Channel Conflict

The hallmark of revolutionary technical change in the marketplace, such as with the emergence of the Internet, is the destruction of traditional business practices — and firms that adhere to the status quo too long.

Managers are forced to “cannibalize” their own profitable businesses only to see a diminished return on investment. If they don’t, a competitor will do it for them.

One aspect of the Internet that has received much attention is the web’s ability to close the gap between buyer and seller, thereby eliminating layers of middlemen or intermediaries in the distribution channel. For those in the middle, the notion of “disintermediation” is surely an unwelcome turn of events.

Since the process of disintermediation is usually not instantaneous, managers find themselves caught in the uncomfortable position of needing to placate business partners in the distribution channel while taking steps toward the eventual demise of these relationships.

The problem of channel conflict is made more complicated by the introduction of new intermediaries that serve the special needs of e-commerce. Delivery, for example, becomes a critical part of overall customer satisfaction.