36THEMcKINSEYQUARTERLY1997NUMBER3MARKETINGChristineBucklinandPamelaThomas-GrahamareprincipalsinMcKinseyÕsLosAngelesandNewYorkoÄÞces,respectively.LizWebsterisaconsultantintheChicagooÄÞce.Copyright©1997McKinsey&Company.Allrightsreserved.ChristineB.Bucklin,PamelaA.Thomas-Graham,andElizabethA.WebsterACTION-PLUSTHEMcKINSEYQUARTERLY1997NUMBER337Channelconßict:Whenisitdangerous?MANUFACTURERSTODAYselltheirproductsthroughadizzyingarrayofchannels,fromWal-MarttotheWorldWideWebandeverywhereinbetween.Sincemostmanufacturerssellthroughseveralchannelssimultaneously,channelssometimesÞndthemselvescompetingtoreachthesamesetofcustomers.Whenthishappens,channelconßictisvirtuallyguaranteed.SuchconßictalmostinvariablyÞndsitswaybacktothemanufacturer.Conßictcomesinmanyforms.SomeisinnocuousÐmerelythenecessaryfrictionofacompetitivebusinessenvironment.Someisactuallypositiveforthemanufacturer,forcingout-of-dateoruneconomicplayerstoadaptorSeparatingcomplaintsfromeconomicrealityWhenthereisaconßict,thereareeÄfectiveoptionsDonÕtoverreact,butdonÕtgetparalyzedeitherTheauthorswouldliketothankTanujaRanderyandNinaEigermanfortheircontributionstothisarticle.perish.Butsomeistrulydangerous,capableofunderminingtheeconomicsofeventhebestproduct.Dangerousconßictgenerallyoccurswhenonechanneltargetscustomerseg-mentsalreadyservedbyanexistingchannel.Thisleadstosuchadeterio-rationofchanneleconomicsthatthethreatenedchanneleitherretaliatesagainstthemanufacturerorsimplystopssellingitsproduct.Ineithercase,themanufacturersuÄfers.Thestakescanbehigh.ConsiderafewexamplesfromtheUnitedStates.HillÕsScienceDietpetfoodlostagreatdealofsupportinpetshopsandfeedstoresasaresultofthecompanyÕsexperimentswithaÒstorewithinastoreÓpetshopconceptinthecompetinggrocerychannel.Intheautomarket,ATK,thedominantsellerofreplacementenginesforJapanesecars,lostitsvirtualmonopolywhenitattemptedtoundercutdistributorsandselldirecttoindividualmechanicsandinstallers.QuakerOatsÕrecent$1.4billionwriteoÄffromthedivestitureofitsSnapplebusinesswascausedinpartbychannelconßict.QuakerhadplannedtoconsolidateitshighlyeÄÞcientgrocerychannelsupportingtheGatoradebrandwithSnappleÕschannelsforreachingconveniencestores.SnappledistributorsweresupposedtofocusondeliveringsmallquantitiesofbothbrandstoconveniencestoreaccountswhileGatoradeÕswarehousedeliverychannelhandledlargerorderstogrocerychainsandmajoraccounts,leveragingQuakerÕsestablishedstrengthinthisarea.However,thestrategybackÞred.AsQuakersuggestedmovinglargerSnappleaccountstoGatoradeÕsdeliverysystem,SnappleÕsdistributorsrevolted.TheysawthevalueoftheirSnapplebusinessasanexclusivegeographicfranchisethatthesplitchannelstrategywouldundermine.SeveralSnappledistributorstooklegalactionagainstQuaker.Thecompanyultimatelybackeddown,butthedisputehadcreatedaconsiderabledistractionatatimewhencompetitionfromArizonaandNantucketNectarswasintensifying.IdentifyingathreatWhileitisclearthatsomechannelconßictcanbedevastating,manymanu-facturershaveahardtimeÞguringoutexactlywhichconßictswillposeathreat.Webelievethekeytospottingdangersaheadliesinansweringfoursimplequestions:First,arethechannelsreallyattemptingtoservethesameendusers?WhatmaylooklikeaconßictissometimesanopportunityforgrowthasanewchannelCHANNELCONFLICT:WHENISITDANGEROUS?38THEMcKINSEYQUARTERLY1997NUMBER3ManymanufacturershaveahardtimeÞguringoutexactlywhichconßictswillposeathreatreachesamarketthatwaspreviouslyunserved.WhenCoca-ColainstalleditsÞrstvendingmachinesinJapan,forinstance,retailersobjected.However,thecompanysucceededinshowingthatwhilethevendingmachinesdidindeedservethesamecustomers,theydidsoondiÄferentoccasionsandoÄfereddif-ferentvaluepropositions.ItwasabletocountertheretailersÕnoisycomplaintswitheconomicrealities.Inasimilarway,companieslikeCharlesSchwabareusingonlinechannelstosatisfylatentconsumerdemandfornewapproachestopersonalÞnancialservices,suchaslowpricescombinedwithabundant,readilyaccessibleinformationfortheÒdo-it-yourselfÓcustomersegment.Second,dochannelsmistakenlybelievetheyarecompetingwheninfacttheyarebeneÞtingfromeachotherÕsactions?Newchannelssometimesappeartobeinconßictwithexistingoneswheninrealitytheyareexpandingproductusageorbuildingbrandsupport.Nike,forinstance,hasforward-integratedintoNikeTownßagshipstoresthathaveenhancedbrandaware-nessandprestigeandgiventhecompanymorecontroloverbrandimage.ThoughcompetingathleticsstoresbalkedatÞrst,thenewstoreisthoughttohaveboostedsalesacrossallchannels.ThecollaborationofpublisherswithnewInternetbooksellerAmazon.comtoenablebookstobesoldonlineandreducereturnrateshasforcedcategorykillerslikeBordersandBarnes&Nobletoentertheonlinearena.Althoughitisstilltooearlytotell,thisstrategymayexpandthemarketforbooksasconsumersenjoyeasieraccesstotheproductandusetoolssuchasEYES,AmazonÕsbrowser,toobtainadditionalinformationonnewtitles.Ininsurance,ProgressiveAutoInsurancehassuccessfullyintroduceddirecttelephonesalesalongsideitsagencychannel.Auto-Proprovidesa24-hourreferralservicetoagentsaspartoftheservice.Avonappearstobefollowingasimilarstrategyincosmetics:itssoontobelaunchedInternetsi