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!
We define 3 types of channel conflicts:
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.
Loss leader:
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.
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.
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.
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.
When wholesalers and retailers lose interest in promoting or even stop selling your products.
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:
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!
