With manufacturers, distributors, wholesalers and retailers, channel businesses have to manage many moving parts, but this becomes even more difficult when the marketplace is saturated with competitors. When dealing with overcrowding, companies need to understand how they can stand out from the crowd.
Why Is The Marketplace So Saturated?
While the reasons for crowding are unique to each industry, factors such as globalisation, technological advancements and shifts in demand are increasingly prevalent across all sectors and are contributing to a much more saturated market.
The barriers to market entry have been lowered on many fronts, which has allowed global competition and more businesses competing for the same market, meaning that even those that were primarily concerned with local competition now have international competitors. Closer to home, local mergers and acquisitions of smaller businesses (even those previously not considered to be serious competitors) can quickly turn them into potential threats.
Unexpected surges in demand can also result in overcrowding. When manufacturers struggle to meet their order requirements, an opportunity is created for competitors to create copycats or similar products to plug that gap.
All this results in customers having a wide variety of choices in front of them. While it has become easier for businesses to get their products or services in front of potential customers – it is more challenging than ever to stand out from the crowd and capture their attention.
What Are The Competitive Pressures Businesses Face When Selling Through Channels?
Collaboration and communication are key for channel businesses to be successful, but to stand out in such a crowded market, they must understand the competitive pressures they face, and how to overcome them.
Channel Conflicts
Channel conflicts are a common issue faced by businesses that occur when they interfere with their partner’s ability to sell to customers, such as by selling products directly to the customers (if they were not previously doing so), thereby reducing the size of their partners’ audience.
Channel conflicts can take different forms, such as vertical-level, horizontal-level, inter-type, and multi-channel-level conflicts. Some examples of the types of channel conflicts that can occur are:
- Wholesalers are not providing an adequate product volume to the retailer, because either the manufacturer has not delivered enough product in the first place, or there has been a breakdown in the agreement between the wholesaler and the retailer.
- Wholesalers in different regions encroach upon each other’s territories, compromising the entire distribution channel.
- When retailers receive different products from the same manufacturer, and one of them expands their range, intruding on another retailer’s segment of the product line.
- When partners at different levels of the distribution chain compete for the same customer base, especially when one undercuts the other.
How to Avoid Channel Conflicts
One of the best ways to avoid channel partner conflicts is to set boundaries on customer targeting from the start and regularly review whether these boundaries are respected.
Conflicts can arise if some partners get a better deal than others. In some cases, this may be necessary as an incentive or reward. However, if this becomes public knowledge, other partners can quickly become demotivated or even be reluctant to continue the relationship.
This is why transparency about who you are working with, establishing clear market segments, territories and pricing, and how you reward partners that bring extra value is important.
Developing an incentive program is a great way to motivate your partners, reward their efforts and keep a healthy level of competition without the risk of conflict.
You can provide clear and enticing rewards for top performers, but establish that going outside agreed territories or any encroachment will disqualify offenders from rewards.
Related resource: Developing Incentive Programs for Channel Partners to Maximise Performance
Maintaining Brand Consistency and Avoiding Brand Dilution
A common challenge channel businesses face is brand dilution. Partners have their own goals and brand identity, which may not align with the image you are trying to present.
With so many different distributors, wholesalers and retailers promoting your products, it can be challenging to ensure everyone stays ‘on-brand’, even if you have carefully selected partners that fit your core values.
Providing comprehensive brand guidelines is one of the best ways to secure consistent brand representation across all touchpoints. You should also establish a regularly updated training program to inform your partners about any new product features, while also reinforcing your brand messaging and customer service standards.
Managing Stock Levels Through Forecasting
In a competitive market, running out of stock is detrimental to profits and reputation. Customers will quickly look to competitors if they want a product that is out of stock and, provided the competitor’s product meets the customer’s expectations, there is little reason they won’t continue to use that competitor next time, instead of returning to you.
One of the best ways to reduce the chance of this happening is through demand forecasting.
