PARALLEL CHANNEL CHALLENGE: How To Manage Conflicts

The new economy and rapidly changing consumer preferences have created an entirely new business environment for vendors and partners alike. This environment is characterized by newer customer expectations, new competitors and a faster time to market. 

So with the competitive landscape becoming increasingly complicated, distribution becomes even more critical than ever. Marketing channels are being tailored to address specific needs of the target customer segments. To offer a greater value to a wider customer base, companies are expanding and diversifying their distribution channels. 

While some organizations develop a parallel channel to reach their targeted segment with greater precision, others may undertake the same exercise to gain a competitive advantage.

Notwithstanding a greater customer reach, vendors are faced with a risk of potential conflict within the channels. A risk that could undermine the advantage of greater reach and threaten the relationship that the company has built over the years with its partners. 

“The rapid growth of multichannel distribution systems has significantly increased the potential for discord among suppliers and channel intermediaries,” says Jonathan D Hibbard, Assistant Professor (Marketing), Boston University School of Management in a paper that appeared in the Journal of Marketing. 

The parallel angle

The need for more than one channel is felt when the existing channel saturates. While the guiding premise behind the creation of and working with parallel channels may be greater reach, an increased competitive environment in the market is another objective that companies wish to achieve.

“A parallel retail channel like Agrani, provides greater visibility and reassures customers of its genuineness, ” says Pankaj Sharma, Head (Channel Sales), Sharp Business Systems. 

Agrees Rajib Ghosh, Channel Sales Manager, Wipro Infotech, “It is to reach out to the targeted segment more aggressively that we take on parallel channels.” Says Sanjeev Keskar, Country Manager, AMD, “The objective is to create a competitive environment to provide better customer service.” 

Parallel channels are also developed after inefficiencies creep up in the existing system. “Emergence of more than one channel highlights the inadequacy of the previous one in some form,” puts S Narayanan, CMD, Mro-Tek, eloquently. 

While a sense of betrayal can set in on among older partners, it also throws at the vendor an opportunity to bring clarity to the situation and cement the relationship. “While the reaction is almost always that of resentment, you need to take them into confidence and explain the possibility of minimal overlap,” says RR Joshi, Director, Modular Infotech. 

The inevitable: Channel conflict

Within the industry, both vendors and the channel are unanimous in their opinion of the potential of parallel channels to create conflict. Serious conflict can occur when one channel targets customer segments already being targeted by an existing channel. 

This can lead to an immense deterioration of channel economics and partners may react by either retaliating against the vendor or stop selling the vendor’s products. In either case it is the vendor who is at the receiving end. 

“Even within the distribution model, due to multiple partners, there are conflicts at times. To top this with different channels can make the situation very unhealthy,” says Moninder Jain, Country Product Manager, Samsung.

Managing and minimizing conflict occupies a more central place in all channel activities. More and more companies are now evaluating the strengths and potential of channel partners, so as to manage them in a way that they complement one another. Thus, they will be able to provide customers a better value-added offering. 

Specialized channel, increased focus

HP India’s initiative to build specialized channels focused on product categories is an example to this effect. Latest in their initiative is the launch of a Storage Gold Partner Program, focused on partners providing HP storage solutions. 

This comes after its considerable success with focussed channels for large format printers, color laser printer and servers. “With a focused channel we are able to provide the best of solutions to our customers,” says Raj Kumar Rishi, Country Sales Manager, SMB, BCSO, HP India. 

This according to him has helped them minimize conflict in the process. The development of channels focussed on verticals like government or the call center business, is another conflict avoidance strategy. “In the past six months we have added greater number of partners who are addressing verticals,” says

Rishi. 

Owing their success to a fiercely loyal and aggressive channel, Samsung envisions an entirely different role for the vendor to ensure minimal channel conflict. Says Moninder of Samsung, “We believe that a vendor's role is evangelizing the product and establishing the brand pull, besides providing complete marketing, sales, logistics and service backup to its partners. This way they can conclude sales deals (and repeat sales) successfully and profitably”. 

