Sixteen years ago, I received a call from someone who worked for a large computer manufacturer, which was planning to add an online direct-sales program. The caller was creating a business plan for this new division of the company, and wanted to hire me to design an affiliate program.
My first question was, “What about channel conflict?”
“What’s that?” was not the response I expected.
I explained: if the company directly offered its computers for sale online, at competitive prices, it would surely upset the company’s existing sales channels, including distributors and retailers, as well as competing online resellers.
Of course, Dell and Gateway had established direct sales as a strong component of their businesses, but most computer makers focused instead on other distribution strategies (channels).
If this manufacturer added a direct-sales operation, then many of its distributors, value-added resellers, and other computer dealers and resellers would probably be angry and would shift their sales efforts to other manufacturers’ products.
Once I confirmed that this had never occurred to the caller, I suggested that she discuss this issue with her managers, and if they weren’t familiar with the idea of “channel conflict,” they should ask their supervisors, and so on.
She called to thank me the next day. As I’d expected, the direct-sales idea had never been vetted with anyone in the organization who was familiar with the company’s channel strategy. Within minutes after the plan was disclosed to key managers, it was firmly rejected.
If the team had continued as they’d planned, then it might have been weeks or months before the entire project was killed — and after such an immense waste of resources, the careers of those involved might have ended. If word of the plan had leaked to their existing sales channel, the company’s reputation and sales might also have been harmed.
Channel conflict is everywhere.