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Managing Channel Conflict for Your eCommerce Site

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Manufacturers spend a lot of time, effort, and money recruiting distributors and retailers to help them make sales. When you have a good working relationship with your channel partners, it's self-destructive to undercut their profits by marketing direct to consumers. Frank Fiore explains how a manufacturer can set up an eCommerce program that includes distributors and retailers as part of the solution, resolving channel conflict and ensuring that everyone profits.
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Suppose you work for a product manufacturer and are faced with the following challenge. You're in a room full of your largest retailers and distributors. You make an announcement that your plan next year is to sell both indirect and direct to consumers—indirectly through your retailers, and directly to consumers through your web site. To add to the stew, you say that you're going to take the orders—and the sale—and ask your distributors or retailers to ship the product to the consumer.

You might guess that the response would be something less than enthusiastic. In fact, you probably would be shown the door. Selling direct is both lucrative and profitable, but seeing that your new sales plan didn't go over very well, you find yourself in that world between a rock and hard spot called channel conflict.

Seeing Through Rose-Colored Glasses

The promise of eCommerce is very tempting to manufacturers and distributors. The convenience and time-saving nature of the Internet are a great lure to consumers, bringing them online in droves. The Net also carries the promise of new customers for distributors, and manufacturers who think that selling directly to consumers can raise their profit margins and bring the added benefit of owning the customer.

But manufacturers have discovered that the rosy picture of selling direct is not all that it promises to be. According to a recent Forrester survey, 66% of those surveyed cite channel conflict as the major obstacle to selling online. And the future of selling direct starts to darken once eCommerce managers discover the additional costs of inventory management and logistics that selling direct incurs. Taking an order through a web site is easy compared to the extra work that follows: shipping the order, processing payment, and, of course, customer service. When the eCommerce manager totals these additional costs, the profit margin that looked so large before has been reduced dramatically.

The ability to combine different types of distribution channels today is a mixed blessing. Yes, there are more opportunities for a business to distribute and sell products and services into the marketplace, but this also poses a challenge. A manufacturer—or even a distributor—must be careful when combining distribution channels in a way that creates channel conflict. If your distribution strategy poses this risk, you, as an eCommerce manager, must think about what channel conflicts might occur and how you'll handle them.

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