What Is Channel Conflict? & How To Avoid It [Full Guide]

Introduction

Every business wants successful and healthy sales channels, whether direct or indirect. The latter is especially tricky to achieve as they can lead to what is known as "channel conflict": a misalignment of certain aspects of the selling process, as seen from multiple partners.

Often, businesses will use multiple channels to reach additional customers and expand their reach. Unfortunately, issues can arise when multiple channels are used.

So, how can you prevent channel conflict from happening?

What Is Channel Conflict?

In its most basic form, channel conflict occurs when multiple channel partners oppose each other within the same sales channel. There are several types of channel conflict, including vertical, horizontal, and across multiple channels. These conflicts can arise anywhere within the distribution network, causing major disruptions and setbacks for anyone involved.

Why Are There Conflicts with Channel Partners?

Channel partners offer companies a way to expand their reach and grow their business without dedicating additional resources to building and maintaining new networks.

Selling directly to the end user is typically the best way to maintain profit margins. Channel partners offer access to existing networks and customer bases without having to spend cash on marketing efforts. However, when multiple partners are involved, there are bound to be issues.

"Channel partners offer access to existing networks and customer bases without having to spend cash on marketing efforts."

These types of conflicts can happen when partners compete over the same customer base, leading to a price war or oversaturation. Numerous other types of conflicts exist, and they primarily start because expectations and contracts weren’t properly defined.

3 Main Causes of Channel Conflict

There are several different causes of channel conflict depending on the type.

However, 3 of the main causes are outlined below:

Cause #1 of Channel Conflicts: Price Wars

One of the most common channel conflicts is price wars, which can erupt when one partner discounts your product to attract customers. This can put a lot of pressure on partners selling within the same channel, forcing them to lower the price even if it isn’t in their best interest.

This type of channel conflict is due to contracts or agreements that don’t stipulate specific price guidelines. This leaves the pricing up to the partner which can then reflect poorly on your brand due to the inconsistent prices among partners and even yourself.

Cause #2 of Channel Conflicts: Oversaturation

Oversaturation can occur when too many resellers are allowed to sell within the same channel. By doing this, resellers are put at odds with each other and your product ends up competing with itself. This can lead to price competition and disgruntled partners.

Cause #3 of Channel Conflicts: Direct vs Indirect Sales

Your direct sales team may also go into conflict with your partners, taking on potential deals that are already being worked on by your partners and leading to frustration on both ends. 

Since sales agreements are often commission-based, there are serious benefits to lose from not being able to carry out a deal on both sides, potentially losing one of the parties in the process, or worse, both parties. With proper deal registration, you're protected from this.

What Are the Types of Channel Conflict?

There are 2 main types of channel conflict:

• Horizontal
• Vertical

The categorization depends on where they occur within the distribution network, but conflict can also occur across several different channels at the same time (multiple-channel conflict).

Vertical vs Horizontal: What's the Difference

Vertical channel conflict is the most common and occurs when 2 partners at different levels of the distribution channel run into a conflict of interest or process. For example, a reseller spends a lot of time working with a lead one-on-one, only to find that they have bought the product or service he's working on from an affiliate partner, effectively nullifying their efforts.

Horizontal channel conflict occurs when two partners at the same level have a dispute or take the competition to the next level. Price wars are a very common example where one partner may discount a price significantly which forces others in the same channel to do the same, or when two partners are targeting the same customer, leading to a conflict of interest.

How To Deal with Horizontal Channel Conflict

There are several ways you can deal with horizontal channel conflict. The primary way is to establish a set pricing scheme for your products or services on both the end-user end as well as on the partner end. Both should be designed precisely to fit those purposes.

"To avoid horizontal channel conflict, establish a set pricing scheme for your products or services on both the end-user end as well as on the partner end."

Standardized and aligned pricing across channels will ensure that resellers maintain competitive pricing and don’t work to undercut one another, or even you. This also has the added benefit that customers have a clear idea of who they're interacting with when they're purchasing.

Also, you should be transparent with your partners when a conflict occurs and state that it did clearly. The practice of deal registration is so important in partner relationship management as it will show whether another partner or internal sales team is already working on the same deal.

When a partner registers a deal, a Channel Partner Manager will accept or reject the deal, and the partner will be fully "protected" on that deal so he can work on it undisturbed for a set period of time (outlined in the channel partner agreement they are working with).

