Channel conflict
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Channel conflict occurs when manufacturers (brands) disintermediate their channel partners, such as distributors, retailers, dealers, and sales representatives, by selling their products direct to consumers through general marketing methods and/or over the internet through eCommerce.
Some manufacturers want their brands to capture the power of the internet but do not want to create conflict with their other distribution channels, as these partners are necessary and viable for any manufacturer to maintain and gain success. The Census Bureau of the U.S. Department of Commerce reported that online sales in 2005 grew 24.6 percent over 2004 to reach 86.3 billion dollars[1]. By comparison, total retail sales in 2005 grew 7.2 percent from 2004[2]. These impressive numbers are attractive to manufacturers, however they have not been able to participate in these sales without harming their channel relationships.
According to Forrester Research and Gartner, despite the rapid growth of online commerce, an estimated 90 percent of manufacturers do not sell online and 66 percent identified channel conflict as their single biggest issue hindering online sales efforts[citation needed].However, results from a survey show that click-and-mortar businesses have an 80% greater chance of sustaining a business model during a three-year period than those operating just in one of the two channels. Among others, the reach will be enhanced by creating another selling channel. Nowadays, E-commerce wins in popularity as second distribution channel, because of the low overhead expenses and communication costs. Their advantage is at the same time their disadvantage, since consumers can communicate less expensive and more easily with each other too. Therefore, price and product differentiation is getting tougher than ever.[3]
Channel conflict can also occur when there has been over production. This results in a surplus of products in the market place. Newer versions of products, changes in trends, insolvency of wholesalers and retailers and the distribution of damages goods also affect channel conflict. In this connection a companies stock clearance strategy is of importance.
To avoid a channel conflict in a click-and-mortar, it is of great importance that both channels are fully integrated from all points of view. Herewith, possible confusion with customers is excluded and an extra channel can create business advantages.[4][5][6][7]
Notes and references
- ^ Microsoft Word - 2004Report0523.doc
- ^ Microsoft Word - 2004Report0523.doc
- ^ Marmorstein, H., Rossomme, J., Sarel, D., (2003) “Unleashing the power of yield management in the internet era”, California Management Review, vol. 45, No 3, pp 1-22
- ^ Simons, L.P.A., Bouwman, H., (2006) “Designing a marketing channel mix”, International Journal of Information Technology and Management, vol. 5, No 4, pp 229-248 Kaplan, S., Sawnhey, M., (2000) “E-Hubs: the new B2B marketplaces”, Harvard Business
- ^ Markides, C., D. Charitou, C., (2004) “Competing with dual business models: A contingency approach”, Academy of Management Executive, vol.18, No3, pp 22-36
- ^ Kaplan, S., Sawnhey, M., (2000) “E-Hubs: the new B2B marketplaces”, Harvard Business Review, May-June, pp. 97-103
- ^ Chiang, W.K., Chhajed, D., Hess, J.D., (2002) “Direct Marketing, Indirect Profits: A Strategic Analysis of Dual-Channel Supply-Chain Design”, Management Science, vol 00, No. 00, pp. 1–20