Channel conflicts in the times of E-commerce

Channels have traditionally existed to solve the problems of cash flow. Some giants like Apple have outgrown the cash flow problems but they are just exceptions to the bigger picture. With the advent of malls companies have divided their channel management strategies and departments into traditional and modern trade. Ecommerce was the next big thing to follow after the malls and it got dumped into the modern trade side of supply chain.

There is an inherent conflict in this classification and companies are going to suffer with it. With the FDI rules and the way they have shaped E-commerce in India, marketplace models seem to dominate Indian e-commerce in the foreseeable future. Mixing of the modern trade divisions and the marketplace ecommerce is a dangerous cocktail.

Modern trade divisions are traditionally designed to bulk selling without a comprehensive strategy towards retail. Their job has been negotiating mutually beneficial rates with malls and transferring the risk to the malls regarding making profits per sale. If it sells, Bingo, if it doesn’t, try every strategy in the book.

The way most companies are handling this dilemma is interesting but slow suicide. The sales managers are negotiating deals with marketplaces and driving the sales thru distributors. The selection of distributors is based on trading favors and the ones who get most business are expected to be there for the managers to complete their targets at the end of the year. The gaps between distributor performance keep widening.

Some companies are worse. They don’t have any strategy in place. That is when the distributors are selling online on their own with no rules in place. They are undercutting each other to such an extent that it becomes an assured loss making game. Companies need to remember that internal competition can sometimes prove deadly.

These are the conditions under which channel discontent is spreading fast. It is a ticking time bomb. Companies need a paradigm shift in attitude to address this problem. Radical solutions need to be thought of.

The best one would be to take control of their ecommerce. Start a super-modern trade division. Move to state of the art online inventory and order management systems like Browntape. Keep a blanket rule that channel partners are not allowed to enter this space. This gives companies total control over pricing and fulfilment.

The second best strategy would be to appoint online only distributors and divide their businesses as per areas of fulfilment. Business can also be divided on lines of categories or similar natural differentiators.

The bottom line is simple. There is serious discontent spreading among distributor channels because of poor or non-existent e-commerce strategies by companies. This problem can prove catastrophic if not addressed soon.

Disclaimer: The opinions and views mentioned in this article are solely of the author.