Channel Conflict Brent Driver Zach Evans
Executive Summary <ul><li>What is Channel Conflict? </li></ul><ul><li>Origins of Channel Conflict </li></ul><ul><li>Identi...
Channel Conflict Is...
A Refresher from Chapter 11 <ul><li>Channel Conflict defined: </li></ul>When a channel member’s perceptions of roles, resp...
What Causes Channel Conflict? <ul><li>Market Evolution </li></ul><ul><ul><li>Increase market share </li></ul></ul><ul><ul>...
Internet & Channel Conflict <ul><li>How does the Internet affect channel conflict potential? </li></ul><ul><ul><li>Manufac...
Motivations for Direct Selling <ul><li>Resellers carry limited selection </li></ul><ul><li>Higher margin potential </li></...
The Power Struggle <ul><li>Perception of Power = Power </li></ul><ul><li>Manufacturer </li></ul><ul><li>Wholesaler/Distrib...
Consumer Power <ul><li>24 x 7 x 365 </li></ul><ul><li>Prices are Transparent </li></ul><ul><li>High Degree of Personalizat...
Top 10 Signs Your Company is Experiencing Excessive Channel Conflict
Top 10… <ul><li>10. Your top sales guy is now emptying your garbage can </li></ul><ul><li>9. Your top distributor sends yo...
Top 10… <ul><li>5. The President of one of your former wholesalers is sleeping on your couch </li></ul><ul><li>4. Wal-Mart...
Identifying Channel Conflict <ul><li>Departure of Sales Staff and Business Partners </li></ul><ul><li>Customer Become Awar...
Hewlett-Packard <ul><li>Market-Share Shift </li></ul><ul><li>Strong Brand Presence </li></ul><ul><li>Web Site:  www.hp.com...
Ingram Entertainment <ul><li>Nation’s largest distributor of home entertainment products </li></ul><ul><li>In 2000, launch...
To Compete or  NOT  to Compete Game
Game Rules <ul><li>Host(s) will read out-loud a series of companies and/or brands </li></ul><ul><li>Contestants will vote ...
Levi Strauss & Co. <ul><li>Late 1990s: fashions were changing </li></ul><ul><ul><li>Resurgence in interest in khakis </li>...
Levi Strauss & Co. <ul><li>Within a few months, executives declared their exclusive rights to sell Levis and Dockers onlin...
Levi Strauss & Co. <ul><li>November 1999 – one year after launching e-commerce web sites </li></ul><ul><li>Company announc...
EJ Footwear <ul><li>Launched B2B sites with e-commerce capabilities in mid-2000 </li></ul><ul><li>Launched B2C information...
Traditional Distribution $100 $50 $25 $12 We keep: $50 - $25 = $25 Retailer keeps: $100 - $50 = $50 Manufacturer Wholesale...
Direct Distribution $100 $25 $12 We keep: $100 - $25 = $75 Manufacturer Wholesaler Consumer B2C Website
EJ Footwear Challenges <ul><li>Channel conflict </li></ul><ul><li>Sales growth and return on investment </li></ul><ul><li>...
EJ Footwear <ul><li>Began selling direct on GeorgiaBoot.com, DurangoBoot.com, & LehighSafetyShoes.com in early 2001 </li><...
EJ Footwear <ul><li>Ceased B2C direct sales on DurangoBoot.com in February 2003 </li></ul><ul><ul><li>We had been an indus...
EJ Footwear <ul><li>Continued development of private catalogs for Lehigh accounts </li></ul><ul><li>Launch of co-branded w...
Channel Cooperation <ul><li>Manufacturer & retailer split revenues </li></ul><ul><li>Manufacturer & retailer build one bra...
Channel Competition
Minimizing Channel Conflict <ul><li>No prices on web site </li></ul><ul><li>Divert fulfillment of orders to retailers </li...
Conclusions <ul><li>Consumers readily move between distribution channels even if manufacturers and retailers are hesitant ...
Questions?
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Channel Conflict: Historical Perceptions and Management Implications

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Channel Conflict: Historical Perceptions and Management Implications

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