PowerPoint Presentation - Channel Conflict

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Business Law International the 2001 Conference
of the IBA Channel Conflict or E-Commerce
Avoidance Successful Examples for an Integration
of Suppliers and/or Sales Intermediaries in an
Internet Sales Channel
Michael M. Sax B.A., B.C.L., LL.B.,
LL.M. Barrister Solicitor Trade Mark Agent
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Success Factors for On-Line Sales
INTRODUCTION

• How well the target market of the product matches
  the demographic profile of Internet users.
• The efficiency of using the Internet as a sales
  channel, such as the ease by which the sales
  transaction can be conducted on-line, and the
  proportion of shipping expenses relative to the
  value of the product.
• The degree of consideration required to make the
  purchase.

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Two Additional Factors
Success Factors for On-Line Sales

• The ability of the consumer to pay for on-line
  purchases through the existing payment
  mechanisms and
• The ability to successfully manage conflict with
  existing offline distributors while attracting
  new purchasers of the products and services
  concurrently maintaining existing ones.

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What we will Cover Today

• Examine Channel Conflict arising between
  Supplier and its offline Distributor.
• Decision process should supplier go online or
  even permit its intrabrand distributor to go
  online.
• Look at decisions made to go alone, to go
  together, not go or not permit the channel
  distributor to go online Examples
• The legal ability of suppliers to restrict
  intrabrand distributors to offer their product or
  service online or favour one over another.

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Channel Conflict

• Some businesses will find it difficult to conduct
  e-business because of possible channel conflict
• Computer hardware manufacturers Compaq and IBM
  ventured cautiously in order to avoid the ire of
  their retail distribution channels. Even in
  international markets, some may find that on-line
  orders may fall into the territories of their
  existing distributors in other countries.
• Some retailers have by-passed the issue
  completely by using the web to engage people and
  get them into showrooms, actually or virtually,
  like GM Buypower web site, which moves customers
  along the sales cycle by referring them to local
  dealers  

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Channel Conflict
GM Buypower Web Site
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Channel Conflict
Selling On-Line Conflicts and Risks

• A large proportion of sales at the retail level
  could be displaced by e-tail sales.
• Retailer' s perceived or actual vulnerability can
  provoke retailers to refuse or threaten to refuse
  to sell the manufacturer's products. (Home
  Depot)
• Selling online can prompt retaliation from
  offline retailers that significantly and possibly
  permanently lowers a manufacturer's revenues and
  market share. (Compaq)
• For manufacturers who sell through a sales force
  whose compensation is based only on the
  performance of offline operations, selling online
  may cause low morale and high turnover.

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Types of Channel Conflict
Direct Channel Conflict
Is created by manufacturers who launch a new
channel that they own and who currently sell
through an offline channel that they do not own
such as independent dealers or retailers in the
case of auto manufacturers or clothing retailers.
These manufacturers are at greatest risk of
retailer retaliation.
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Types of Channel Conflict
Internal Channel Conflict
Is created by manufacturers who sell through
their own web site and through an offline channel
that they also own. An issue of cannibalization
of offline sales by the online channel lowers the
compensation of the company's offline personnel.
e.g., Dell avoided this problem.
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Types of Channel Conflict
External Channel Conflict
Occurs when a manufacturer owns neither its
online nor its offline channel. This form of
channel conflict is the least frequent and the
least threatening to retailers.
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Factors Whether or not to Sell Online

• Does selling online make economic sense
• What is the manufacturers market position?
• Is the industry as a whole moving online?
• The degree of dependency or interdependency

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Factors Whether or not to Sell Online
? Standley
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Strategic Choices for Suppliers

• Some suppliers may wish to ban all sales by
  distributors/retailers over the Internet out of
  concern for maintaining the integrity of their
  distribution system.
• Some suppliers may wish to market and sell over
  the Internet directly to retailers and end users,
  in addition to maintaining their traditional
  sales channels through distributors.
• Some suppliers reserve some or all Internet sales
  to themselves under their distributorship
  agreements.

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CONFLICT Sell Online Without Making Any
Concessions to their Offline Channel
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CONFLICT Sell Online Without Making Any
Concessions to their Offline Channel

• Are the economics of selling online favorable?
  Yes unless tactile, visual or audio senses are
  important to the consumer and that outweighs
  price advantage
• Is the manufacturer a market leader? Yes they are
  the benchmark in many products.
• Is the industry moving online? Yes
• Is the offline channel dependent on the
  manufacturer? Yes the brand is strong.

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AVOID CONFLICT Sell Online and Appease their
Offline Channel

• Spin-Offs
• Price Differentiation
• Product Differentiation
• Market Separation
• Share

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AVOID CONFLICT Sell Online and Appease their
Offline Channel
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AVOID CONFLICT Sell Online and Appease their
Offline Channel
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AVOID CONFLICT Sell Online and Appease their
Offline Channel
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AVOID CONFLICT Sell Online and Appease their
Offline Channel
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Choose Not to Sell OnlineAvoiding E-Market
Risks

• Offline customers will shop on their competitors'
  sites.
• May lose market share
• May lose a valuable opportunity to improve their
  profitability.
• Lose the opportunity to engage the customer and
  have millions of potential customers visit a site
  annually at a fraction of the cost of trying to
  use other media to get the same exposure.

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Legal Ability of Suppliers to Restrict Intrabrand
Distributors

• In Canada, authorities place low priority on
  cases of low economic impact
• Cases in Canada have been dealt with indirectly -
  Polaroid Canada Inc. V.  Continent-Wide
  Enterprises Limited
• Section 75 Refusal to Deal - Chrysler Canada
  Ltd. V. Canada ( Competition Tribunal)

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Legal Ability of Suppliers to Restrict Intrabrand
Distributors

• In the US,-United States v. Colgate Co.
• A Manufacturer can defend Internet restrictions
  on two levels
• manufacturer's unilateral Colgate right to deal
  only with those distributors it wishes in the
  absence of an intent to monopolize
• a manufacturer can show that its non-price
  restrictive contracts with distributors are
  pro-competitive because they promote efficient
  delivery and a stable supply of goods and
  services for the consumer, and increase
  interbrand competition by enhancing the ability
  of manufacturers within an industry to compete
  for customers

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Legal Ability of Suppliers to Restrict Intrabrand
Distributors

• EU
• Will be covered by Heiko Tietz, M.B.L.-HSG

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