Channel conflict

Keywords channel conflict, competition, coordination, retail sales, direct sales, catalog... 

In general, this type of channel conflict can undermine attempts to develop cooperative relations in the intermediated channel, possibly to the ultimate detriment of all involved parties. 

To effectively assess the costs and benefits of multi-channel distribution, manufacturers and intermediaries alike must understand the cross-channel tensions that can arise. The desire to use multiple channel types may ultimately compel a manufacturer to redefine its relationship with its intermediaries, with careful attention to the division of labor and any associated financial terms. Indeed, the management of channel conflict is a key B2B concern that will profoundly influence supply chain success in the age of eBusiness. 

Two distinctions are central to understanding popular usage of the term channel conflict. One is between actual harm and the perception of harm. Another is between effects on intermediate outcomes (e.g., sales volume or revenue) and on bottom-line objectives (e.g., profit). A strictly rational firm should care only about real impacts to its main objective (although conflict can still arise when individual employees do not share the firm s immediate goal, perhaps a consequence of the internal performance measurement and reward mechanisms). From that perspective, incumbent channels should not automatically be alarmed when additional channels are introduced. Consider that under certain circumstances one channel s efforts can drive traffic to another channel, especially when conducted with such an intent (Bucklin et al. 1997, McIntyre 1997, Schmid 1999). And losing sales need not hurt overall prof-... 

Marketing and economics researchers have conducted a substantial amount of empirical research that focuses on a variety of aspects of channel design and management, and on channel conflict and coordination in particular. Frazier (1999) and Balasubramanian and Peterson (2000) offer multidisciplinary reviews. 

The authors find that at equilibrium the manufacturer will price in the direct channel so as to drive all customers to the retail channel. In this case, the direct channel exists not to sell product, but as a mechanism for controlling the independent retailer s price. At the same time, there always exist circumstances under which the retailer and the manufacturer are both made better off as a result. This is possible because a reduction in the wholesale price accompanies the use of a direct channel. Hence, multi-channel approaches need not suffer from channel conflict. 

Ahn et aL (2002) consider competition between independent retailers and manufacturer-owned stores, where the parties compete in selling price and the manufacturer stores are in remote locations (which is common for discount factory outlets). The design of this distribution approach reflects intent to mitigate retailer concerns about channel conflict. (Retail stores tend to be in larger metropolitan locations while discount outlets are typically placed 60-80 miles away, where the real estate may also be cheaper.)... 

One development is that many bricks-and-mortar retailers are adding their own online channels (Tessler 2000). So a manufacturer that chooses to distribute only through, say, Walmart may yet obtain an Internet sales presence (albeit still an intermediated one) through Walmart.com. Here any channel conflict would be between Walmart s stores and online divisions. More generally, a modem manufacturer may simultaneously manage a variety of its own channels (e.g., online and company stores), sell through independent bricks-and-mortar retailers that also have online channels (e.g., Walmart, Macy s, Costco, etc.), and also sell through independent online retailers (e.g., Amazon.com). 

The dissolution of traditional divisions of labor raises new questions for managers and researchers. Which party should perform each channel function How should the individual parties be compensated for their roles (cf Frazier 1999) A poorly designed strategy could suffer from even more channel conflict than its predecessor. 

Channel power structure. To fall within the scope of this review, a model must represent the perspectives of multiple independent decision makers. The selection of the distribution strategy obviously depends on which party is making the decision, which is a statement of relative power. Indeed, this will determine how channel conflict will be ultimately resolved. Assumptions about the relative power of the parties are also embedded in the decision structure of the model. 

In marketing and other related disciplines, the term channel conflict has long been used to describe any tensions within or across channels (cf Stem et al. 1996). Our usage is more specific than this. 

This restriction to two levels does rule out some plausible multi-channel scenarios. For example, the manufacturer may start selling through wholesalers who in turn sell to existing retailers, thereby creating a new channel with three echelons (manufacturer-wholesaler-retailer) instead of only two (manufacturer-retailer). In the analytical literature we have reviewed, this option has been considered only in cases in which the entire network was under the full control of the manufacturer, thereby preventing any channel conflict (cf Cohen era/. 1995). 

Bucklin, C.B., PA. Thomas-Graham, and E.A. Webster, Channel Conflict When Is It Dangerous , The McKinsey Quarterly, June 22 (1997), 36. 

Machlis, S., Channel Conflicts Stall Web Sales, Computerworld, February 16 (1998(a)), 2. 

Tsay, A. A. and N. Agrawal, Manufacturer And Reseller Perspectives On Channel Conflict And Coordination In Multiple-Channel Distribution, Working Paper, Santa Clara University, 2001. 

In another chapter of this book, Tsay and Agrawal discuss in detail much of the research that addresses channel conflict in multi-channel distribution systems. The pricing conclusions of this stream of research will be summarized here the reader is encouraged to consult chapter 13 for a more detailed coverage of this subject. 

McIntyre, K. and E. Perlman. 2000. Nike - channel conflict. Stanford GSB Case. EC-9B. 

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