Moninder advises companies to refrain from selling directly. He feels that the channel perceives this strategy as an act that will harm their interest in the course of doing business.

The direct dilemma

Zenith Computers has a direct channel that targets corporates, banks, government departments, defence and educational institutions. At the same time, Zenith's retail channel targets homes, SOHO and SMEs through 600 channel partners. This, in addition to its PC World exclusive showrooms and other retail outlets. Opines Raj Saraf, CMD, Zenith Computers, "To penetrate all market segments it is desirable to have multiple channels."

Justifying direct sales, Narayanan of Mro-Tek says, “Sometimes the demand for large projects makes it difficult for us to safeguard the interests of the channel. But in the long run, the channel is benefited from the same customer, because the brand has been sold”. 

Agrees the source at HCL, “The channel bandwidth may not be large enough for them to handle a project that requires greater technical expertise.” In the same vein Jitendra Gupta, Proprietor, Pioneer Automation Systems states, “For very large orders, it becomes difficult for a partner as credit is realized after a long time, while the vendor has the capability to hold on.” 

Suggests Sujit Sanyal, VP (Field Operations), Gestetner India, “Conflict can be minimized by differentiating the products being offered through the channel and those directly”. 

HP, for instance, has differentiated the skills of its channel partners by grouping them into clubs that focus on either a product category or a vertical. 

Sujit of Gestetner offers a word of caution though. Says he, “The companies need to be realistic and appreciate that a multiplicity of products coupled with a variety of channels is good for a market as big as the US. But the same scenario may not hold good for the Indian market." 

Partners: The new P of marketing

Partnering closely with the channel can also act as a potential competitive strength; for example, as means to ensure loyalty from key customers. HP in the recent past has deployed a direct sales force for business with its large corporate clients and the government and also to grow its medium enterprise business. 

However, the direct sales force does not engage in direct sales. It is primarily there to aid the channel in facilitating the sale. To further support the channel, HP has implemented a close-loop lead management process in eight cities across the country. This feeds partners with leads generated at customer seminars or road shows or through advertising. 

And even when HP does direct billing, in very special cases —- global customers for instance, who are a small portion of its business -- sales commissions are passed on to the partners. All tactical exercises are undertaken to ensure channel value-add and minimal conflict. 

Samsung also does not sell direct. It perceives any channel dissatisfaction as unhealthy. “Erosion of channel confidence will only harm the brand from a long-term perspective,” says Moninder of Samsung. 

Hidden value-adds

Another differentiation is to provide value to customers that are neither immediately visible to competitors nor susceptible to ready imitation. For instance, providing specialized training for a distributor’s sales force. 

Says Sujit of Gestetner, “We are committed to providing the channel workforce with a minimum training of six days per employee. We will invest in our partners and not use the term loosely.” HP, too, includes training in the parameters it uses to assess the performance of partners. 

HCL gives the first right of refusal to its existing partners before venturing into tie-ups with new partners. Says the HCL source, “If we are to increase the number of outlets in a particular geography, we approach our existing partner in that region for expansion. Only after his refusal do we scout for new recruits”. 

HP goes one step further. It has put in place a formal appraisal system for all its partners. Every quarter, a partner's performance is reviewed on parameters that include achievement of targets, leads management, conversion rate, training sessions attended and customer satisfaction. 

“Partners not performing are issued formal warning letters,” says Rishi of HP. He went on to cite cases of partners whose memberships were revoked and who worked on their lacunae only to be re-appointed later. 

Clarity in communication

Transparency and well-laid policies go a long way in minimizing conflict and building stronger vendor-partner relationship. Says Raj Saraf of Zenith Computers, "This is an open market. Everyone sells everything. The customer's choice is final. Well-laid out policies always help in avoiding conflicts between parallel channels."

