There are two words for Distributor-to-Retailer eCommerce — complex and dynamic. This business model has gained significant traction in the past few years.
As brands, distributors, and retailers navigate this multi-layered ecosystem, they encounter various challenges and obstacles. One such common issue that arises in Distributor-to-Retailer eCommerce is channel conflict.
B2B channel conflict can be a huge issue. However, it’s not insurmountable.
With the right strategies and proactive measures, businesses can effectively avoid and manage channel conflict in the Distributor-to-Retailer eCommerce industry.
In this blog, we will explore some practical approaches to avoid channel conflict in the Distributor-to-Retailer eCommerce model.
Let's dive right in!
What is a Distributor-to-Retailer eCommerce channel conflict?
B2B channel conflict refers to conflicts within the Distributor-to-Retailer eCommerce model when manufacturers directly sell their products to end consumers, bypassing traditional channels like retailers, dealers and distributors.
While expanding into online markets is lucrative, it can potentially create tensions and conflicts among the various players in the ecosystem.
Here are some reasons behind channel conflict in Distributor-to-Retailer eCommerce:
1. Lack of communication and trust: Bypassing the distributors from the traditional channels and setting up eCommerce systems that will allow brands to directly sell to retailers or end customers will create a lot of disruption in the brand's offline business as well, which is the primary channel for most of the brands traditionally. Failing to involve existing partners in the decision-making process and keeping them uninformed about changes can breed discontent, damage relationships, and decrease support from distributors, dealers, and retailers.
2. Inconsistent pricing structures: Poorly implemented pricing strategies can result in price discrepancies across different channels, leading to pricing wars, customer confusion, and declining sales.
3. Channel prioritization imbalance: Placing excessive emphasis on one channel at the expense of others can create resentment and a decline in overall sales, as existing distributors may choose to discontinue promoting the brand or drop it altogether.
4. Neglecting customer convenience: Ignoring customers' evolving shopping habits and preferences, such as the demand for online and offline options, can lead to customer dissatisfaction and an increased likelihood of seeking alternatives from competitors.
5. Resistance to change: There is often also pushback from the channel in adopting new technology involved in enabling eCommerce.
6. Insecurity: Distributors are often insecure about exposing their retailers to the brand due to the fear of loss of business. Another issue that also arises in their perceived risk of over-transparency of transactions which is not the case in the offline world.
What are the types of channel conflicts in B2B eCommerce?
Channel conflict in B2B eCommerce can be categorized into three main categories: vertical, horizontal, and multiple channel conflict.
1. Vertical B2B channel conflict
It occurs when two parties at different points in the distribution channel have disputes. It can arise due to direct and indirect sales, where manufacturers bypass distributors to sell directly to retailers or consumers, creating competition between manufacturers and distributors.
2. Horizontal B2B channel conflict
Horizontal conflict happens between two parties at the same level in the distribution channel. It can be triggered by strategies like loss leader pricing, where one member significantly lowers the price of a product to attract customers, putting pressure on other retailers to reduce their prices. Turf wars may also arise when multiple wholesalers or distributors operate in the same territory, leading to fierce competition for sales. Oversaturation of distributors in a specific region can also lead to vertical conflict, resulting in sales decline and intense price competition.
3. Multiple channel conflict
When a manufacturer utilizes multiple channels to sell the same brand, it leads to multiple channel conflicts. For instance, a manufacturer may sell products both directly to consumers (D2C) and through wholesalers/distributors. This creates conflict as the manufacturer and retailer may target the same markets but offer different prices.
By addressing the specific challenges each type poses, businesses can boost cooperation, maintain price consistency, and enhance overall channel performance.
How to avoid Distributor-to-Retailer eCommerce channel conflict?
Now that we know how common channel conflict can be, let’s look at a few ways in which you can prevent it:
1. Become a partner, not a competitor for your distributors
To avoid channel conflict in B2B eCommerce, it is crucial to establish a collaborative partnership with your distributors rather than positioning yourself as a direct competitor.
Work together to define clear roles and responsibilities, and ensure that your objectives align with theirs. By fostering a sense of partnership, you can build trust and create a win-win situation for both parties.
Onboard distributors as sellers on your B2B eCommerce platform. Give them confidence that you are not cannibalizing their business, instead, you are giving them an additional channel to increase their customer reach and revenue.
2. Keep pricing structures simple and public
While you may not have full control over the pricing set by individual sales partners, setting a minimum retail price for your direct sales or eCommerce channel can help prevent undercutting and create a level playing field for all channels to compete.
3. Have an airtight contract
Establishing a comprehensive and well-defined contract with your channel partners is essential to avoid misunderstandings and disputes down the line. Clearly outline the obligations, rights, and responsibilities of each party involved.
An airtight contract provides a framework for collaboration, sets expectations, and helps prevent channel conflict in B2B eCommerce by ensuring that everyone is on the same page.
4. Educate all levels on your product
For successful collaboration, it is crucial to ensure that all channel partners have a thorough understanding of your product.
Provide comprehensive training and support to help distributors, retailers, and sales teams become knowledgeable about your product's features, benefits, and target audience.
Educating partners at all levels improves their sales productivity, enhances customer service, and strengthens the overall partnership.
5. Define customer targeting parameters
Establishing specific parameters for customer targeting helps prevent conflicts and ensures that each channel partner has a defined market segment.
By clearly defining target demographics, geographic regions, or customer preferences for each partner, you can minimize overlap and create a more efficient and cooperative environment.
6. Manage the number of channel partners in your niche
By carefully selecting the number of channel partners in your niche, you can create exclusivity and prevent conflicts. Limiting the number of partners for your Distributor-to-Retailer eCommerce business fosters stronger dedication and investment.
If conflicts arise frequently, it may signal market saturation. To increase profits and reduce conflicts, focus on larger packages or diversify target audiences and partner types. Create a clear plan for partner ecosystem growth to ensure effective expansion.
7. Maintain control over your supply chain
Exercising control over your supply chain by working exclusively with authorized distributors can effectively manage channel conflicts.
By ensuring that only authorized distributors are selling your products, you minimize competition among partners and reduce the chances of encountering conflicts.
This approach limits the number of distributors legally authorized to sell your products, streamlining operations and fostering a more harmonious channel ecosystem.
Driving Distributor to Retailer eCommerce Success through Channel Collaboration
Channel conflict is a critical issue, but by following the above-mentioned strategies, you can easily mitigate them. And it’s totally worth it considering the new B2B eCommerce business opportunities it brings.
With the help of ready Distributor-to-Retailer eCommerce platforms like Graas B2B eCommerce, you can build your Distributor-to-Retailer eCommerce platform easily, onboard your offline channel effectively on your platform in the most non-disruptive way and make it a win-win-win case for your distributors, retailers and you.