Effective sales channels have the potential to help you grow your business to new sales opportunities. This might involve resellers earning a commission on your product or strategic partners bundling in your software with their own. Either way, channel partnerships can put your product in front of more buyers.
What could possibly go wrong? Unless your two resellers find out about each other, or they start targeting the same customers you’re prospecting internally, or your strategic partner starts offering a lower price than you. These scenarios can create a channel conflict.
What is channel conflict?
Channel conflict occurs when brands interfere with their partners’ ability to sell and distribute products to customers. It typically occurs when a brand begins selling their products directly to consumers, disrupting channel partnerships with distributors, retailers, and agents who typically serve as intermediaries.
When manufacturers disrupt their established intermediaries’ ability to sell their products directly to consumers, a channel conflict may arise. This is because the distributors, retailers, affiliates, agents, and any other channel partners who work with the manufacturer lose an opportunity for revenue, creating a competitive scenario.
Let’s walk through an example of channel conflict.
Channel Conflict Example
A vitamin brand distributes products to an exclusive online retailer and affiliate partners. The brand had a surplus of vitamins and sold the products to the retail partner for a discounted rate. The eCommerce partner then sold the vitamins at a lower price, creating a channel conflict with affiliate partners.
Elaborating on this example, the eCommerce partner began targeting individuals who previously purchased the products from affiliate partners through online advertising. This created a channel conflict, because the online retailer and affiliate partners began targeting the same customers, with one partner having an advantage in being able to sell more product at a lower price.
By empowering their eCommerce partner to sell to consumers at a discounted rate, the retailer can now potentially cut into earnings for their affiliate partners who rely on the ability to sell their products at retail value. There is also the risk of customers being able to stock up on discounted products during the flash sale, which could impact their willingness to buy from affiliate partners for months to come.
That’s just one example of what a channel partner conflict could look like. Let’s take a look at other common conflicts and how to avoid them.
How to Avoid Channel Partner Conflict
To avoid channel partner conflict, set clear boundaries on customer targeting. Are there regions or customer segments your partners shouldn’t touch? Define those areas up front. It’s also important to be transparent about who you’re working with and why. Create a quarterly review cadence to keep this up to date.
Conflict 1: Market saturation
If your product helps your partner sell their existing products more effectively, it’s in their best interest to pursue a market penetration strategy. This means they will target a broad pool of customers and potentially go after your existing prospects. After all, it’s less about the sale of your product and more about starting their relationship with a new customer to sell their whole suite of products.
This leads to your product winding up in the hands of bad customers (wrong market segment) with the potential of cannibalizing existing deals. So, how do you avoid winding up with this issue from an overly aggressive channel partner?
Solution 1: Set clear boundaries on customer targeting
Are there certain regions or customer types your partner cannot touch? Setting clear boundaries in the contract will ensure your internal sales and marketing unit can function without worrying if your partner will swoop in and take over the relationship.
You should also add qualification criteria for when you’ll accept and reject a deal. Bad customers will create problems for your support team and, ultimately, impact you more than your partner with their churn. This is why having the final sign-off before a prospect gets approved for the product makes sense for your team.
Conflict 2: When your partners talk to each other
There’s nothing wrong with having multiple resellers for one product. It’s easy to split them up by region or even customer type (mid-market vs. enterprise). It might even stand to reason you get them different splits on revenue depending on what they bring to the table (tier one support, installation services, etc. … ). But, what if they talk about your product and realize someone is getting a better deal?
Solution 2: Transparency around who you work with today and why
Horizontal channel conflict is hard to manage, especially with companies that could consider themselves competitors. The only way to mitigate the risk here is to lay all your cards out on the table during the contracting process.
Tell your potential partner who you are working with, what restrictions they have (i.e., geography, market segment, etc. … ) and lay out your typical channel relationship terms. If you make an exception for a partner make, sure you’re getting extra value.
Ask yourself, if another partner found out about their deal and offered the same value, would you provide the same terms? That’s a good sign you’re on solid footing to partner with both companies.
Solution 3: Create a quarterly review cadence
Partnerships need to change as businesses change. Get face time with your partners several times a year to see how they’re doing and if there are ways you can help them be more successful.
In turn, this helps you get in front of potential conflicts and accelerates your relationship. I recommend a standing quarterly meeting and at least one face-to-face meeting annually to keep the relationship on good terms. If things come up, don’t be afraid to ask for an amended contract. A built-in annual review helps here as well.
As true partners, you win and lose together. By establishing clear boundaries, having an open conversation around who you work with, and setting terms for the partnership, you set yourself on the path to success. By reviewing the relationship regularly, you’ll also ensure you won’t fall out of it.