Effective flow of communication again helps in maintaining healthy relationships. “A free flow of information about all aspects of the business is absolutely critical,” says Rishi of HP. “If the actions are explained and the logic is sound and principled, the company’s decision is accepted. Even if it works to the disadvantage of a particular channel partner. The key thing is to keep the dialog open, transparent and avoid arbitrary decisions,” feels RR, MD Joshi of Modular Infotech. Agrees Keskar of AMD, “Free flow of information about our actions brings a certain level of trust in the working relationship”.

To keep this very flow smooth and seamless more and more companies are building formal communication systems that are supported by the Web. “Partners need to be a part of the company’s information network just the way employees are,” says Sujit of

Gestetner. 

Online investments 

Samsung has invested on a web site, www.seiit.net, to bring the entire reseller community onto a single platform. HP has a similar initiative for its entire Asia Pacific reseller community with www.appol.com. Says Rishi, “Every reseller has a password to access the generic information and the site also gives him/her market and dealer-specific information.” He further adds, “Most of the information that is available to our direct sales force is also available to the channel”. 

HP also holds at least one partner meet in eight to ten locations across the country every quarter, to address individual issues. The meets are also an occasion for HP to collect structured feedback from its partners. The structured feedback is then used in a manner to further smoothen the business processes within the company. 

HCL follows a similar partner contact program. “We have monthly meets and quarterly meets to ensure a greater level of understanding”, says the source at

HCL. 

No conflict? No way

While an effective channel design may contribute to the overall productivity of the channel, a zero conflict situation cannot be attained. Feels Saket Kapur, CEO, Computer Vision, “Any control that is induced cannot last long. After all, the customer has the final word.” Greater competition will make the partners and vendors work towards building loyalty and strengthening relationships, both within the channel and with customers. Sources at HCL agree, “No channel design can give you zero conflict. Its minimization, however, depends on the strength of your relationship”. 

Says Sujit of Gestetner draws an analogy with vendor support. “As an employer, we often stand by our employees when they are going through rough patches. But do vendors do the same, when their channel partners are facing rough times?" he questions. According to him, it is important to build a relationship that is robust and will ride rough weather together.

Internet: Friend or Foe

The emergence of the Internet can led to the destruction of traditional business practices and firms that adhere to this status quo for too long. As vendors re-adapt their distribution models, the channel perceives this as a threat. 

But channel partners need to ask themselves whether the alternative channel is really attempting to serve the same set of customers. The next question is whether their decreasing profitability is a consequence of the other channel’s encroachment. Because many a time the truth is not what is seems to be. 

Says Ghosh of Wipro, “Alternate channels act as factors that add value to their sales. They always open an avenue for support to ramp up their revenue.” Agrees the source at HCL, “It creates a healthy pressure thus ensuring that partners do not become complacent. This is something that no sales driven organization can support.”

The Internet, in the last few years, has also accelerated the rate of change in the channel management landscape. One aspect of the Net that has received much attention is its ability to close the gap between buyer and seller. 

For intermediaries or partners, the notion of ‘disintermediation’ is unwelcome. Also, they are under constant pressure to effectively use the Net to drive down operating costs while maintaining or even pushing up the level of service rendered to the end customer. 

There seems to be little cause of alarm, at least in the foreseeable future, as a large part of the Net experience is limited only to interaction. Ghosh of Wipro offers some figures, “Even in developed countries like US, the average business done through a web site is just two percent, which might not grow beyond two-and-a-half percent. On the other hand, online buying in the Indian market is lesser than one percent, which is almost negligible”.

Realizing the leverage an integrated channel can give a company, Samsung is using the Net to further add value for its ‘offline’ channel. Says Jain of Samsung, “Sales originating from www.buildurpc.com are redirected to the nearest dealer”. 

Channel conflict is inevitable, but not all conflicts are dangerous and understanding their source and its gravity is the hallmark of good channel management.

MOHIT CHHABRA in New Delhi with inputs from Vinita Suvarna-Bhatia in Mumbai and Sunila Paul in

Bangalore.