Different reasons for vertical and horizontal conflict

Horizontal Channel Conflicts

A horizontal conflict refers to a disagreement among two or more channel members

at the same level. For example, suppose a toy manufacturer has deals with two
wholesalers, each contracted to sell products to retailers in different regions. If one
wholesaler decides to branch its operations into the other wholesaler’s region, a
conflict will result. If the toy manufacturer doesn't help solve the problem, its business
dealings with both the wholesalers – and the downstream retailers, as well – might be
in jeopardy.

Causes and results of horizontal channel conflict include:

Loss leader and price wars. Sometimes, one member of the distribution channel
significantly lowers the price of a product to drive traffic to their store. (Retailers often
use this tactic to bring people into their store.) Then, they upsell more expensive
products to customers to make back the margin they lost on the initial discounted
product. This creates conflict with other retailers — it pressures them to adjust the
pricing of the same product, even if it will have a substantial impact on their profit
margin.

A common result is a price war. Even if you don’t directly participate in this war, it has
negative effects on your brand:

• Devaluation: It trains customers to expect a lower product price, which

devalues the involved brands and products.
• Stagnation: Prospects may hold up on a buying decision and wait for the price
to drop even lower. This can lead to sales stagnation.
• Higher return rates. Those who have already purchased your goods may feel
cheated when they see lower prices. This can lead to higher return rates and
degradation of your brand.

Turf war. Price wars bleed into turf wars, which is when multiple wholesalers or
retailers are selling in the same territory. Manufacturers may appoint a few
wholesalers to the same region or city, but if territories aren’t properly set, wholesalers
will be battling for sales in the same territory. As a result, brands get caught in a war
they can’t participate in — their “soldiers” (products) are moved around without you.
Vertical Channel Conflicts

Vertical conflicts involve a disagreement between two channel members on

consecutive levels. For example, if the toy manufacturer discovers its products are
arriving at retail stores later than scheduled, a conflict might develop between the
manufacturer and the wholesaler responsible for shipping to retailers. At the same
time, the retail stores might be in conflict with the wholesaler due to its inability to
ship products on time.

Causes of vertical conflict can include:

Direct and Indirect Sales. You’ve heard of retailers going directly to a manufacturer to
launch a cheaper or “copycat” product, right? That’s a source of vertical channel
conflict. When one party sidesteps another to sell direct-to-consumer, you get
competition between manufacturers and retailers.

Oversaturation. When manufacturers allow too many retailers in a given territory to

sell their brands, you have oversaturation. This ultimately hurts sales and creates
fierce price competition for retailers