What Is Channel Conflict?
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Talk to our experts- Channel conflict
- Channel conflict is the tension that appears when a manufacturer's routes to market compete for the same customers instead of covering different ones. A common case in B2B is a manufacturer selling direct, often through its own online store, to the same buyers its dealers or distributors serve, sometimes at prices that undercut them.
How it works
Channel conflict is the tension that appears when a manufacturer sells direct to the same customers its dealers serve. The dealer built the account, and now the manufacturer's own storefront offers the same product to the same buyer.
If a dealer sells a product at $180 and the manufacturer's new storefront lists it at $140, the manufacturer has undercut the people who built its distribution.
Restrictions a manufacturer places on its dealers also change how dealers of the same brand compete. The FTC says manufacturer-imposed requirements can benefit consumers by increasing competition among different brands (interbrand competition) even while reducing competition among dealers in the same brand (intrabrand competition).
How manufacturers manage it
First, decide the policy before launch, not after the first angry call. The approaches manufacturers use:
- Price parity: sell direct at the same suggested retail price dealers use, so dealers compete on service and availability rather than price.
- Exclusive lines: keep some products, bundles or configurations direct only, so the direct channel grows on new ground.
- Geographic protection: sell direct only where there is no dealer coverage, or leave defined territories to dealers.
- Lead routing: pass direct inquiries from a dealer's territory or account back to that dealer.
- Clear communication: tell dealers what is launching and why before they hear it from a customer.
Channel conflict and pricing rules
Some of these tools are dealer restrictions, which antitrust law covers. The FTC's guidance on manufacturer-imposed requirements says reasonable price, territory and customer restrictions on dealers are legal. If a manufacturer, on its own, adopts a policy regarding a desired level of prices, it may deal only with retailers who agree to that policy and may stop dealing with a retailer that does not follow it. The FTC says the critical distinction is between a unilateral decision to impose a restraint (lawful) and a collective agreement among competitors to do the same (unlawful). It notes that in 2007 the Supreme Court determined that all manufacturer-imposed vertical price programs should be evaluated using a rule of reason approach, and that this change is in federal standards: some state antitrust laws and international authorities view minimum price rules as illegal, per se. A minimum advertised price policy is covered under MAP pricing. This is general information, not legal advice.
Example
A manufacturer sells a pump through dealers at a suggested retail price of $180 and opens a storefront.
- Undercut: listing it direct at $140 puts the storefront $180 - $140 = $40 below the dealer price.
- Price parity: listing it direct at $180 leaves a $0 gap, so dealers compete on service and availability.
- Lead routing: a direct inquiry from a buyer inside a dealer's territory goes to that dealer instead of the storefront.
On Shopify
Shopify B2B is available on the Basic, Grow, Advanced and Shopify Plus plans, and you can use one store for both B2B and direct-to-consumer (D2C) sales or create a separate B2B-only store.
In a blended store, products and pricing can be customized using catalogs assigned to B2B markets. By default the store is publicly accessible, but only logged-in B2B customers can access B2B-specific pricing, B2B-only products and B2B-exclusive store content. Any customer who isn't associated with a company location or doesn't sign in is considered a D2C customer.
How Uncap helps
Uncap's guide to ecommerce for manufacturers covers selling direct without losing dealers: decide a channel conflict policy before launch, choose from price parity, direct-only product lines, geographic protection, routing leads back to dealers and telling dealers the plan first, and review any pricing policy with counsel. On Shopify, the mechanics are separate catalogs: dealers see dealer prices behind login, the public sees retail, and the two numbers never meet.
Sources
Frequently asked questions
What is channel conflict?
Channel conflict is the tension that appears when a manufacturer's sales channels compete for the same customers. The most common B2B case is a manufacturer selling direct to the same buyers its dealers or distributors serve.
What is an example of channel conflict?
A dealer sells a product at $180 and the manufacturer's new online store lists the same product at $140. The direct channel now undercuts the dealer by $40 on the dealer's own customers.
How do manufacturers manage channel conflict?
Manufacturers manage channel conflict by setting a policy before they sell direct: price parity with suggested retail, direct-only product lines, geographic protection, routing leads back to dealers, and telling dealers the plan first. Pricing restrictions on dealers should be reviewed with counsel.
