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Turning Channel Conflict into Channel Opportunity: Three Steps to Leverage Ecommerce to Grow Revenue Across All Channels

B2B commerce can enable manufacturers to grow sales across all channels, including traditional distribution. Take advantage of this for your business in 2019.

If you are a B2B manufacturer or brand, you have likely spent quite a lot of time, effort, and money establishing relationships with distributors and other resellers to help them drive sales. When a good working relationship exists with these channel partners, it can be viewed as self-destructive to undercut sales and profits by marketing directly to buyers. The specter of conflict with these traditional channels looms large and forces many manufacturers into inaction on digital commerce.

This conventional logic ignores purchase preference shifts by buyers who are becoming heavily digitized. This includes every participant in the supply chain – from manufacturer to distributor to reseller to the customer. Taking advantage of digital can in fact benefit all of a manufacturer’s channels – including traditional ones.

So, what is everyone worried about?

Price is usually the main source of channel conflict. There is powerful math for most manufacturers to sell direct, considering the large amount of margin typically available by selling at a list price. This power to disintermediate is the central underlying factor that defines channel conflict and must be managed by manufacturers to avoid alienating traditional reseller channels. Resellers are often responsible for a very large percentage of a manufacturer’s revenues, and this must be respected. In addition, many resellers add real value to the end consumer. Balance is required, but a careful approach can help B2Bs maximize sales in both traditional channels and new direct channels – simultaneously.

Turning Channel Conflict into Channel Opportunity

The first step for B2B manufacturing ecommerce is to have a plan for how to approach channel conflict and turn it into a growth engine for all channels, which means first understanding the value chain for a B2B company’s products entirely, from start to finish, by each selling channel, and understanding the value that each player adds. It is also important to understand how distributors or resellers are selling themselves. This is the key: Digital commerce efforts can complement and enhance how a distributor operates. Making all buyers’ jobs easier is pivotal to success with B2B ecommerce, and this can also include traditional resale channels.

Let’s turn channel conflict into channel opportunity. A good channel opportunity plan includes three components:

1. Define Each Channel’s Capabilities and Value

A channel opportunity plan should evaluate how each current sales channel operates, and what it can do with additional attention and support. A B2B manufacturer can start by analyzing their current and prospective selling channels (e.g., distributors, original equipment manufacturers, other resellers, in-house and external sales forces, ecommerce).

Once the channel mix is laid out, then address the following key questions for each channel:

How much revenue is currently being driven through each channel?
Why does the end consumer use this channel to buy products?
What is the key value that the channel adds to the end customer's buying experience?
Do the channels add product, application or other expertise that goes beyond just buying a product?
What selling channels do resellers use for a product? For example, do they have their own sales force in the field, a call center, etc.? By putting additional sales and marketing resources behind products, resellers often extend a brand’s market presence, adding value in the long run.
For resellers, do they have their own ecommerce channel? How are the manufacturer's products and brand being represented?
What systems and investments might the end customer have made with resellers to ease the friction of doing business (e.g., electronic data interchange or other automated ordering systems)?
What potential does each channel have to increase sales if additional investments are made in an ecommerce system and product data improvements?

2. Clearly Articulate a Pricing Approach, Organized by Channel

It is critical to understand the pricing dynamics of a B2B manufacturer’s market. They can begin, by understanding the gross margin profile of their products and what economic benefits they can achieve by selling direct via ecommerce. Some key questions to ask regarding pricing approach include:

What reseller price has the market supported over the past 2-3 years for products through each resale channel?
What are the pricing trends in each resale channel?
Based on pricing history and trends, how much overall margin is there to work with—cost versus ultimate resale price?
How do each of the channels price products?
How is the price to the end customer typically determined and managed?

Once this understood, then B2B manufacturers can:

Set a clear manufacturer’s minimum advertised price (MAP) and enforce it. This is a channel-agnostic and well-documented policy that informs all channels what you regard as the pricing that is acceptable to present publicly.
Set public-facing pricing—the pricing that anyone looking at a website sees—to a level that is reflective of other channels’ website pricing. Some manufacturers choose to require account registration and log-in to see pricing, which can set senior management at ease.
Consider leveraging ecommerce functionalities to offer special pricing to specific customers (or groups), only displayed behind a website login (a private site).
Assortment variation is another tactic that can be very effective in creating a channel opportunity plan. Manufacturers might consider repurposing an existing product line with a different brand name or feature set, or even create a new product line just for direct selling.

3. Develop a Communication Strategy for Each Channel

Clear communication is important, and each selling channel should have its own communications strategy. Surprising channel partners should be avoided, and long-term relationships should be managed with a transparent, business-focused approach that clearly communicates why the manufacturer is starting an ecommerce operation. Consider including the following items in discussions:

Observations about buyers’ purchasing habits and preferences, and how product research and purchasing behaviors are increasingly accomplished via digital means.
Communicating the pricing approach by channel, and how it will be managed.
Clarifying the pricing policy and how the resale price will be supported across the marketplace, which will help them maintain margin on the products being sold.
How this will provide improved channel support with better product information, digital capabilities and systems integrations. As the channel partners’ own selling efforts become increasingly digital, manufacturers will be better able to support them based on their own ecommerce skills and capabilities.
The manufacturer's expectations and projections caused by the “halo” effect, which tends to lift website traffic and interest for the entire ecosystem of sellers of a brand’s product. This has been shown for years in the B2C market where some brands even refer traffic to resellers’ websites for purchase, in addition to selling on their own sites.
Better sales team support in the field using digital means, such as access to real-time pricing and inventory data.

In the end, the perception of channel conflict is often bigger than the reality, and the fear of retaliation by channels is typically much greater than what actually occurs. An easy way to gauge this is to simply ask channel partners about trends they are seeing among their other suppliers.

Confront the reality of what is happening across channels, and do not be a slave to traditional selling channels. Without the desire and accompanying action to evolve into a digital-first company that is taking advantage of channel opportunity, you risk losing relevance altogether. Don’t be left by the wayside!

About Brian Beck

Brian has 20+ years of experience, including over 15 years as a C-level ecommerce executive. He is a recognized expert in ecommerce, helping manufacturers, brands, and distributors drive tremendous growth from digital commerce. Prior to Guidance, Brian served as VP Ecommerce for Harbor Freight Tools, a multi-billion dollar (annual revenue) tool seller, where he built the company’s Ecommerce from early stage to over $100 MM in revenue in two years. His recent clients include illumina, Big Ass Fans, Brasseler USA, Augusta Sportswear, NDS, Sole Socity, Johnny Was, Boy Scouts of America, Mountz, Positec, Sunridge Farms and numerous others.

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