Online out-of-stock during Corona pandemic. Distribution channels are under pressure. Use our eCommerce monitoring software to get competitive...
Channel Conflicts, or Opportunities?
Leveraging various sales channels to spread your brand increases the likelihood of channel conflicts. Read 3 Ways to make Channel Conflicts Less Painful.
One of the downsides of selling your brand on multiple online channels is channel conflicts. Leveraging various sales channels to spread your brand increases the likelihood of channel frictions. Unlike physical retail, other resellers can easily find the products you sell online, where, and how you price them, creating conflict. Especially when multiple retailers are selling the products to the same markets but at different prices.
On the other hand, for manufacturers, selling Direct to Consumer (D2C) has become easier than ever before due to the explosive growth of eCommerce sales, online channels, and capabilities such as easy-to-use and affordable SaaS eCommerce tools and platforms.
As a manufacturer, it is challenging to balance own eCommerce stores and other online distribution channels such as wholesalers and retailers. The number one rule is: Be partners, not competitors, with the common goal in mind: Make and keep customers happy!
3 Types of Conflicts
We define 3 types of channel conflicts:
1. Vertical Channel Conflict:
Direct & indirect Sales: when manufacturers sidestep retailers to sell direct-to-consumer (D2C), this creates direct competition between manufacturers and retailers.
Oversaturation: If you allow too many retailers to sell identical products in the same area, it can cause price competition between retailers.
2. Horizontal Channel Conflict:
A loss leader is a pricing strategy where a product is sold at a price below its market cost to upsell sales of more profitable products.
Turf war: Battle for sales in the same area.
3. Multiple Channel Conflict:
It occurs when a manufacturer has at least two channels competing to sell the same brands/products. A manufacturer may be selling their products direct-to-consumer (D2C) while also selling to a wholesaler/retailer, which creates conflict because the manufacturer and retailer may be selling the products to the same set of online shoppers but at different prices and with varying margins of profit.
The effects of price battling
1. Chain Reaction - Brand and Product Lose Value:
Let's say you want to run a price promotion on a retailer site exclusively for its shoppers. Within some hours, marketplaces pricing bots will sense this promotion and automatically match it (or possibly beat it). Within the next 24 hours, other retailers are likely to do the same.
This kind of chain reaction can result in a lower product price and a loss of product value, a loss of margin, and significant damage to your brand image.
2. Sales Stagnation:
When prices are not stable, buyers know this and can wait to purchase until a price drops.
Consumers who bought a product and then noticed that the price dropped feel cheated, which results in higher product returns and degradation of a brand.
3. Price battling can weaken the distribution channel
When wholesalers and retailers lose interest in promoting or even stop selling your products.
3 Ways to avoid Channel Conflicts:
- Offer exclusive products:
Provide a unique product, only available on the brand website. Create buzz, build demand and show off your brand! You can also offer product Giveaways. Add value by including an additional product—for example, the Apple gift card. Offer bundles & Kits: Grow sales by helping customers get more out of your products. Bundling products allows you to discount without the appearance of a discount. Try to vary your offering as much as possible or even offer different SKUs for different retailers. Make it more difficult for retailers to match exact pricing for products to protect margins.
- Do not allow too many resellers in a distributed area - Set proper territories. Switch to a selective distribution model (for at least some products) to cut off supply to unauthorized sellers that are not within your brands' selection of distributors and resellers. Spot unauthorized sellers on marketplaces: Use eCommerce monitoring software such as SiteLucent to identify third-party (3P) sellers and try to trace back where they are getting supply. You may need to thin out your reseller network. You can contact any non-compliant or unauthorized seller and request corrective action—in some cases, even turning unauthorized sellers into authorized ones
- MSRP policy & Monitoring: Maintain a standard price for products across all sales channels to find a way around any price competition between wholesalers, retailers, and manufacturers. MAP pricing addresses how a reseller advertises a product, MSRP represents the price a manufacturer recommends its retailers to sell the product. A Minimum Advertised Price (MAP) Policy is an agreement (In the countries where they can be used) between a brand or manufacturer with authorized vendors. MAP monitoring is the routine process of reviewing the prices of your online retailers and marketplaces to identify MAP compliance. The agreement is to price SKUs at or above a specified minimum price. The agreement is not legally binding. Retailers can still sell a product at a below-MAP price, just not advertise it.
The benefits are that you can protect your own margins and those of your retailers. This will lead to an improved brand-retailer relationship. You can also protect your brand's value proposition better - A price that is too low can raise red flags about the quality of your products and brand. Avoid retailers from being unfairly undersold by competitors, which can lead to price wars.
Please note: Both MAP and MSRP must be set up as one-way policies and not as legal agreements between manufacturer and reseller. In the EU, MAP policies are not allowed.
If you follow our tips you can:
- Create happy and pleased customers
- Have a good relationship with resellers
- Protect your brand image and value
- Make sure you and your resellers make (enough) money!
If you don't have control over your distribution channels (and who is selling your products on these channels), you don't control your brand.
In our eBook, we cover 3 pain points for brands selling on multiple online channels, and how to cope with them. One of these pain points is channel conflicts. Download the free eBook now!