Managing Web-Driven Channel Conflict

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"In the business world, everyone is always working at legitimate cross-purposes, governed by self-interest." -- Harold Geneen, ITT CEO, 1984


Conflict among distribution channels has always been with us. It's the natural character of salespeople -- at least good salespeople -- to want it all. And they seriously resent threats to their commissions.


The Web has made channel conflict even more complicated by forcing marketers to face key questions:


* How do you keep existing sales channels happy when customers want to buy over the Web?


* Is it conceivable that traditional channels eventually will become unnecessary? If so, how do you cover the marketplace and sustain growth during the transition?


* Should you strive to eliminate channel conflict or simply manage it?


The answers to these questions depend on product scope and complexity, customer needs and market shifts. IBM's view is that zero channel conflict means insufficient market coverage.


Multichannel strategy: IBM has four sales channels: the direct sales force, re-sellers, telesales and just-emerging electronic commerce. Each channel has a particular coverage focus, but customers may engage with any of them.


On the e-commerce front, IBM's activities roughly fall into four categories:


* Transactions, through the e-commerce channel known as ShopIBM (www.direct.ibm.com).


* Customer service and support, such as tech support and software delivery.


* Re-seller support, such as sales-lead management and supply-chain management.


* Influencer relations to communicate proactively with the press, investors and other stakeholders.


ShopIBM is developing rapidly as a transaction medium. It offers products that are naturally most suited to the special characteristics of the Web: Hard-to-find products such as PC parts that can be selected through a search engine and low-value products such as add-ons and upgrades -- easy to sell over the Web and of little interest to other channels.


IBM direct marketing's view is that the lower-cost telesales and ShopIBM channels should focus on the aftermarket, and field sales and re-sellers should go after complex transactions and new accounts.


As product channel strategies evolve, ShopIBM is focused on attacking business opportunities in a number of areas. We have built intranet sites for many of our largest customers -- Fortune 100 companies with whom IBM has a volume price agreement. We have built IBM Web sites behind their firewalls that allow their employees and purchasing agents to order IBM products quickly, and we then provide summary reporting for corporate purchasing.


Finally, there is QuickShip, a 24-hour service offering next-day shipping of 500 of our most popular products. This is an example of conflict elimination: QuickShipability is available to all channels. Resellers are particularly appreciative because they can sell IBM products without taking possession of the inventory.


Few easy answers: Managing channel conflict is not easy. IBM customers expect to be able to buy electronically. And with an entire corporate strategy built around networked computing and e-business, we need to be in the vanguard. But we also need to cover the marketplace. With the broadest product mix in the technology world and some of the most complex solutions, we will always need face-to-face sales and technical support.


So, as the e-commerce channel develops, IBM is focused on ways to get the most out of the Web while avoiding the pitfalls of channel conflict.


First, we have found that setting the right quotas -- larger ones -- and then paying the IBM sales force for all IBM business closed in their territories reduced considerably the opposition of the field to the introduction of the telesales and re-seller channels. The same double dipping on commissions applies to Web sales.


Second, we implemented a re-seller-support program called TeamPlayers. Through TeamPlayers, re-sellers register their customers with IBM. IBM mails to the customers on behalf of re-sellers, takes and fulfills orders and pays re-sellers a fee. Consequently, TeamPlayers positions IBM direct marketing as a supporter rather than a competitor.


Third, IBM is experimenting with joint e-commerce initiatives with re-sellers. The IBM Software Group, for example, runs Web sites that refer customers to re-seller sites where they can purchase and download software online. The Personal Systems Group (formerly the PC Co.) also directs customers to local re-sellers when they search on the PC e-commerce site.


To avoid inefficient channel stacking, this kind of partnership needs to be managed very carefully. The best way to run it is to fence off certain product sets or customer sets and force the channel management. Of course, in that scenario, customer satisfaction can be at risk.


However we sort out the challenges of channel conflict on the Web, the medium still is an awesome power in any company's distribution strategy. As long as business marketers keep customers and their requirements first in mind, they will select the right solutions to the thorny challenges posed by conflicting channels.


Ruth P. Stevens is director of brand direct marketing at IBM, White Plains, NY.
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