Channel Conflict: Historical Perceptions and Management Implications

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  • 1. Channel Conflict Brent Driver Zach Evans
  • 2. Executive Summary
    • What is Channel Conflict?
    • Origins of Channel Conflict
    • Identifying Channel Conflict
    • Case Studies
    • Class Activity
    • Channel Cooperation
    • Channel Competition
    • Minimizing Channel Conflict
    • Conclusions & Questions
  • 3. Channel Conflict Is...
  • 4. A Refresher from Chapter 11
    • Channel Conflict defined:
    When a channel member’s perceptions of roles, responsibilities, and accomplishments are not consistent with the perceptions of these facets of behavior by other channel members.
  • 5. What Causes Channel Conflict?
    • Market Evolution
      • Increase market share
      • Reduce costs
    • E-Commerce Strategies
      • B2B opportunities
      • Direct Selling
  • 6. Internet & Channel Conflict
    • How does the Internet affect channel conflict potential?
      • Manufacturing
      • Service
    • Customer Access
    • Delivery Economics & Logistics
  • 7. Motivations for Direct Selling
    • Resellers carry limited selection
    • Higher margin potential
    • Take power from resellers
    • Broader selection, better ambiance, higher service
    • More flexibility with product attributes
    • Closer contact with customers
    • Protection from reseller crises
  • 8. The Power Struggle
    • Perception of Power = Power
    • Manufacturer
    • Wholesaler/Distributor
    • Retailer
    • CONSUMER!
  • 9. Consumer Power
    • 24 x 7 x 365
    • Prices are Transparent
    • High Degree of Personalization
    • No Physical Storefronts
    • Technology
    • ‘Mass Customization’
  • 10. Top 10 Signs Your Company is Experiencing Excessive Channel Conflict
  • 11. Top 10…
    • 10. Your top sales guy is now emptying your garbage can
    • 9. Your top distributor sends you an e-mail that says: “Thanks for the referral…Jerk!”
    • 8. In your last staff meeting, your presentation was titled “Boosting Profit Margins with Little Regard to Anyone Else’s Feelings”
    • 7. You just recruited a new V.P. of Customer Discord
    • 6. Everyone is dropping their middle initial from their business cards
  • 12. Top 10…
    • 5. The President of one of your former wholesalers is sleeping on your couch
    • 4. Wal-Mart is proudly featuring your product line…in their parking lot
    • 3. You just fired half the marketing staff to boost your e-commerce budget
    • 2. You recently hosted a golf tournament for your resellers, and your final round score of 108 was good enough to win
    • 1. The two words you heard at the last board meeting: “You’re Fired!”
  • 13. Identifying Channel Conflict
    • Departure of Sales Staff and Business Partners
    • Customer Become Aware of the Conflict
    • Gibson Guitar
  • 14. Hewlett-Packard
    • Market-Share Shift
    • Strong Brand Presence
    • Web Site: www.hp.com
    • Channel Partner Assistance
    • Electronic Storefronts
    • Referral Option
    • Governing Board for Channel Projects
    • Still Cannot Please Everyone
  • 15. Ingram Entertainment
    • Nation’s largest distributor of home entertainment products
    • In 2000, launched AccessIngram.com
    • Should we sell direct to consumers?
  • 16. To Compete or NOT to Compete Game
  • 17. Game Rules
    • Host(s) will read out-loud a series of companies and/or brands
    • Contestants will vote individually on whether or not these companies and/or brands compete with retailers by selling direct online
    • Contestant(s) with the most correct votes will be declared a winner
    • If there is a tie, host(s) will randomly pick a winner—their decision is final
  • 18. Levi Strauss & Co.
    • Late 1990s: fashions were changing
      • Resurgence in interest in khakis
      • Due to continuing boom of ‘business casual’
    • Company launched full-service e-commerce sites for Levi and Dockers brands in November 1998
      • #1 request coming in from consumers on Dockers.com?
      • Desire for direct-to-consumer sales
  • 19. Levi Strauss & Co.
    • Within a few months, executives declared their exclusive rights to sell Levis and Dockers online
    • Enraged large customers of company that were investing in e-commerce initiatives
    • By June 1999, company ceases all online advertising
      • Claimed that typical order of $56-$120 not high enough to pay for online ads
      • Shifted dollars into traditional advertising
  • 20. Levi Strauss & Co.
    • November 1999 – one year after launching e-commerce web sites
    • Company announced it would stop selling brands online
    • The reason: costs of running sites were ‘unaffordable’ given their ‘competing priorities’
    • Observers believe the decision was motivated by channel conflict
  • 21. EJ Footwear
    • Launched B2B sites with e-commerce capabilities in mid-2000
    • Launched B2C information-only sites in mid-2000
    • Launched first e-commerce enabled web site in mid-2000
  • 22. Traditional Distribution $100 $50 $25 $12 We keep: $50 - $25 = $25 Retailer keeps: $100 - $50 = $50 Manufacturer Wholesaler Retailer Consumer
  • 23. Direct Distribution $100 $25 $12 We keep: $100 - $25 = $75 Manufacturer Wholesaler Consumer B2C Website
  • 24. EJ Footwear Challenges
    • Channel conflict
    • Sales growth and return on investment
    • Top management buy-in
    • Corporate culture
    • Industry trends
    • Ongoing development
  • 25. EJ Footwear
    • Began selling direct on GeorgiaBoot.com, DurangoBoot.com, & LehighSafetyShoes.com in early 2001
    • Launched DickiesFootwear.com with e-commerce capabilities in early 2003
    • Plans to launch HummerFootwear.com and JohnDeereFootwear.com with e-commerce capabilities in late 2003 and mid 2004, respectively
  • 26. EJ Footwear
    • Ceased B2C direct sales on DurangoBoot.com in February 2003
      • We had been an industry pioneer
      • Large wholesale accounts began complaining
      • Lack-of-understanding by sales force led to sense that ‘only the corporate office wanted this’
      • Decision was made to take a wait-and-see approach
  • 27. EJ Footwear
    • Continued development of private catalogs for Lehigh accounts
    • Launch of co-branded web site for largest Georgia Boot customer
    • Re-launch of improved B2B tools
    • Continued development of B2C tools and applications
    • Continued development of Internet related distribution partnerships
  • 28. Channel Cooperation
    • Manufacturer & retailer split revenues
    • Manufacturer & retailer build one brand experience through new brand or partnership
    • Manufacturer & retailer jointly manage & market to customers
    Seamlessness
    • Manufacturer & retailer share performance-based revenue
    • Manufacturer & retailer work together on merchandising & marketing plans
    • Manufacturer & retailer share aggregate customer data
    Collaboration
    • Retailer keeps the margin and reduces costs with manufacturer merchandising & marketing help
    • Manufacturer provides support & collateral
    • Retailer provides assortment & service; promotes the brand
    • Retailer owns the customer
    Manufacturer Support Financial Implications Intangibles Customers Relationship Form
  • 29. Channel Competition
  • 30. Minimizing Channel Conflict
    • No prices on web site
    • Divert fulfillment of orders to retailers
    • Promotion partners online
    • Encouraging partners to advertise online
    • Offer subset of products online
    • Unique brand name online
    • Offer products early in lifecycle online
    • Effectively communicate overall distribution strategy
    • Effectively coordinate distribution strategy
    • Make use of over-reaching goals
  • 31. Conclusions
    • Consumers readily move between distribution channels even if manufacturers and retailers are hesitant to cross borders
    • Both parties must:
      • Satisfy mutual needs
      • Reduce redundancy
      • Share costs
  • 32. Questions?