Engage in collaborative planning with key channel partners to gain historical data to understand when customer demand is highest for each product. This will help better plan ordering or manufacturing schedules to align with demand and reduce the chance of stockouts and overstocking, which can also be damaging in terms of storage costs and the risk of obsolescence.
Inventory management technologies can also help to avoid stockout situations by automatically ordering new products once the current stock falls below a set level.
Logistical Challenges
Customer expectation for speedy and reliable delivery is constantly increasing and so is the demand for products. The two do not always easily align because more demand typically results in increased lead times. As with stockouts, customers disappointed by late or inconsistent deliveries will soon turn to competitors.
One way to better manage these pressures is through third-party logistics partners, who specialise in managing complex logistics requirements, which can save significant headaches for businesses.
Another solution to logistical challenges is to use a distributed inventory model, where products are spread across distribution centres and warehouses in strategic locations, significantly reducing shipping times and transport costs and improving service levels for all channel partners.
Global Compliance and Regulatory Issues
Ensuring products comply with regional and local standards is essential to avoid damaging penalties to revenue, reputation and security. It is important to first understand all regulatory issues in the regions you operate in, and then develop a compliance program that ensures that everyone within the business, including both internal teams and channel partners, is up to speed.
As regulations can change, your compliance program must be updated too.
As with your training programs, compliance program completion can be incentivised by using certification programs, which can form part of your training requirements. Regular audits should be carried out to ensure all parties comply with regulatory standards.
Gaining Timely Market Intelligence
Failing to capitalise on a trend or notice a market shift can quickly lead to businesses being left behind. With the marketplace saturated, one misstep or missed opportunity can mean playing catch-up for a long time.
Encouraging data-sharing agreements and implementing structured feedback mechanisms allows businesses to gather insights from channel partners on market trends, customer feedback, and competitor activities, such as deals, offers, opening new locations or securing new lucrative partnerships. This information can all be used to develop your strategy and stay ahead of the curve.
Building and Maintaining Strong Relationships
Your channel partners are likely to be working with other businesses. Retailers, for example, will stock products from dozens of brands, potentially products that directly compete with your own.
Building strong relationships with your channel partners is one of the best ways to ensure they continue to value your partnership and, potentially, prioritise your products over competitors.
To do this, maintain regular communication through newsletters, updates, and personal check-ins to build trust and loyalty.
If you have channel partners that you haven’t spoken to in a while, reach out and touch base to check their progress, enquire about their pain points and if there is any way you can provide support to help them overcome them.
You can also create partner advisory councils to involve your key channel partners in strategic discussions and gather their input on various issues. By bringing your partners into the decision-making process, they will feel valued and their needs are being listened to, rather than just being another link in the chain.
Getting Channel Partners Onboard with Technology, Software and Systems
Even if you are investing in the latest technology to give yourself an edge, it can be difficult to convince your channel partners to do the same, especially if they have been operating within the same format for a long time. This can make it difficult to share data and capitalise on opportunities when they arise.
To make the transition easier, adopt industry-standard systems and platforms that make it easier to integrate with your channel partner’s existing systems, and ensure you have the resources to provide technical support and training to your channel partners to facilitate a smooth transition and operation.
You should also provide support and resources to help channel partners adapt to e-commerce and digital marketing trends, ensuring they can keep up with or even surpass their competitors.
Investing time into improving your channel partners’ position in the market can help create trust and loyalty.
Pricing Pressures Created by a Saturated Market
Striking the right balance with your channel pricing is key to staying competitive in an increasingly crowded marketplace, but it isn’t as straightforward as offering good prices to the end user, because various distribution channels need to be considered.
Some of the common pricing problems channel businesses face are:
- A consumer surplus as a result of uniform pricing, leaving potential profits on the table.
- Cannibalisation of one channel by lowering the prices of another.
- Price discrimination and predatory pricing.
- Customers switching between channels in response to price changes
- Double marginalisation, when both manufacturer and retailer increase their prices, resulting in higher prices and reduced demand for the end-user.
