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Channel Conflict

Channel Conflict. Three Problems. Threatens the relationship with the existing channel. Leads to coordination problems. Destroys traditional segmentation criteria. Threatens the Relationship With the Existing Channel. Historic investments in the brand (Allstate)

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Channel Conflict

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  1. Channel Conflict

  2. Three Problems • Threatens the relationship with the existing channel. • Leads to coordination problems. • Destroys traditional segmentation criteria.

  3. Threatens the Relationship With the Existing Channel Historic investments in the brand (Allstate) Current investments (travel agents) Worse if the Internet is more effective (Avon) Response by the traditional channel: • Threaten to discontinue relationship (Home Depot) • Withhold information (Kodak) • Reduce efforts to promote (West Group) • Develop own Internet channel (Macys)

  4. Threatens the Relationship With the Existing Channel Solutions • Abandon the traditional channel (airlines) • Abandon the Internet (Levis) • Mitigate the threat to the traditional channel (Hallmark) Choice of solution • Is the threat real? • How important will the Internet by in the long term? • How important is the Internet in the short term?

  5. The Internet Leads toCoordination Problems Causes • More decision-makers or more dispersed information • Specialization: IT (Citibank), Language (Boston Globe, Gillette) • Conflict with the traditional channel (recall Kodak) Adverse outcomes • Scheduling • Inventories (Wordsworth) • Sales leads • Fulfillment (April Cornell, Amtrak)

  6. The Internet Leads to Coordination Problems Solutions Implement mechanisms that facilitate communication : • Joint incentives • Standardization (Amtrak, Citibank) • Job rotations (Staples) • Develop other sources of information (Allaire) Restructure • Reduce the number of decision-makers (Bose) • Reduce the distance from decision-makers to information (J Crew)

  7. The Internet Destroys Traditional Segmentation Criteria Two scenarios: • Store versus Internet (J Crew) • Regional stores (CVS) Outcomes: • Fairness concern (Amazon) • Price discrimination is ineffective

  8. The Internet Destroys Traditional Segmentation Criteria Solutions • Abandon attempts to price discriminate (J Crew) • Limit customers access to information (NECX) • Increase product differentiation (Ryobi) • Use alternative discrimination mechanisms (Amazon) Choice of solution Is a response necessary? How valuable is the ability to price discriminate? Can consumers learn price information from third parties? Can consumers be asked to identify themselves (Xerox)?

  9. Conclusions Were There Any Firms Not Affected? • Weak position in the traditional channel (Carrier) • Niche market (Gibson, The Gap) • Complement rather than substitute for the traditional channel

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