Success Through Channels Series

Does Anyone Win the Channel Conflicts?

“Most manufacturers who try to  cover all their different channel  partners with one or two programs are missing the point--the manufacturer, the resellers and end-users would be better served if they had ten different programs to more closely meet the needs of the user.”  Phil Roussey, Executive Vice President, Marketing, Bell Microproducts     

There are times when a channel event spices up the evergreen discussion about good old channel conflict.  Among the pot-stirring topics we noticed over the last few weeks were a Sun Microsystems promotion, as Sun tried to move some server and storage solutions direct to the user base, to the great dismay of some  resellers.  Likewise, we saw the announcement from Dell that selling direct, while a revolution, was not a religion, as Dell positions to beef up its efforts to go to market through channel partners.  The Sun faux pas caused the expected wailing and gnashing of teeth, along with an eventual public apology, while the Dell announcement assuredly brought more smiles to channel faithful.  Although channel conflict can occur in literally any environment, these instances demonstrate the potential for conflict faced by manufacturers sharing the selling space with resellers, and help kick-start our discussion.  So anytime the user community is offered more than one option to acquire a good or service we are in for some fun and competition, are we not? 

In the future, we’ll explore the futility of “exclusive” channel arrangements, but for now let’s consider that most situations on the well-worn path to the marketplace will afford end users multiple options to buy value-added services they actually value from the resellers they may select.  As we start to examine the conflicting offers and value additions that are provided to users it is good to note that they come from channel participants who are sometimes very similar in structure and capability (often as required by manufacturers) while others vary widely in value-added scope and delivery capability.  Most free-market conditions assure us that virtually all manner of sales encounter some conflict and competition but the question to explore is whether these collisions are always bad--does everybody always lose?  While the conflicted channel selling process sometimes looks more like a bar fight than a chess match it serves many useful purposes.

Let me start by saying that not everyone loses, and even offer the heresy that conflict in the marketplace can be a pretty darn good process, even inside the channel.  To bias this discussion to make my case, I want the word "conflict" to elicit some of the aspects of competition.  Since I have bent the definition already, I will try for an easy and early point.  End-users and consumers win when their suppliers engage in competition.  As noted earlier, the end-user community deserves a pretty lofty position in regard to what both channel and manufacturer are ultimately trying to accomplish, that of course being the creation of relationships with happy customers along with the creation of growing, profitable businesses.

Like most real business-life situations, the stark crucible of the marketplace plays the most important role in managing and resolving channel conflict.  Winning business and keeping customers is often a hazardous, risky, but hopefully at times a very rewarding endeavor.  If you have allowed me the point that users indeed can be the beneficiaries of the competition, conflict in the channel will have some use in the marketplace after all.  But what about the impact on channel partners and the other participants in the food chain; do they have to lose?  Not necessarily, especially if they are good at what they do, and if they get the benefit of some enlightened help from manufacturers.

To build programs that actually help channel partners survive and prosper in conflicted situations, manufacturers who sell through the channel should at least adhere to the following:

1. Suppress the urge to overlegislate the rules of engagement between:

   a. Themselves and the channel—If manufacturers choose to compete with their channel via a direct sales force, they should at least be consistent in the application of their policies.  The worst missteps are those that come off as surprises.  The Sun 25th Anniversary Sale promotional program was most ill advised in its execution rather than its conception.  While I am not a fan of hard and fast rules in the open, competitive marketplace, I do think the perception of “poaching” customers away from channel partners smacks of violating even the unwritten rules of channel partnering.
   b. Channel participants as they compete in the marketplace—Manufacturers should always work to minimize the administrative overhead for their programs.  This means giving up on some of the controls that clog e-mail boxes and complicate reporting formats between different levels of the food chain.  The costs and cycles saved by lightening up on the administrivia can be redirected into demand generation, eventually making all channel players happier.

2. Spend real resources to support the differences in the channel and avoid the urge to make all players fit a predetermined model
   a. One size fits none—Manufacturers should acknowledge the differences their channel partners offer to end users, and work to amplify them to end-users’ benefit.
   b. Demonstrate that you know the channel is in a business different than yours—Enlightened manufacturers will help the channel understand what their market needs, usually through the judicious and liberal application of market research, and in turn help users get exactly what they need, and that’s a good thing.
 
3. Educate end users on the relative advantages your channel brings to the market--Manufacturers should help the market understand the differences between the channel partners and be more proactive in helping match users up with the correct blend of products and services that are offered by their partners.

4. Create pull--Pull is the chicken soup of all of the channel equations.  Manufacturers should frequently review the time and money they spend on intra-channel programs and figure out how much more they could sell if they were using those resources to create raw demand for their products.

If a vendor has an equitable channel program where all partners have a chance to add value, make an honest margin, and build a business, why shouldn’t the end-users benefit if they are subsequently offered an array of value-added services and other products when they look to their supply chain?   It’s inside these options of value addition that the seeds for channel conflict are most evident.  The more end-users can match their requirements regarding the purchase, adaptation, installation, service, training, use, and maintenance choices related to any product under consideration, the greater the chances for happy customers, and by definition guaranteed bruises for the resellers who were not successful in making the sale.  Therefore, if you are in the channel, you have both the challenge and the opportunity to distance yourself through competition from the others who make alternative offerings. Inside an enlightened channel program, you should have the chance to be the rightful winner if your total package matches the end-user’s need.  To the extent you execute well and deliver on the promise, you have the chance to profitably distinguish yourself from the other channel-conflict participants.

Let’s let that sink in for a minute…it’s the differences that can be structured into the channel’s value-add that offer up distinction, enhanced customer satisfaction, and the best chance for the rightful channel partners to succeed during the course of a sale.  Alternatively, even if a manufacturer has only a few resellers, but its channel program forces them to meet the requirements of a single model or template, the users get fewer choices and the resellers are more inclined to compete on price concessions alone--the most destructive element of the conflict.  Channel competition and channel conflict provide end-user markets with more choices, and this benefits both the user and the manufacturer.

Questions always arise about the number of deviations and differentiated offerings needed in the marketplace.  And while the dynamic of “overdistribution” leads to another rich topic to be explored in the future, some quick points can be made here.  The number of participants in any manufacturers’ channel system can be properly influenced by many factors.  Among the most prominent are:

   a. The changing needs of users--Even the most commoditized products can and often do benefit from a very diverse reseller base.  Think of the different ways you might have acquired a soft drink over the last year.  A cola delivered by a room-service attendant after midnight in a posh hotel has a different value than one delivered from a machine in a workplace canteen, and yet they’re the same drink.
   b. The sophistication or complexity of the product—More-complex products can lead first-time users to rely heavily on the channel for training and other services.  This set of needs can, however, be transitory for subsequent purchases.
   c. Geographic and cultural use differences--Everything from localization to physical logistics comes into play when a manufacturer tries to penetrate new or foreign markets.
   d. The ability of a substantial number of the channel participants to make profit and grow their business--This measurement reflects the market’s willingness to reward those who are able to structure meaningful and differentiated value into their sales and delivery proposition.

None of the conclusions regarding channel conflict come easily from this or any other discussion alone, but more appropriately, from the aggregate votes of the market.  An enlightened manufacturer will task its channel partners with understanding what end users truly need, and which value additions the users are willing to pay for.  This allows the best channel partners to take the appropriate risks and reap the rewards of getting it right.  Thus the manufacturer’s role changes from imposing overly confining and uniform requirements with high administrative burdens to providing assistance and facilitation regarding the differences that are aimed at winning and keeping the broadest array of customers.  More and happier users, appropriately rewarded resellers, broader markets served--cool.