- Price competition when multiple retailers sell the same products or services at different prices.
Addressing Pricing Pressures by Adding Value
When confronted with pricing pressures, the first step businesses should take is to see how they can add value to their proposition.
Start by looking at what your competitors are not including at that price point, and seek to include it in your product or offering. When customers are faced with two products at the same price point, the one with additional services will be more attractive.
Businesses need to be selective in which retailers they partner with, and ensure that those retailers are motivated to sell their products over their competitors through training and incentive programs.
Related reading: 8 Ways to Create Effective Channel Partner Training
Other strategies businesses can employ to manage pricing pressures implementing and enforcing minimum advertised price (MAP) policies to protect margins for both manufacturers and channel partners.
Volume discounts and rebates can also be used to encourage larger orders without directly competing on price.
How to Differentiate Your Brand
As well as the specific examples listed above, channel businesses should ensure that the product, services and overall customer experience offered is high quality to stay ahead of the competition.
Create a Unique Value Proposition
Your value proposition goes beyond what your product or service is, it demonstrates why customers should choose them over your competitors – which is essential when trying to get ahead in the market.
Your value proposition should contain a headline, a subheadline and a visual component so that your customer knows exactly what it is you do, and what makes it different from everyone else vying for their attention.
Start by identifying your customer’s needs and pain points, and then describe how your product can help overcome those problems.
Finally, ask yourself what the USP of your product is and why that makes it even better at addressing those needs than your competitor’s products.
Product Quality and Features
Whatever strategies channel businesses employ to improve their visibility in the market, that increased exposure means little if the product or experience for the end user falls short.
Now that there are so many options available to customers, a brand’s reputation won’t be enough to ensure loyalty if the product is inferior to its competitors.
It is important to honestly assess the product and see if it meets the customers’ needs better than the other products on the market. If it doesn’t, improvements will need to be made.
You should invest in research and development to continuously offer innovative products that stand out in the market, while also regularly collecting and analysing feedback from channel partners and customers to inform product development and improvement.
Service and Support
As with the quality of the product, the level of service and support a business provides to its channel partners and the end user impacts how well it can compete in the market. Dedicated and attentive support can be the difference maker when a customer is deciding whether to take a gamble on a new product or brand. Having queries answered or concerns listened to helps to create loyalty in existing customers.
Leverage Technology for an Advantage
When it comes to technological advancement in the business world, it is essential not to get left behind.
All technology requires an investment, and not every new piece of equipment or software will be worth paying for, but a willingness to invest in the right technology and keeping a watchful eye on the latest advancements will ensure important opportunities don’t pass you by.
Build a Comprehensive Partner Training Program
High levels of training and support for channel partners can be the difference between you and your competitors.
Having your entire channel aligned with your brand and business objectives provides an unquestionable advantage.
Your channel partners are an extension of your brand, not just salespeople. The only way your partners will be able to represent your brand effectively is with training that provides a thorough understanding of your products, your ethos and your brand as a whole.
However, your partners have their objectives and priorities, and your business will not be the only one your partners are working with, making it difficult to find the time and motivation for training.
This is where building a comprehensive online training program can be invaluable for your business. A cutting-edge LMS that your partners can access around the clock, at a time convenient to them, is much more likely to get the engagement you need. You can even incentivise the completion of key modules or courses to further encourage participation.
If you work with global partners, an LMS that features translation tools can also give you an edge over your competition, because you can facilitate engagement with your brand, no matter where in the world your partners are located.
Summary
While competition is inevitable in business, a saturated market can put competitive pressures on channel businesses that can cause issues beyond just reduced revenue. If not addressed, channel conflicts can disrupt the entire chain, which is why it is so important to address them before they snowball.
To make sure your business stays ahead of the competition and is guarded against channel conflict, transparency and open communication with your channel partners is key.
To set the precedent for mutually beneficial partnerships, give your partners the tools they need to represent your brand effectively with our channel partner LMS, a cutting-edge platform that empowers them to compete in an increasingly crowded marketplace.
