Channel ConflictBrent DriverZach Evans

Executive Summary

• What is Channel Conflict?• Origins of Channel Conflict• Identifying Channel Conflict• Case Studies• Class Activity• Channel Cooperation• Channel Competition• Minimizing Channel Conflict• Conclusions & Questions

Channel Conflict Is...

A Refresher from Chapter 11• Channel Conflict defined:

When a channel member’s perceptions of roles, responsibilities, and

accomplishments are not consistent with the perceptions of these facets of behavior by other

channel members.

What Causes Channel Conflict?• Market Evolution

– Increase market share– Reduce costs

• E-Commerce Strategies– B2B opportunities– Direct Selling

Internet & Channel Conflict• How does the Internet affect

channel conflict potential?– Manufacturing– Service

• Customer Access• Delivery Economics & Logistics

Motivations for Direct Selling1. Resellers carry limited

selection2. Higher margin potential3. Take power from resellers4. Broader selection, better

ambiance, higher service5. More flexibility with product

attributes6. Closer contact with customers7. Protection from reseller crises

The Power Struggle

• Perception of Power = Power• Manufacturer• Wholesaler/Distributor• Retailer• CONSUMER!

Consumer Power

• 24 x 7 x 365• Prices are Transparent• High Degree of Personalization• No Physical Storefronts• Technology• ‘Mass Customization’

Top 10 Signs Your Company is Experiencing Excessive Channel Conflict

Top 10…

10. Your top sales guy is now emptying your garbage can

9. Your top distributor sends you an e-mail that says: “Thanks for the referral…Jerk!”

8. In your last staff meeting, your presentation was titled “Boosting Profit Margins with Little Regard to Anyone Else’s Feelings”

7. You just recruited a new V.P. of Customer Discord

6. Everyone is dropping their middle initial from their business cards

Top 10…

5. The President of one of your former wholesalers is sleeping on your couch

4. Wal-Mart is proudly featuring your product line…in their parking lot

3. You just fired half the marketing staff to boost your e-commerce budget

2. You recently hosted a golf tournament for your resellers, and your final round score of 108 was good enough to win

1. The two words you heard at the last board meeting: “You’re Fired!”

Identifying Channel Conflict• Departure of Sales Staff and

Business Partners• Customer Become Aware of

the Conflict• Gibson Guitar

Hewlett-Packard

• Market-Share Shift• Strong Brand Presence• Web Site: www.hp.com• Channel Partner Assistance• Electronic Storefronts• Referral Option• Governing Board for Channel

Projects• Still Cannot Please Everyone

Ingram Entertainment

• Nation’s largest distributor of home entertainment products

• In 2000, launched AccessIngram.com

• Should we sell direct to consumers?

To Compete or NOT to Compete Game

Game Rules

• Host(s) will read out-loud a series of companies and/or brands

• Contestants will vote individually on whether or not these companies and/or brands compete with retailers by selling direct online

• Contestant(s) with the most correct votes will be declared a winner

• If there is a tie, host(s) will randomly pick a winner—their decision is final

Levi Strauss & Co.

• Late 1990s: fashions were changing– Resurgence in interest in khakis– Due to continuing boom of ‘business

casual’

• Company launched full-service e-commerce sites for Levi and Dockers brands in November 1998– #1 request coming in from consumers

on Dockers.com?– Desire for direct-to-consumer sales

Levi Strauss & Co.

• Within a few months, executives declared their exclusive rights to sell Levis and Dockers online

• Enraged large customers of company that were investing in e-commerce initiatives

• By June 1999, company ceases all online advertising– Claimed that typical order of $56-$120

not high enough to pay for online ads– Shifted dollars into traditional

advertising

Levi Strauss & Co.

• November 1999 – one year after launching e-commerce web sites

• Company announced it would stop selling brands online

• The reason: costs of running sites were ‘unaffordable’ given their ‘competing priorities’

• Observers believe the decision was motivated by channel conflict

EJ Footwear

• Launched B2B sites with e-commerce capabilities in mid-2000

• Launched B2C information-only sites in mid-2000

• Launched first e-commerce enabled web site in mid-2000

Traditional Distribution

Manufacturer

Wholesaler Retailer Consumer

$100$50$25$12

We keep: $50 - $25 = $25

Retailer keeps: $100 - $50 = $50

Direct Distribution

Manufacturer

Wholesaler Consumer

$100$25$12

We keep: $100 - $25 = $75

B2C Website

EJ Footwear Challenges

• Channel conflict• Sales growth and return on

investment• Top management buy-in• Corporate culture• Industry trends• Ongoing development

EJ Footwear

• Began selling direct on GeorgiaBoot.com, DurangoBoot.com, & LehighSafetyShoes.com in early 2001

• Launched DickiesFootwear.com with e-commerce capabilities in early 2003

• Plans to launch HummerFootwear.com and JohnDeereFootwear.com with e-commerce capabilities in late 2003 and mid 2004, respectively

EJ Footwear

• Ceased B2C direct sales on DurangoBoot.com in February 2003– We had been an industry pioneer– Large wholesale accounts began

complaining– Lack-of-understanding by sales

force led to sense that ‘only the corporate office wanted this’

– Decision was made to take a wait-and-see approach

EJ Footwear

• Continued development of private catalogs for Lehigh accounts

• Launch of co-branded web site for largest Georgia Boot customer

• Re-launch of improved B2B tools• Continued development of B2C

tools and applications• Continued development of

Internet related distribution partnerships

Channel CooperationRelationship Form

Customers Intangibles Financial Implications

Manufacturer Support

•Retailer owns the customer

•Manufacturer provides support & collateral•Retailer provides assortment & service; promotes the brand

•Retailer keeps the margin and reduces costs with manufacturer merchandising & marketing help

Collaboration •Manufacturer & retailer share aggregate customer data

•Manufacturer & retailer work together on merchandising & marketing plans

•Manufacturer & retailer share performance-based revenue

Seamlessness

•Manufacturer & retailer jointly manage & market to customers

•Manufacturer & retailer build one brand experience through new brand or partnership

•Manufacturer & retailer split revenues

Channel Competition

Minimizing Channel Conflict1. No prices on web site2. Divert fulfillment of orders to retailers3. Promotion partners online4. Encouraging partners to advertise online5. Offer subset of products online6. Unique brand name online7. Offer products early in lifecycle online8. Effectively communicate overall

distribution strategy9. Effectively coordinate distribution

strategy10. Make use of over-reaching goals

Conclusions

• Consumers readily move between distribution channels even if manufacturers and retailers are hesitant to cross borders

• Both parties must:– Satisfy mutual needs– Reduce redundancy– Share costs

Questions?