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Managing Channel Conflict

Every brand wants to make it as easy as possible for consumers to buy their products and for good reason. Consumers face no shortage of choice, and if they face too many obstacles in buying from a particular brand, they’ll simply select another. That’s why most brands adopt a multi-channel retail model. Rather than restrict sales to their own direct-to-consumer (DtC) website and retail outlets, they form partnerships with wholesalers, boutique shops and the online marketplaces to sell their products. But while commerce is made super easy for the consumer, it is anything but for the brand.

Topping the list of headaches is channel conflict. You can work hard to establish a premium brand whose products consumers are willing to dig deep into their pockets to acquire. All that effort can be upended if department store decides to discount your products and all of your other wholesalers opt to match that fire sale price. And when this happens, it’s entirely possible that your website has the highest prices for your products, and consequently, the last place consumers want to shop!

Clearly, developing a strategy to manage channel conflict is as important developing a merchandising strategy (in fact the two are closely related). As we shall see in this blog post, there are steps you can take to protect your margins and your brand, and still have productive and mutually beneficial relationships with your wholesalers and marketplaces.

Let’s begin by discussing why a strategy for managing channel conflict is essential.

Protect your margins

Your DtC site and your retail outlets obviously offer your brand the best margins, and you’ll want to do everything you possible can to protect them. As mentioned above, wholesalers can undermine your efforts by discounting your products (and using their big Google AdWords and Google Shopping budgets to ensure people in-market see their lower prices!).

But they’re not the only ones who can frustrate your efforts. Let’s say you ship inventory to mom & pop shops or small boutiques that have small but loyal clientele. These shops often have stores in the global marketplaces, and may opt to discount your products there in an attempt to find new customers. If that happens, you can bet that the marketplace will detect that lower price point and match it. Suddenly your brand is in a race to the bottom.

Protect your reputation

When customers see the same product sold at different prices at various retail outlets a sense of unease can set it. What shouldthe product actually cost? How do they know they’re not getting ripped off?

That unease is made worse if the same retailer presents different pricing via different channels. This past winter, an NBC affiliate reported that the prices listed in Target’s app change based on the consumer’s location. If at home, prices displayed via the app were generally lower; in store, they were higher. Although Target hasn’t explained their reasoning, to many consumers it felt as if the retailer wanted to lure them into the store with lower prices, assuming that once there they’d just pay the higher cost rather than go someplace else. This isn’t a good way to instill trust, even if Target had no intention of deploying bait-and-switch tactics.

Protect your customer loyalty

Every brand makes investments in their customers, and you want those investments to continue paying dividends through repeat sales and customer referrals. Third-party channels, like Amazon, can help you introduce your brand to new consumers, but the process needs to be managed. If consumers stop coming to your site you won’t have any opportunity to build long term relationships with them.

Now that we know the challenges, what can you do to overcome them?

  • Think twice about discounting core and evergreen products. Let’s say your brand is best known for its bright green alligator shoes; they’re the evergreen product that sell well week after week, month after month. You should resist the temptation to discount them on your site, as your wholesalers will quickly match your price. Given that you probably have agreements in place that guarantee margins for your wholesalers, discounts on your evergreen products are just unprofitable endeavors.
  • Cull your list of wholesalers. While it’s tempting to have as many wholesalers as possible selling your products, sometimes you need to make difficult choices and cull your list. The best wholesalers are those that are equally committed to your margin goals. If a retailer doesn’t mind taking a 10% or 20% hit on the margins for your products, it may be best to sever that relationship.
  • Withhold future shipments. Once you ship inventory to a wholesaler you have very little control over the price they opt to sell it for, but you absolutely have control over future shipments. You can inform your wholesalers that they won’t be entitled to receive future shipments if they discount your products. Just make sure you follow through on your warnings.
  • Create custom products for special events. Wholesalers are often masters of merchandising, and when they approach you to participate in their once-a-year anniversary sale or some other special event, a little flexibility on your end is needed. Rather than discount your core product line, create a special product or bundle just for that retailer. This strategy ensures that your core products aren’t discounted, and that the sale item is only available from that source.
  • Reserve exclusive, limited and customizable products to your owned and operated channels. Keep avid fans of your brand coming to your DtC site or stores by reserving your exclusive, limited availability or customizable products to your owned and operated channels. And, by the way, you can feel free to discount those products if you want, as you’re the only one who sells them.

 

Those are just some of the strategies we’ve seen retailers deploy to manage channel conflict. Keep in mind that while these tactics clearly work to your advantage, they also benefit your wholesale partners who are equally committed to strong margins.

Written by: Phillip Jackson, Ecommerce Evangelist & Guest, Megan Petersen