Channel Conflict – What it is and how to mitigate against its impact

The disruption brought by Covid-19 to many industries worldwide has been both significant and unique. The impact of both local and regional lockdowns has dramatically affected business travel with knock-on effects for personal relationships. This has wider implications for companies that sell through channel relationships. As channel sales relationships weaken due to changed personal relationships, so opportunities exist for new channel relationships to emerge.

For manufacturers these changes in how buyers buy, and through which channels buy, can lead to conflict both between the manufacturer and its channel partners, as well as between channel partners themselves. Similarly, the dramatic increase in sales through the internet through this era of Covid-19 represents a significant structural change to many industries, with online direct sales from manufacturers becoming an even more important channel of sales and distribution.

When buyers circumvent traditional dealer channels, there emerges the potential for channel conflict.  When this happens, especially where an industry is undergoing structural change (such as under the impact of Covid-19), it is important for manufacturers to remember that completely eliminating all channel conflict may not be realistic. More importantly, it is most likely not in the strategic interests of the manufacturer. A certain level of channel conflict is necessary for an organization to reach its strategic goals.

A “manageable” level of channel conflict indicates that the channel ecosystem built by the manufacturer is in fact healthy. It demonstrates that the manufacturer has strong market coverage, and under the right circumstances may lead to healthy competition between channel partners leading to higher performance for the manufacturer overall.

The concern for the manufacturer is when an unhealthy level of channel conflict emerges that has a negative impact on channel sales and overall company success. The goal is to mitigate against these levels of destructive competition and try to restore a balance of healthy conflict between channel sales partners.

The foundation for effectively managing channel conflict is an effective channel sales training program that emphasises the importance of pre-agreed rules and a well-structured channel program. The channel sales training program should refer to the core principles of the partner program and the formal agreement between the manufacturer and the channel partner. In particular, channel sales managers need to be familiar with elements such as:

  1. What are the rules of engagement where multiple partners and/or the direct sales team identify a deal? Is there a “first come, first served” policy backed by deal registration?
  2. Is there a policy in place whereby multiple partners and/or direct sales teams can all be rewarded in some way from a deal with multiple legitimate claims?
  3. Who is responsible for resolving channel conflict? The head of channels? The head of sales? The channel manager?
  4. How are markets segmented and how are coverage rules applied to channel partners? Is it clear to everyone where their boundaries lie?

The basis for mitigating against the worst fallout from unhealthy channel conflict is the rules established under the channel partner program. However, in order for everyone at the manufacturers company to clearly understand these rules a formal channel sales training program must be established that highlights both the rules, and what to do when these rules are broken.

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