What is the Channel Conflict?
A channel conflict is a dispute between two parties at different distribution points. The most common example is when a manufacturer bypasses their merchant to sell products directly to a customer. A channel conflict is divided into three categories: vertical, horizontal, and multiple-dimensional. Such conflicts may decrease a company’s profitability or disrupt an entire supply chain.
Significance of Channel Conflict in an E-commerce Shipping and Delivery
Channels conflicts are outcomes that every business wants to avoid. While it is not directly tied to any advantage, the preventive steps allow one to deal with a channel conflict.
- Having multiple manufacturers: Manufacturer bypassing the retailers to sell products to a customer directly is a principal reason for a channel conflict. Having contracts with numerous manufacturers allow a merchant to replace a conflicting party without hassle.
- Long-term contract clauses: An exclusivity contract with a specific tenure can be used as a preventive measure to deal with a possible channel conflict. Heavy penalties often accompany the breach of such agreements. Therefore, if a manufacturer decides to sell directly, they must reimburse for contract breach.
Prerequisites of Channel Conflict and How It Works
Channel conflicts are unfavorable situations that work in three different ways listed below.
- Horizontal conflict: A dispute between two parties selling at the same level. For example, a disagreement between merchants who source for the same manufacturer.
- Vertical conflict: In such a scenario, a party selling at a lower channel level enters into a disagreement with another party selling at a higher level—for example, a dispute between a retail outlet and a brand.
- Multi-dimensional conflict: When a party tries to sell to the end customers and retail units.
Use Case with Channel Conflict
Some use cases of a channel conflict have been provided below.
- Three different retailers from Manila city outsource a manufacturer in the Philippines. As these retailers cater to the same audience, a channel conflict arises.
- A Phuket-based manufacturer decides to sell products online directly and disrupt their supply to their current retailers.