Web-based buying alternatives are ratcheting up channel conflict for many sales organizations. Warring channels erode the sales force’s carefully crafted value propositions, and undermining sales strategy and growth prospects in all aspects of the business. Technology businesses, often heavily reliant on indirect sales and distribution channels, are especially vulnerable.
In the effort to sort out unruly channels, sales leaders are finding an unaccustomed ally: lawyers. A firm pioneering creative legal strategies in this area is Vorys, Sater, Seymour and Pease. We sat down with the firm’s Whitney Gibson, a partner whose practice focuses on supporting clients with troubled channels.
Gibson joins an expert panel on this topic at October’s Sales Force Productivity Conference. Other panelists include Zebra Technology’s Denise Hampton, and Sandy Jap, endowed professor at Emory University’s Goizueta Business School and author of The Field Guide to Channel Strategy.
“One of companies’ biggest pain points include enforcing channel policies and eliminating conflict,” Gibson says. We caught up with him in a recent interview:
Do you anticipate channel conflict becoming a bigger problem in the future?
I see it becoming a bigger problem because the amount of traffic going to e-commerce sites is increasing dramatically year by year. If that company does not have control over who’s selling their products online and the prices being advertised, then the other channels are going to be that much more concerned and more upset with that. There will be that much more disruption and interference with those other channels.
Channels can become a problem if not managed well, leading to channel conflict, declining profits, and sometimes legal conflict. How do you create a policy to address channel conflict before it happens?
When it comes to these e-commerce sites you’ve got to figure out who your authorized sellers are. Once you’ve figured that out, you have to have policies with your authorized sellers that spell out where a channel can sell your product. Then you have to you have minimum advertising pricing policies with them that says you can only advertise the price or products at certain price points or the company will stop supplying the manufacturer. There’s a lot of legalese in that, but it’s about building the foundation. Then the company has a legal foundation to shut down unauthorized and grey market channels.
Once that policy is in place, it’s time to enforce it. How do you do that?
We monitor where these channels are selling along with their advertised prices, and then we help the business conduct enforcement. We go after unauthorized people that are selling either where they’re not supposed to or people who are grey market counterfeit sellers. We’ll identify them or shut them down legally so that the authorized seller is selling at the price the company wants. That way the company can use the authorized channels as a good example when approaching unauthorized sellers. It’s a multi-step foundational policy plus enforcement all working together that solves that problem.
How can MAP (Minimum Advertising Price) programs help reduce channel conflict?
What that does is prevent the situation where somebody in one channel decides they want to sell your product at a really low price, and then that causes another channel to either not be able to sell it or to drop their price in response. It really helps in stopping that downward spiral or price erosion for the brand. If a channel’s prices dip below your authorized price, you could stop supplying them, as per your policies.
What are the consequences of not addressing channel conflict?
First, your internal team can’t even get the sales because you’ve got all these other sellers from other channels selling online. The e-commerce team has no incentive or motive to grow the business because all these people are undercutting it and selling it from other channels online.
On the selling side, unauthorized sellers won’t take really good care of the products, they won’t apply quality controls, and so a lot of junk ends up being sold online. Then the company will get negative reviews on the marketplaces about their products and brand. When purchasers are looking at buying the products they’ll look at the product reviews and use that in comparing to a competitor. These quality issues and negative reviews erode your brand value over time.
The Sales Force Productivity Conference features over 25 sessions on sales effectiveness topics, ranging from sales operations to territory management to sales training. This year’s conference takes place October 15-18 at the Ritz-Carlton Atlanta. Register before August 31 to snag the early bird rate. Already a full member? Grab your discount code here.
