Channel Conflict

In the recent years many established companies have shifted their focus from selling product solely through traditional stores to a combination of a physical store presence and an internet presence.  This has caused conflict as distributers now resemble competitors for product sales.  I want to expand on some of the ways companies avoid channel conflict that were touched on in the class notes, and give real-world examples of companies who do a good job managing their distribution arrangements.

• Partnership – One example of a company that partners manufacturing and distribution is Pirelli Tires. Pirelli manages over 6,000 distributers for their high end tires and uses software to help the process run efficiently.  Pirelli handles all manufacturing and manages the website.  Sales made on the website are automatically fed to computer systems at local distributors for delivery.  Pirelli was able to cut inventory and distribution costs by 20% and has shared this profit with many of their distributors who have partnered with them.  A snippet of this business case can be found at Tibco Software.

• Non-Participation – Companies that do not engage in online sales but have an internet presence can run the risk of losing sales as customers have trouble finding their products.  One industry that operates with this model is the Golf industry.  Manufacturers such as Ping, Titleist, and Cobra Golf.  Each company offers product reviews and specification on their websites, but directs customers to local distributors through the use of a zip-code locator.

• Direct Sales - One example of direct from the manufacturer sales that works well is for large products with relatively low unit costs, such as low end furniture.  Companies that manufacture low cost furniture can avoid the costs of a warehouse distribution channel and increase the margins on each product.