Channel conflict occurs when companies try to reach end customers through multiple routes to market, forcing components of the sales ecosystem to compete against each other rather than work together. This is inherently wasteful and can be lethal to customer experience, sales results, and profit margins if left unchecked.
So how do you identify channel conflict? Here are a few of the most common causes of channel conflict:
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Mixing Direct and Indirect Sales - Examples of companies mixing routes to market successfully are the minority, not the norm. If your direct sales team and your indirect partners are chasing after the same customers, conflict is inevitable. Some partners may simply refuse to work with you in this case, limiting your options. To execute this approach successfully, however, direct teams can ultimately turn the end customers over to the channel partners to service. This can be a win-win in instances where the end customer buys your product, and the channel partner makes its cut through servicing the account. This model can also produce leverage in securing high-caliber channel partners if your direct sales force lands large end-users that top channel partners prefer to service.
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Over-Saturation of Channel Partners - When selecting channel partners to cover a market, they require a fair “territory”. An excess of partners covering certain geographies, or too few customers to satisfy the number of partners competing for them, guarantees conflict. One of two things will happen. Either the partners will lose interest and begin selling other companies' products; or, they will become frustrated from competing against one another and ultimately look to you to solve the issue.
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Ceding too Much Pricing Control to Channel Partners - One obvious potential downside is brand equity erosion. If you are positioned as a high-end product, you don’t want your channel partners pricing at the other end of the spectrum. Similarly, if you have multiple partners competing for the same customers, they may begin to undercut each other to win business. This dynamic can rapidly turn into destructive conflict where partners see decreasing value from carrying your products.
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Channel Partners Who Are Resistant to Change - New product rollouts, marketing campaigns, and other initiatives will occur for any growth company. If some of your channel partners resist change, while others embrace it, you risk confusing end-users and harming your brand. You have a role in communicating to your channel partners why the changes are needed and enabling them to effectively deliver the message to end-users. If after that, some remain resistant, it may be time to evaluate the overall relationship.
When you have recognized channel conflict, how do you address it and minimize the risk of it occurring again? Consider these mitigating steps when managing your partner program:
- Initial Selection of Channel Partners - If your company has ever completed an account segmentation exercise, you know part of that is identifying an ideal customer profile. The same concept holds true when vetting and selecting channel partners. If you don’t know what an ideal partner looks like, your team will struggle to select the right partners for your business.
- Rules of Engagement for Channel Partners - Establishing a clear set of written guidelines for channel partners is a must. They should indicate anticipated conduct, specific customers or markets the partner may sell to and under what terms. Detailed discussion of the rules of engagement should be part of the selection process. A partner may choose not to work with you based on certain guidelines but better to identify that upfront.
- Ongoing Management and Enablement of Channel Partners - Don’t make the mistake of selecting a partner and then forgetting about them. You should manage and nurture the relationship continuously with the goal of making them strategic partners in growth. That means ensuring they are following the rule of engagement and representing your company in an appropriate way. It also means helping enable them to sell your product. Training, end user focused marketing materials or even joint sales calls with your direct sales force are all effective tactics. A useful way to keep tabs on all of this is to have partner scorecards that track important metrics.
There is nothing inherently problematic about using channel partners in a go-to-market strategy. In some cases, it may absolutely be the best strategy for your firm. The key to success is understanding and proactively mitigating the inherent risks and conflicts that exist in a channel model.
