Vertical & Horizontal: Key Differences in Channel Conflict

To avoid channel conflict, you need to understand both horizontal and vertical conflict. Here's the difference between the two.

When left untreated, vertical and horizontal channel conflict is the primary way partner programs fail. Preventing it is key to healthy partner relations and maximizing channel partner program benefits.

Although many organizations think of this as something to consider "down the line," it's not. The reason is that a well-designed partner program should have minimal to no conflict. That design component starts from the very beginning and includes thinking about preventing both vertical and horizontal channel conflict as a key component of the program itself.‍

The Two Types of Channel Conflicts and How They Happen

The differences between horizontal and vertical channel conflicts are based on where the issues occur within the distribution network (i.e., the "channel").

Horizontal Channel Conflict

Horizontal Channel Conflict is centered around partners of the same level. This tends to focus on competition over leads and customers, overlapping sales networks, and channel saturation.

Deal registration is key to avoiding potential conflict over leads.

This practice allows you as a business to keep your partners engaged in recording leads accurately and prevent anyone else from working on those same leads.

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That includes your own internal sales team.

For example, if a partner wants to upsell/cross-sell a lead they've found with your software product, they should be able to do so without your internal salesforce interfering.

The acquisition value of that lead is entirely attributable to the partner, not to your internal sales efforts.

Providing partners with a first-registered, first-served basis is the fairest way to handle deal registration, providing your partners with enough time (anywhere from 30 to 180 days usually) to close the deal and reap the rewards or discount for the deal they registered.‍

‍Vertical Channel Conflict

Vertical channels occur between two or more partner types that conflict across multiple channels. Examples include a disagreement between a provider and a reseller, a customer acquisition conflict between a primary business and an affiliate, and others.

You can think of vertical conflict as two partners working in parallel:

1. An affiliate (blogger, influencer, etc.)
2. A reseller (VAR, MSP, etc.)

When an affiliate uses its influence to manipulate how the audience perceives a product on a large scale, conflicts can arise between resellers and affiliates. This is because affiliates often have broader reach and coverage compared to resellers, leading to potential disagreements over the messaging and understanding of the product.

This is why it's so important to design your partner program so that partners don't compromise your product's positioning or step on each other's toes.

The best way to do so is with a platform for your partners. This will help you enable your partners to share up-to-date materials and streamline your sales process.‍‍

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What Is the Cause of Horizontal Conflict?

Horizontal channel conflict occurs when issues arise between two partners at the same distribution level. When designed correctly, a partner program can include some level of horizontal channel competition to ensure partners are incentivized to do their best.

However, you'll want to avoid downright conflict. Too much competition or reseller partners that aren’t playing fair by undercutting other resellers can quickly turn the relationship sour.

That’s why it’s important to manage horizontal channels closely.

Causes of Horizontal Conflict

There are several causes of horizontal conflict:

• Lead & deal conflicts - fighting over the same customers or sales opportunities;
• Distrusting partners - not respecting the rules of the program;
• Competition overpricing - undercutting other resellers by offering lower prices than agreed upon with the developer of the program;
• Multiple product conflict - offering different products or variations.

Depending on your business structure, you should brainstorm with your leadership team and consider which of these is most likely to happen.

Then, design the program around these issues so that partners within specific channels don't fight each other.

Example of Horizontal Channel Conflict

An example of horizontal channel conflict occurs when two different resellers approach a potential customer at the same time. This situation creates a conflict because the customer can only choose to work with one reseller, leaving the other partner without an opportunity to benefit from the deal.

In such cases, the resellers compete for the same customer. This not only affects their chances of making a sale but also strains their partnership. Conflict often arises due to poor communication and coordination between resellers and the organizations they represent.

Horizontal channel conflict doesn't just impact the immediate deal; it can have broader consequences. It can damage trust among partners, strain relationships, and negatively affect the overall channel partner program. Customers may also feel frustrated by conflicting information or offers from competing resellers, which can harm their perception of the brand and its partners.

To prevent horizontal channel conflict, you should establish clear guidelines and communication channels among resellers. Defining territories or target customer segments for each reseller can help minimize conflicts by ensuring fair lead distribution. Implementing a lead registration system or deal registration process can also address potential conflicts early on, giving resellers a fair chance to pursue and benefit from qualified leads.

Vertical Channel Conflict: Causes & Examples

Vertical channel conflict poses a common challenge for businesses when issues arise between partner types operating in different channels. This conflict occurs due to the involvement of multiple channels, making it difficult to maintain fairness and competitiveness, particularly when incentives are in play. Successfully addressing this conflict requires businesses to actively manage and communicate effectively, fostering a harmonious and mutually beneficial partnership between the involved partner types.

What Causes Vertical Channel Conflict?

Some of the causes of vertical channel conflict are:

• Unfair advantages offered to a partner type compared to another
• Lucrative incentives that may not apply to everyone
• Disputes overpricing across channels
• All of these conflicts can also happen with the Direct Sales Team

Maintaining a balance to avoid vertical channel conflict is all about devising incentives that are fair for the amount of work necessary to register a lead.

An affiliate lead is not nearly worth as much as a reseller lead due to the personal nurturing that happens with the latter. This needs to be reflected in each reward program.

Example of Vertical Conflict

A reseller with a small and personalized business network A wants to nurture potential leads personally to achieve high-quality results and guarantee themselves long-lasting income through lifetime % commissions on recurring revenue from a software provider.

On the other hand, an affiliate with an indirect and large-scale business network B aggressively targets a large portion of the market - indirectly targeting many of the prospects in network A.

The reseller learns about this during their nurturing sessions or via personal research.

Although the affiliate only benefits from targeting a large number of prospects, this puts the reseller in a position of conflict with how the deal is being presented to that specific prospect. In this case, the software provider must limit the affiliate's targeting to a specific segment of their audience rather than the entire business network B.

This can also be done via a business plan.

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How To Prevent or Resolve Channel Conflict

Preventing channel conflict can be as simple as allowing partners to “secure” leads & deals through a registration service. However, the majority of channel conflicts—horizontal and vertical—can be avoided by ensuring that a fair, competitive partner environment exists.

Showing favoritism towards a certain partner can ruffle some feathers and give people the wrong impression.

The best way to prevent and resolve channel conflict is by building trust and providing a fair environment for all of your partners. Using a platform or service that allows visibility and clear management can go a long way in establishing trusting relationships.

A Partner Relationship Management (PRM) tool is effective for this. It provides a fair playing field for all partners involved and showcases clear ownership of leads and deals. It also provides a feature to detect channel conflict.

The goal is to empower the Channel Partner Manager to proactively reject a lead or deal if there is a conflict with another partner or the direct sales team. This active approach ensures that the Channel Partner Manager takes ownership of assessing and identifying potential conflicts, allowing for better coordination and alignment among all parties involved.

Partners can sell with confidence, knowing that their hard work is secure and protected. It also gives you the power to accept and acknowledge deals as they happen.