Point of View

Ideas that create the future

When suppliers attempt channel change, they face numerous
challenges from retaliation to customer rejection. Consider
the well-known clothing manufacturer which targeted online
shoppers by unveiling a direct sales Web site that offered a
much larger selection of apparel items than most of its 3,000
retailers. In addition to selling direct, the company prohibited
its traditional retailers from selling its products on their own
Web sites.
Though online sales were brisk, the company terminated the
program after conflict arose with its traditional retail outlets.
Instead, the company made arrangements for its product to
be sold online only through sites run by its traditional
retailers.
Finding channel conflict avoidance at the heart of many
companies' Internet strategies is not surprising. But proper
analysis and appropriate strategies can go far toward
minimizing the degree of conflict participants must
overcome. That is why we developed a channel conflict
strategy matrix to identify where conflict may arise and how
to weight that conflict when determining channel strategies.
Channel conflict strategy matrix
Companies use the channel conflict strategy matrix (figure 1)
to analyze the forces and opportunities for change in their
industries vis--vis each existing channel, and to quickly
identify optimal change strategies. The matrix shows the
interplay between:
I Market power, a function of where power resideswith the
supplier or with the channel, and
I Channel value, a measure of how much worth the channel
adds for the customer, beyond what the manufacturer
provides.
Four core strategies
Once a company determines market power and channel value
for each existing channel, the matrix becomes a framework
for strategic thinking:
I Pointing to the safest and most effective strategy for each
of four combinations of matrix dimensions
I Showing where to fight out conflicts and where to
mediate or avoid them.
The four core strategies are: compete, forward integrate, lead
and cooperate.
1. Compete. If market power rests with suppliers and channel
value is low, the optimal strategy for the producer is to
compete with the channel. Consider the airlines. They have
lowered commissions dramatically while investing in
electronic ticketing. They have also supported Web travel
sites while building and promoting their own direct sites.
However, while travel represents 75 percent of total
business-to-consumer e-commerce volume, less than five
percent of travel purchases happen on the Internet. That's
why some airlines are joining together to create a site
which will bring together the regular and promotional
pricing of dozens of different airlines.
2. Forward integrate. If market power rests with the
traditional channel, yet channel value is low, suppliers
should consider invading the channel to increase its
capacity for value creation. The supplier must create an
innovative offering that the regular channel cannot
duplicate and thus forestall possible conflict.
New channel opportunities:
The channel conflict strategy matrix
Bruce W. Bendix, John B. Goodman and Paul F. Nunes
Forward integrate
I Identify new value propositions
I Act fast/independently
I Fill gaps in channel coverage
Compete
I Create Internet-enabled direct
link to customers
I Shift volume to new channel
through promotions
Lead
I Define appropriate approaches
for the channel
I Make initial investment
Cooperate
I Look for win-win, grow the pie
I Seek compromise
I Look to sell new products
through new channels
Channel
controls
customers
Supplier
controls
customers
Insignificant Significant
M
a
r
k
e
t

p
o
w
e
r
Channel value added
Source: Accenture
Figure 1: Channel conflict strategy matrix
Three years ago, a major manufacturer of made-to-order
personal computers opened its own retail stores, defying
the conventional wisdom that PC retailing was a dead-end.
These stores have all the traditional display models and
sales help, but none of the inventory, with products and
services ordered on location through the Web. This strategy
has enabled the company to sell an average of four non-
PC items, including training, Internet services, financing
and solutions bundles, for every PC sold. These retail stores
are now one of the company's strategic assets, helping to
increase operating income at three times the rate of
revenue growth.
3. Lead. If the traditional channel's value is high, but its
market power is low, the supplier must take the lead to
ensure that the channel achieves its aims. The combination
of high channel value with low channel power often
springs from channel fragmentation, which makes it
difficult for channel participants to agree on and
implement new technologies and processes. So the supplier
must take the lead, forcing change while remaining
relatively free of retaliation risk.
This is the route a provider of networking solutions took. It
created a single Web site to sell directly to customers, and
to also provide assistance and coordination between
customers, distributors and value added resellers. The
customer perceives the channel as owned and run by the
company itself. But in truth, the independent channel does
the lion's share of the work.
4. Cooperate. The greatest potential for hostility,
recrimination and ultimatums arises when the traditional
channel's value and its market power are both high.
Channel players in this position see themselves as equal to
their suppliers. Suppliers in these circumstances are the
most tempted to do nothing about channel redesign.
But suppliers' fears may be exaggerated. They have
opportunities to cooperate with the channel in ways that
enhance total value creation. For example, they may create
new channels for new customer segments that conflict
only slightly, if at all, with traditional channels. Several
manufacturers have compromised creatively with their
traditional channels to grow their online businesses
without conflict. One car maker, for example, got around
the enormous channel power of its dealers by selling only
special colors and models online.
By limiting the number of products sold online, companies
with large portfolios of products can often reach happy
compromises with their channels. For example, a maker of
premium beauty products created a Web site that sells only
its lower-priced brands. A large consumer products
company, also a cosmetics maker, took another approach
selling custom-made cosmetics online, effectively avoiding
conflict with its traditional prepackaged lines.
Seeing possibilities
Consideration of the matrix reveals more strategic choices
than most executives believe exist. In their confusion and
anxiety, many CEOs see only two optionsdisintermediate the
channel or do nothing. Using the matrix opens new
possibilities, especially for implementing strategies focused on
leading or cooperating.
Note: The authors of this Outlook Point of View have also
written a companion article entitled Mapping the way to
overcoming channel conflict.
Bruce Bendix, associate partner Strategy & Business
Architecture, is based in Chicago, Illinois, U.S.
(bruce.w.bendix@accenture.com).
John B. Goodman, partner Strategy & Business
Architecture, Electronics & High Tech, is based in
Washington, D.C., U.S. (john.b.goodman@accenture.com).
Paul F. Nunes, associate partner and senior research fellow
Accenture Institute for Strategic Change, is based in
Cambridge, Massachusetts, U.S.
(paul.f.nunes@accenture.com)
Please contact us at pointofview@accenture.com or visit us at
www.accenture.com.
Accenture 2001. All rights reserved.
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