by Adam G. Southam

January 2001

To say that the Internet has revolutionized the way businesses do business is an understatement of vast proportions. It has given virtually anyone with a product or service a means of selling directly to customers without going through and sharing profits with distributors and retailers. Not surprisingly, this has prompted the creation of scores of e-businesses. And it has provided bricks and mortar companies new ways to market their goods. Selling on the Internet, however, is not problem-free. Specialty products manufacturers that have restricted distribution requirements may discover that selling on-line breaches the relationship with the very hand that feeds them"channel partners. In short, it causes channel conflict.

How do you know if you have channel conflict? Levi,s found out quickly after launching an e-commerce site. Key retailers told Levi,s that their account was in jeopardy of being cancelled if it continued to sell direct to consumers on-line. The National Association of Automobile Dealers used their clout and lobbying influence to redirect the actions of all major car manufacturers away from selling around their dealerships. And retailers from specialty boutiques to major department stores are no longer reticent to dictate terms to manufacturers who can,t afford to lose the sales volumes attributable to those accounts, no matter how strong the brand.

Manufacturers, however, are actively looking for new options. According to a recent analysis by Forrester Research (www.forrester.com), a leading technology industry research firm, "As retailers and manufacturers recognize that their role is to serve empowered consumers together, channel cooperation will replace channel conflict. Manufacturers and retailers must build bridges and (technology) vendors must offer channel cooperation solutions. Most consumer goods manufacturers envision a role for themselves on-line, marketing and selling directly to consumers. They acknowledge that channel conflict is an issue -- but not an obstacle -- and expect to coexist on-line with retailers that will dominate the channel."

Indeed, co-existence is already occurring. Various forms of channel cooperation solutions now exist, while still others are in the process of being created and refined. For example:

Tumi,s (www.tumi.com) store locator directs motivated consumers from Tumi,s Web site to an authorized dealer. And the Tumi Tracer™ entices consumers to return to the Web site and register their product with a lost luggage location system. Retailers and consumers alike see both as valuable additions.

General Motors,s BuyPower (www.gmbuypower.com) program allows consumers to specify the vehicle they wish to purchase, browse local dealer inventories, and establish an upper limit price, all on-line.

L,anza (www.lanza.com) has turned conflict into cooperation with technology that enables retailers and consumers to purchase products from its branded Web site, which is then shipped by a geographically-designated distributor. Retailers and distributors share in the net profits from every purchase in same manner as if the purchase was made in a retail store.
As these examples highlight, resolving channel conflict doesn,t merely benefit the manufacturer; everyone involved enjoys enhanced visibility and profitability. "Manufacturers must preserve the value in their brand or everyone suffers," says Chuck Batko, a leading branding expert whose clients have included Microsoft, Apple, Rollerblade, and Net Perceptions. A reduction in brand value also means reduced margins for retailers. Manufacturers are in the best position to control and market their brand on the Internet because they understand it better than anyone else and have the resources to drive consumers to their site. Hundreds of sites that sell "xbrand" are far less effective and far more confusing to consumers than a single, current, well-designed "xbrand" site.

Bruce Merrifield, the foremost expert on how electronic commerce is changing distribution channels (www.merrifield.com), says: "Every manufacturer that has a memorable brand name must be prepared for end users to go to brandname.com, hoping to find the most informative site for those goods. [Internet customers] will also expect to be able to order any pre- or post-sale materials or samples. Some end users may even discover products that they didn,t know existed and will want to buy them then and there. The manufacturer should meet these expectations to protect and improve the brand name,s meaning for both end users and all channel partners that sell the product line."