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A channel conflict is a type of event in which different functions within a business operation may be perceived as being in direction competition, creating some degree of conflict between each of the areas managing those function. Channel conflicts can be somewhat serious, since the effect can be to hinder each of the functions in some manner, resulting in reducing the productivity of each of the affected areas. Resolution of conflicts between the channel partners is very important if the company is to avoid duplicating efforts, wasting resources, and reach its full potential.
One of the most common examples of channel conflicts has to do with the sale and marketing strategies employed by the company. This is especially true when the business model provides for several different sales efforts, such as a direct sales initiative involving a sales team working specific geographic territories, a telemarketing team, and a team that focuses on the generation of Internet and direct mail efforts. When these efforts function more or less independently, there is some potential for confusion as to which effort actually results in the closing of a deal with a new customer. Only by structuring the overall sales effort so that each team is targeting different sectors of the target customer base can this be avoided and eliminate the potential for channel conflicts and the waste of company resources.
Channel conflicts can also involve the sales efforts of a company and its suppliers or vendors. In this scenario, the company may purchase products from those suppliers for the express purpose of marketing those products to customers who would otherwise buy directly from the supplier. Assuming that the company purchases the products at volume discounts that are considerably lower than the retail price the supplier would offer to smaller customers, this could undercut the market share of the supplier and over time cripple the business to the point that the vendor can no longer afford to remain in business.
A third example of channel conflicts has to do with a company intentionally choosing to bypass its usual channels for selling products, effectively straining the relationship with certain channel partners. For example, a manufacturer may have an agreement with a retailer to sell its products in the retailer’s stores.
By also entering into an agreement with a direct competitor of the retailer, and offering more advantageous pricing, the effort could diminish the income stream produced by the retailer’s sales. In this scenario, there is potential for the retailer to see lower sales on not only the products provided by the company, but also related products that customers would likely also buy, since those customers are now migrating to the competition with the lower price.
In order to keep channel conflicts to a minimum, managing relationships effectively is key. When the conflicts are within the company structure itself, steps must be taken to coordinate efforts so that each area of the operation can function at maximum efficiency without creating distress for other the other area. When the channel conflicts involves vendor partners, making sure to assess the outcome of dealing with multiple retailers for the same product lines, sometimes by agreeing to keep retail prices for all suppliers within a certain range, will help to resolve the conflict and allow each partner to compete on a more or less even footing.