How To Avoid & Resolve Partner Channel Conflict

The best way to avoid and resolve partner channel conflict is by being as detailed as possible during the partner onboarding process as well as setting clear expectations throughout the partnership lifetime (for this, a PRM platform like Kiflo is perfect).

Evaluating partner networks is also important in preventing channel conflict. 

While partners offer a wider reach, some may be using the same network, putting them at odds with each other. Vetting partners to ensure oversaturation and turf wars won’t take place is a key part of avoiding both vertical and horizontal channel conflict.

Why Channel Conflict Has Serious Business Consequences

Businesses want to reach and sell to as many ideal customers as possible, and having multiple sales channels is one of the main ways to accomplish that. 

Channel conflicts can disrupt the sale process while also leaving customers questioning the reliability and integrity of the product or service for all of your sales channels.

They can also lead to devaluation if resellers are consistently discounting or undercutting the standard price of your product. Customers can start to expect that lower price, which may cause them to hold off on the purchase until the discounted price is offered again.

Oversaturation can lead to unhealthy competition between partners which can lead to a poor customer experience and stagnate channel sales.

Another important consequence is that channel conflicts will completely ruin the relationship you spend months building with your partners if serious enough or left untreated. These partners will likely never come back to you and may start talking negatively about your company.

How To Mitigate the Damage of Channel Conflict

Channel conflicts can cause serious damage to the sales pipeline, especially if you are reliant on one or two channels for the majority of your sales. Putting all of your eggs in a single basket can amplify the damage, so try diversifying your sales channels to mitigate the risk.

‍Establishing realistic expectations upfront can also help to mitigate damage from channel conflict down the road. This is best done during partner onboarding so a certain standard is set, and they can’t argue that they were misled or misinformed from the very beginning.

How To Prevent Partner Conflict from Happening Altogether

To prevent partner conflicts, you must have a clear process in place and align your direct sales team with your indirect sales team (your partners). Also, you want to limit partner territory overlap as part of this, avoiding too many partners working on the same audience.

Partners are more accommodating when there is an established demand and a good record of sales which can give you more control over your sales situation.

"Partners are more accommodating when there is an established demand and a good record of sales which can give you more control over your sales situation."

Another way to prevent partner conflict is by starting small and slowly building your channels. Test out what works best and what may cause issues, then slowly scale from there.

Jumping straight in and establishing a number of partnerships is bound to cause issues and conflict, so be patient and take your time.

2 Real-World Examples of Channel Conflict

Example #1: Price Devaluation

Offering steep discounts and “deals” is a daily occurrence in online sales. Email marketing blasts end-users with thousands of emails offering promo codes and limited sales.

While in B2B the scene is a bit different, the same rule applies...

Constant discounts or overpromising can train customers to expect lower pricing, and hold off on making any purchases until the sale comes around again. 

Many online businesses have adopted a “discounted price” as a standard now, and simply display prices that show they are on sale consistently. This isn't a good practice for a B2B firm and should be avoided at all costs; instead, focus on the long-term returns of working with you.

Example #2: Oversaturation

The internet is a powerful tool that has expanded the reach of hundreds of thousands of businesses. Platforms like Upwork and Fiverr have become extremely successful in marketing a wide variety of services also thanks to their indirect sales efforts.

Unfortunately, these platforms can become quite crowded and oversaturated, which leads sellers to try and sell additional services to dilute the pool further. When looking for indirect sales channels, you want to strike the right balance between unconventional and highly valuable.

Prevent Channel Conflict with a PRM Solution

Preventing channel conflict is about setting standards and managing expectations. Working with multiple partners can make it difficult to keep up with what is going on, which is why a Partner Relationship Management Suite is so important in the success of a channel program.

A PRM platform like Kiflo will ensure that you can keep your partners up to date and engaged with the deals and promotions you are offering so no one is put at a disadvantage. It also ensures that deals are secured for the assigned partner (and that no other partner can access them), avoiding potential vertical or horizontal channel conflicts across your partner base.

Using a PRM software tool like Kiflo can help you optimize your partner channel strategies and take them to the next level. It can save you countless hours of management and organization by keeping everything in one place and automating daily tasks.