Channel conflict is a situation in which channel partners have to compete against one another or a vendor's internal sales department.
Channel partners, such as value-added resellers and IT services providers, comprise a vendor's indirect sales arm. While some channel partners are dedicated to doing business with a single vendor, the majority offer products and services from a range of vendors depending on the channel firm's particular business model and targeted markets.
Ideally, a channel partner will pursue customers either in conjunction with or without oversight from their vendors' direct sales departments. In some cases, however, channel companies can find themselves competing against a vendor's direct sales team for a customer deal. The direct sales team might attempt to undercut the channel partner on pricing or by offering other perks to win the deal.
Conflicts can arise when a vendor's deal registration practices aren't adhered to by the vendor or its channel partners. Partners will generally register a sales lead through a vendor's deal registration program. Doing so, at least in theory, grants the partner exclusivity and protection around the lead for a set period of time. But vendors have been known to bypass partners on opportunities, instead handing their registered leads off to their direct sales team or to more favored channel partners.
Channel conflict may also occur among various segments of corporate departments, such as in the sales channel. For example, the direct contact component of the sales department may have to compete with other sales channels, such as with telephone, online and mail campaigns.
Impact of channel conflict
When channel conflict and disintermediation occurs, the consequences can be far-reaching for both channel partners and their vendors.
Channel partners face not only the loss of the potential deal, but also the resources they invested in the sales cycle. In the IT industry, the sales process can be expensive, and it often takes extensive periods of time before a transaction is finalized.
The sales process can entail a channel partner dedicating many of its resources, including financial resources and employees, to nurture the deal to fruition. So, if bypassed by a vendor, the costs to a partner can be painful.
Vendors, on the other hand, can earn a negative reputation among partners when channel conflicts arise and go unresolved. Channel conflict can instill distrust in partners and can strain vendor-partner relationships. Some partners will decide to fire their vendor as a result of disintermediation, declining to do any further business with that vendor. The loss of channel partners can mean a vendor loses reach into specific market segments and loses accounts with which it wants to do business.
Managing and resolving channel conflict
To prevent channel conflict, partners sometimes enact agreements, such as deal registration. Additionally, many vendors devise rules of engagement, a document outlining how the vendor's direct sales team and channel partners are expected to behave during sales engagements.
A vendor might establish rules that reprimand or possibly terminate a direct salesperson that meddles in or poaches a deal that a partner has registered. Likewise, if a partner breaches a vendor's rules, the vendor might terminate the channel relationship.
Many vendors have instituted rules of engagement and deal protection policies. For example, Dell EMC, prior to the launch of the Dell EMC Partner Program, told partners that it would maintain a zero tolerance policy that barred its direct sales team from competing for partner-registered deals.
Editor's note: This definition was created in 2009 by Yuval Shavit and later updated for accuracy and readability.