Channel Conflict! Strategies to help you mitigate risk.

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With a keen focus on providing exceptional value to businesses of all sizes, Amazon Business has emerged as a leading B2B E-Commerce destination. Leveraging the infrastructure, expertise, and customer-centric approach that made Amazon a household name, Amazon Business has created a robust ecosystem tailor-made for the unique needs of businesses. As per Statistica, Amazon Business will generate $59.03 billion worth of sales by the year 2025.

Image credit: Statistica

Why am I telling you this? It’s because the innovation driven by Amazon Business has brought significant pressure to traditional manufacturing and distribution companies. Building on top of that pressure, 73% of millennial are involved in key buying decision as per Forrester Research, and they are demanding a B2C like shopping experience to source products for the business as per Wunderman Thompson Report. To learn more about market drivers to embrace B2B E-Commerce, you can read my previous article: Why Buyers love B2B E-Commerce; Brands need to know it.

Manufacturing and distribution companies are in the race to launch their own online stores to directly reach customers. However, this shift can lead to conflict with existing channel partners, such as wholesalers and retailers, who may feel threatened by the manufacturers or distributors’ direct online presence. To navigate this challenge, you need to implement strategies that balance the online initiatives while maintaining healthy relationships with your channel partners.

Understanding channel conflict  

Before diving into strategies, it is essential to understand the nature of channel conflict in manufacturing and distribution companies. Channel conflict arises when multiple channels within the same supply chain compete for the same sets of customers or resources. In the context of launching a B2B or D2C E-Commerce store, you may face conflicts with your existing channel partners who fear the loss of business and losing their own value in the value chain.

The key concerns that channel partners typically have are:

·       Perceived Disintermediation: Existing channel partners may perceive your online store as a direct threat, fearing disintermediation and loss of control over their customer relationships.

·       Price Competition: They fear you may offer products at competitive prices on your online store, which can undercut the prices set by channel partners, causing conflict over pricing strategies.

·       Inventory Management: The launch of your online store may disrupt existing inventory management practices, creating conflicts regarding stock availability and allocation.

Strategies to manage channel conflict

Worrying about channel conflict is not a valid reason to avoid pursuing B2B or D2C E-Commerce business as this can be managed with the right strategies. Channel conflict must be dealt up-front in a collaborative and strategic manner. To mitigate channel conflict when launching your own B2B or D2C E-Commerce store-front, you can implement the following strategies:

1. Aligning your business model with channel partners  

The first step you can take is to have an open dialogue with your existing channel partners. Collaborate with them to understand the value they bring to the value chain and why customers buy from them. Understand what additional support is needed to help grow their business in the digital era. Build joint-business-plan to ensure that you are allocating sufficient inventory and are supporting your channel partner to grow their business.

In addition, you can consider supporting your channel partners with your product’s digital assets (images, videos, how-to manuals, etc.) and copy writings (product title, product description, etc.) to help your channel partners sell more effectively on their own online channel and communicate your brand in a consistent manner.

Furthermore, you can share profits with your channel partners by fulfilling through them or vice-versa where you can provide a drop-ship service to your channel partners to help deliver the products directly to customers to optimise logistics costs.   

Your channel partners should view your online store as a complementary channel rather than a direct competitor and you are responsible to make them see that. By having an open dialogue with your existing channel partners, you can establish mutually beneficial relationships, where your online store supports and enhances the partners' sales efforts.

2. Clearly communicate your pricing approach 

Open and transparent communication is vital for managing channel conflict. You must clearly communicate your intentions, strategies, and expectations regarding the launch of your online store and your pricing strategy.

This is the biggest fear of channel partners as they think you may sell the products cheaper and take away all their customers. You must honour their margins and agree and enforce a Manufacture’s Minimum Advertised Price (MAP), or Manufacturer’s Suggested Retail Price (MSRP). This will ensure that you are not undercutting your channel partners and are doing business with ethics.  

3. Product differentiation and exclusivity

You can differentiate your online store offerings from those of your channel partners by providing exclusive products or services under a new brand name. This strategy ensures that channel partners still have unique selling propositions, reducing the chances of direct competition. In addition, you can consider providing an online channel where you do not have any existing channel partners, or the partners cannot cover those specific geographies.

There are multiple strategies that you can apply to mitigate the risk of channel conflict. And doing it effectively, you will reap several benefits, for example:

·       Expand market reach: By balancing the online store with existing channels, you can tap into new markets while leveraging the strengths of your channel partners. This will result in additional revenue streams and higher market-share.

·       Improve customer experience: A well-managed channel ecosystem ensures a seamless customer experience across all touchpoints. Customers can benefit from the convenience of online shopping while enjoying the expertise and support provided by channel partners.

·       Stronger channel relationships: By addressing channel conflict proactively, you can strengthen your relationships with your channel partners, foster collaboration and mutual growth.

You can explore more benefits of building your own B2B E-Commerce store front in my previous article: Top 5 benefits of B2B E-Commerce and its impact to the business.

In conclusion, manufacturing and distribution companies can embark on the journey of launching their own B2B or D2C E-Commerce store. By proactively managing channel conflicts with the right strategies such as employing collaboration, clear communication, provide differentiation, and incentivising your channel partners, you can successfully manage channel conflict while reaping the benefits of your online initiatives. Balancing the online store with existing channels is essential for long-term success in the evolving digital landscape.

If you need help in strategising your channel strategy, please do reach out to us and we can surely help you come up with the right strategy to manage your channel partners and thrive in B2B or D2C E-Commerce initiatives.

Source:Statistica – Amazon Business Revenue | Forrester Research – Millennial Buyers | Wunderman Thompson Report