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Channel Conflict and Cannibalization

Channel conflict can occur between channel partners when one partner's activities negatively impact the other's business goals. Causes include misaligned marketing strategies, differing perceptions of the market, and resistance to changes. Consequences are partners distancing themselves from the brand. Samsung faced conflict between offline and online retailers in India, but addressed it by giving offline partners exclusive rights to certain models. Market cannibalization occurs when a new product takes sales from an existing product of the same company rather than gaining new customers. It can be unintentional from overlapping marketing or deliberate for growth. While it hurts short-term profits, some cannibalization is unavoidable as companies expand into new channels to remain competitive.

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218 views4 pages

Channel Conflict and Cannibalization

Channel conflict can occur between channel partners when one partner's activities negatively impact the other's business goals. Causes include misaligned marketing strategies, differing perceptions of the market, and resistance to changes. Consequences are partners distancing themselves from the brand. Samsung faced conflict between offline and online retailers in India, but addressed it by giving offline partners exclusive rights to certain models. Market cannibalization occurs when a new product takes sales from an existing product of the same company rather than gaining new customers. It can be unintentional from overlapping marketing or deliberate for growth. While it hurts short-term profits, some cannibalization is unavoidable as companies expand into new channels to remain competitive.

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umar
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CHANNEL CONFLICT AND

CANNIBALIZATION

SUBMITTED BY: UMAR ARSHAD

SUBMITTED TO: MS. RAASTI NAFASAT ALI KHAN

SUBJECT: FUNDAMENTALS OF ECOMMERCE

BUSINESS MANGEMENT (S III)


CHANNEL CONFLICT
Channel conflict can be explained as any dispute, difference or discord arising between two or
more channel partners, where one partner’s activities or operations affect the business, sales,
profitability, market share or similar goal accomplishment of the other channel partner. Every
manufacturing company needs to plan its distribution and marketing channel appropriately, to
ensure market captivity and customer satisfaction along with growth and profitability.

In the process of the constant supply of products in the market, several channel partners and
intermediaries join the supply chain of the brand. Any clash and disturbance among these trading
partners can be considered as a channel conflict.

CAUSES OF CHANNEL CONFLICT


Marketing or Strategic Mis-Alignment: Sometimes, two-channel partners promote the
manufacturer’s product in a different manner, which created two different images of the same
product in the consumers’ mindset, which creates conflicting brand perception.

Difference in Market Perception: The manufacturer’s understanding of the potential market


and penetration into a specific region or territory, may vary from the perception of the
intermediaries, which can create conflict and reduce the intermediary’s interest in capturing that
particular market.

Change Resistant: When the channel leader plans to modify the distribution channel, the
intermediaries may or may not accept this change. Thus, it may result in a condition of discord or
non-cooperation.

Improper Geographic or Demographic Distribution: If the sales territory has a narrow


consumer base, and the channel leader allows many selling partners, they tend to lose interest
soon because of low profit and limited sales.

CONSEQUENCES OF CHANNEL CONFLICT


CHANNEL CONFLICT EXAMPLE
The world-renowned brand ‘Samsung Electronics‘, faced a multi-channel level conflict in its
Indian market in the year 2014. The company was selling its products (especially mobiles)
through multiple channels, i.e., via offline mode and online mode.

The offline channel partners raised the issue that the e-retailers are providing high discounts to
attract more and more customers, which had ultimately affected the offline sale of the product.

Due to this, many retailers and distributors in the offline market, distance themselves from the
brand and its products.

To address this issue and retain its offline distributors and retailers, Samsung provided the right
to sell forty-eight models of its brand exclusively through the offline distribution channel, thus,
re-energizing the brick and mortar channel partners.

WHAT IS MARKET CANNIBALIZATION?

Market cannibalization is a loss in sales caused by a company's introduction of a new product


that displaces one of its own older products. The cannibalization of existing products leads to no
increase in the company's market share despite sales growth for the new product. Market
cannibalization can occur when a new product is similar to an existing product, and both share
the same customer base. Cannibalization can also occur when a chain store or fast food outlet
lose customers due to another store of the same brand opening nearby.

HOW MARKET CANNIBALIZATION WORKS


Also referred to as corporate cannibalism, market cannibalization occurs when a new product
intrudes on the existing market for an older product. By appealing to its current customers
instead of capturing new customers, the company has failed to increase its market share while
almost certainly increasing its costs of production.

Marketing cannibalization is often done unintentionally when the marketing or advertising


campaign for new products draws customers away from an established product. As a result,
market cannibalization can hurt a company's bottom line.

However, market cannibalization can be a deliberate strategy for growth. A supermarket chain,
for example, might open a new store near one of its older stores, knowing that they will
inevitably cannibalize each other's sales. However, the new store will also steal market share
from nearby competitors, even driving them out of business eventually.
Cannibalization as a marketing strategy is generally frowned upon by stock analysts and
investors, who see it as a potential drag on short-term profits. As companies design their
marketing strategies, marketing cannibalization needs to be avoided, and individual product sales
need to be closely monitored to determine if cannibalization is occurring.

For example, when looking at the fast expansion of chains such as Starbucks or Shake Shack,
these companies constantly weigh the opportunities for sales growth with the risks of local
market cannibalization.

SPECIAL CONSIDERATIONS: WHEN MARKET CANNIBALISM IS


UNAVOIDABLE
Sometimes, market cannibalism cannot be avoided. Every major department store now operates
an online store, knowing full well that its sales can only cannibalize its brick-and-mortar
business. Their only other choice is to allow internet retailers to continue taking market share
away from them.

Macy's, as of 2019, is in the process of closing 100 brick-and-mortar stores nationwide.


Meanwhile, Amazon is busy opening a chain of convenience stores called Amazon Go. Will the
new stores cannibalize the website? It's not likely since Amazon Go only sells items that can't be
purchased on the website, namely ready-to-eat fresh meals.

EXAMPLES OF MARKET CANNIBALIZATION

Apple is an example of a company that has ignored the risk of market cannibalization in pursuit
of larger objectives. When Apple announces a new iPhone, the sales of its older iPhone models
immediately drop. However, Apple is counting on its new phone capturing competitors' current
customers, increasing its overall market share.

Companies often risk market cannibalization is hopes of gaining a bounce in overall market
share. For example, a company that makes crackers may introduce a low-fat or lower-salt version
of its brand. It knows some of its sales will be cannibalized from the original brand, but it hopes
to expand its market share by appealing to health-conscious consumers who otherwise would
buy a different brand or skip the crackers altogether.

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