Magazine article Management Today

Channel Hopping

Magazine article Management Today

Channel Hopping

Article excerpt

E-commerce confronts established market leaders with 'channel conflict'. What is it and how can it be managed?

What is channel conflict?

The battle between new and old ways of reaching customers. New channels are lower-cost or more effective at capturing and keeping customers. They are first introduced by new competitors, who grow rapidly and take the market share from established firms. Established firms are then torn between the need to respond and the need to protect current channels and profits. They agonise about cannibalisation--but if they don't eat, they will be eaten.

Give me some examples of channels and conflict.

In retailing, the shift from small high-street stores to large out-of-town superstores. Toys 'R Us and Ikea decimated the high street. High-street retailers such as UK grocery chains Tesco and Sainsbury responded aggressively and survived and prospered--at least for a while.

In financial services, the shift from high-cost branches and agents to call centres and direct marketing. This is led by new competitors such as Schwab in discount brokerage, and Direct Line in personal insurance.

The hottest channel conflict right now is e-commerce. The internet costs less than bricks-and-mortar branches, in-person sales forces, distributors and even direct marketing and call centres. It is better at delivering high-value, high-convenience and highly personalised customer care than an individual sales or service rep. And the speed and scope of impact is far greater: a good e-commerce site can be up and running in six months for around [pounds]3 million, with immediate global reach--unlike the national roll-out of superstores, or the build-up of a global distributor network.

How are businesses reacting to the e-commerce conflict?

So far, not well. Many are virtually absent from the online channel. Travel agencies are terrified of e-commerce, which will cannibalise their huge branch networks, while travel providers (airlines, hotels, tour operators) push hard to cut out agencies by selling direct over their own web sites.

Bookstore Barnes & Noble's response to Amazon exhibited classic channel conflict problems: initial denial of Amazon's significance, then a half-hearted response with a poor online offering and, only recently, an acknowledgement and (belated) commitment to real online competition.

A random trawl of traditional UK financial brands throws up poor sites which are often no more than brochures. …

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