Definition
What is channel conflict?
Channel conflict describes the situation where a manufacturer or distributor sells directly online to customers already served by its sales reps or reseller network. It is rarely about the listed price. It is about the attribution of revenue and commission, and so about the pay of the people your current revenue depends on. It is settled by a business policy decision.
What causes the conflict
A rep whose pay depends on orders from their territory sees a channel arrive that can take those orders without them. Their immediate financial interest is to make the project fail. They have the means to do it, because they control the relationship with the accounts. It is not ill will: it is a rational reaction to a threat to their income.
The conflict gets worse when the online price is lower than the rep's price. The online channel then wins on price instead of winning on availability and speed. The network may react by no longer championing your products.
In sales management, the conflict is called vertical when it pits different levels of the chain against each other (the manufacturer and its distributors), and horizontal when it pits intermediaries at the same level against each other (two resellers).
The four cohabitation models
- Reorder portal: existing accounts reorder on their own, at negotiated prices. It does not touch any new customer.
- Open sales with territorial attribution: anyone can order. The order is attributed to the territory's rep, who keeps their commission.
- Separate online range: only an entry-level range, parts or accessories are sold online.
- Demand generation only: the site qualifies the customer, then directs them to the distributor or rep. This model only holds up if the outcome of each referred enquiry is recorded.
The three commission policies
- Full commission maintained on every order in the territory: the most expensive policy, and the easiest to get accepted.
- Reduced commission on orders placed without the rep's involvement: it often triggers a long negotiation over what counts as involvement.
- No commission: defensible only for customers the network does not serve (outside the territory or below an order threshold).
With independent distributors, you do not control their pay. You control a commercial agreement and a transfer price.
Annual cost of maintained commission = online orders in the territory × average order value × commission rate
This amount is compared with the margin those orders would not have produced without the online channel. It is also compared with the cost of losing a rep who takes their accounts with them.
Fictional example: a manufacturer expects 50 online orders of $28,000 a year in an assigned territory. At 8% commission, keeping full commission costs $112,000 a year. The manufacturer compares that amount with the margin those orders would not have produced without the site. It also compares it with the book of business its rep would take if they left. It writes the rule down before launch, then announces it to the network several months ahead.
We read channel conflict as a question for senior management, not for a web project. A decision about sales staff pay cannot be settled by a website committee: it escalates, it drags on, and the project can end up reduced to a "contact us" page. So we put numbers on four things before we talk about a platform: the share of revenue that comes from reorders, the average order, the commission rate and the expected online volume.
Once the channel is live, two measures are enough: online revenue net of commission and the revenue of the reps concerned. If the second drops while the total does not grow, the channel is shifting revenue rather than creating it.
Not to be confused with
- Sales cannibalization
- Sales cannibalization describes one offer taking sales from another offer of the same business. Channel conflict is about people: it pits the online channel against the reps or distributors whose pay depends on the same orders.
- Channel entry cost
- Channel entry cost is what you have to commit before an advertising channel produces a readable result. Channel conflict concerns a sales channel, not an advertising channel.
Related concepts
- B2B buying group
- AI-assisted shortlisting
- Function of in-person sales
- Cost per processed order
- Sales pipeline
- Qualified lead
Further reading
- B2B online sales: avoiding conflict with sales reps and distributors
- B2B order portal: calculating savings and encouraging adoption
- How to add online sales to a business that sells in person
- Manufacturers: distributor or direct sales in a new market?
- Marketing plan: how to set and allocate your budget
Related services
Frequently asked questions
Should we sell for less online than through our reps?
No. A lower online price turns your own channel into a competitor of your network, which may react by no longer championing your products. The online channel should win on availability, speed and customer autonomy, never on price.
How can we tell whether online sales create revenue or just shift it?
Track two series for twelve months: online revenue net of commission and the revenue of the reps whose territory is affected. If the total grows while the second holds steady, the channel creates revenue. If the total stalls while the second drops, it shifts it.
