Interested in buying the new 16 GB Apple iPad Air 2? The price is $499 — period. Whether you buy it from Apple’s website, your local Apple Store or a retailer like Best Buy, you’re going to pay $499, as there isn’t a cheaper price out there. That’s because Apple has been able to prevent channel conflict, keeping pricing exactly the same across its various sales channels.
Although a B2C example, this approach also works for B2B companies. When you align sales processes across all channels, the result is a highly effective way to protect your margins and pricing. And by aligning multiple sales channels in a disciplined way, you’re able to effectively manage channel conflict and cover much more of your addressable marketplace, which is a fantastic opportunity to grow your revenue.
What Are Sales Channels?
To understand why managing channel conflict is so important, let’s take a step back and define what we mean by sales channels. Essentially, there are three ways to sell your products and services: direct sales, e-commerce and indirect channels:
Direct Sales Channels
With direct sales, your company makes the product and sells it to your customers — it’s a human-to-human link to your end users. The direct sales model can be a good fit for smaller businesses because it allows for more personal interactions with customers.
For new or developing businesses, direct sales gives you that one-on-one connection to reach your target audience, address customer concerns, and control your marketing message.
With e-commerce, you’re using a digital-to-human, self-service link to the end user. Although websites don’t take you to lunch, they are much easier and cost effective to reach a large number of customers. In both cases, the engagement is a direct link between you and your customers.
One of the advantages of selling online is that you are able to connect to the consumer almost anywhere, anytime. In addition, eCommerce channels can help you target new customers and serve niche markets.
Indirect Sales Channels
Indirect sales channels are more complex, and generally divide into two types:
Pure distribution sales channels
This model is fairly common in the B2B space. Your company makes a product and sells it to a distributor. That distributor then sells your product to resellers, which ultimately sell the product to end users. In certain states, specific industries are required to sell products through distribution channels instead of directly to end users. In Texas, for example, many products must be sold through distributors.
Partner sales channels
In this model, you have partners who essentially serve as your direct sales. You make a product and sell to a partner who then sells to an end user, but the partner is not a distributor. Independent software vendors (ISVs), OEMs and manufacturer’s reps are good examples of partner sales. For instance, if you manufacture computer hardware, the ISV buys the hardware directly from you, packages it with their software and then sells it as a solution to the end user.
How to Manage Channel Conflict
When you want to sell your product through these three sales channels, you quickly realize in order to prevent channel conflict, each channel requires different sales resources, processes, and capabilities.
Utilizing Channel Resources
With direct sales, your sales team needs resources to manage channel conflict and customer engagement covering functions such as inside sales, outside sales/field sales, sales operations, business development, presales and technical/field engineering. With e-commerce, marketing largely drives sales engagements along with technical resource support from IT.
When a partner leads the sales engagement, however, your sales resources are different. The partner handles many of the direct sales functions so your resources may include account management with a focus on training and co-marketing activities.
Aligning Sale Processes
Your three channels also require different sales processes to prevent channel conflict. When those processes aren’t aligned, especially around account coverage and pricing, you run into “channel conflict,” with multiple channels competing with each other for the same customer, essentially defeating the goal of increasing your share of the addressable market.
Imaging what happens when your direct sales team pulls into the customer parking lot next to the car of your channel partner. Competing with them is not expanding your market coverage. Your sales processes need to include well-defined market coverage areas for each channel, removing overlap and potential conflict.
For instance, a company might align direct and partner sales by setting aside a certain group of 1,000 customer accounts for direct sales. Those customers would be clearly identified and off-limits to your partners, but all other customers are available for partner sales to cover.
Establishing Pricing Policies
The same idea applies to pricing. Creating arbitrage in one channel irritates and negates the investments in the others. Clearly, pricing collusion is not an effective way to prevent channel conflict. The recommendation is to ensure your pricing policies are consistent across sales channels so there isn’t an advantage in one over the others.
Are there tools available that make operating across sales channels easier? Thought you would never ask. Configure, Price, Quote (CPQ) solutions are great tools for enabling you to extend a single tool across direct, indirect and e-commerce channels so your product management, content management and IT resources can scale across all channels.
When looking for CPQ solutions that seamlessly integrate into your CRM environment like, salesforce.com or Microsoft Dynamics, make sure the licensing includes extension to other sales channels and doesn’t require you to purchase additional licensing for topics like communities before you can extend to your partners. Additionally, make sure your CPQ solution includes integrated pricing guidance that is based on proven methodologies to ensure consistent policies and winning prices across all channels.
PROS Pricing Optimization
When you sell through multiple channels, and those channels are aligned correctly, it’s a great opportunity for profit optimization, because you’re efficiently covering a larger portion of your addressable marketplace. And when you manage pricing effectively across those channels, and take steps to prevent channel conflict and excessive discounting, you also keep your margin and your pricing intact.
The great news is there are tools available, like PROS Smart CPQ with integrated pricing guidance, that make keeping all channels smoothly working together much easier.
Learn more about how to boost your sales tech stack with CPQ Solutions.