate, vitamins). Items that require complex buying behaviour do not e-tail well.

Businesses that decide to go online can suffer from channel conflict, as catalogues and online offerings within the same business end up competing for the same customer. The channel conflict matrix can help businesses analyze existing conflicts and determine how they should be resolved. If the channels have a high importance and there is a high risk of conflict, it is best to address the problem and find ways to reconcile the channels, such as differentiating them with different offerings. If the channel has a low importance and the risk of conflict is high, it may be best to shift the strategy and allow the threatened channel to decline. If the prospect of conflict is low and the importance of the threatened channels is high, employees need reassurance that they will not be affected. If the prospect of channel conflict is low, and also unimportant, management may choose to ignore the problem in the short run, checking on it periodically.

Reflection
If i had been running a traditional bricks-and-mortar business at the time of dot-com start-ups, i would probably also have bided my time before establishing a presence online. It is obvious now, however, that internet e-tailing is not a passing fad, and that remaining competitive in business depends on being able to include online distribution channels. Given the necessity of this expansion, understanding channel conflict could be crucial to businesses that are trying to incorporate additional new channels of distribution into their existing systems.

E-Commerce 2006 defines channel conflict as “any situation in which the online marketing channel upsets the traditional channels due to real or perceived damage from competition” (p.127). It gives an example of an online department wanting to offer lower prices and have more advertising than an off-line department. While the different markets require different strategies, an action by one department may be at the expense of another.

A 2005 article by Nirmalya Kumar, entitled “Some Tips on Conflict Management,” shares some actual examples of channel conflict (http://www.rediff.com/money/2005/jul/01guest5.htm). In one case, the department store, Dayton Hudson, reduced shelf space on Estée Lauder products, when Estée Lauder set up a website to sell its Clinique and Bobbi Brown brands. In another, Gap decided to stop stocking Levi’s and concentrate on its own Gap brands when Levi’s decided to expand its distribution.

While channel conflict has the potential to be destructive, and fear of it can paralyse a company, Kumar suggests reframing “channel conflict” as “healthy channel competition.” Conflict management, then, is not about eliminating channel conflict, but about managing it so that it does not reach destructive levels. Kumar suggests a number of strategies for channel conflict management, including clear end user segmentation, differentiating products, expanding sales, compensating existing channels, role differentiation, and equitable treatment of channels.

As a final caution, Kumar reflects that a "delicate balance must be maintained between moving too quickly and unleashing destructive channel conflict versus clinging too long to declining distribution networks.” Businesses would do well to heed this advice.