The Beauty of Channel Conflict

“Channel Conflict” is a term not well understood outside of the distribution world, but the struggle within is having far reaching impacts on all of us. Basically it is the fight between “partners” in a given distribution channel over who gets to sell to whom. Those were the good old days when things were simple…Nice neat silos with very few conflicts.

Into this fairly smooth model, around 1997 was introduced Google. Very few people had the vision to project the impact our current search engine driven world would create. In fact, even now many are trying to cling to the way things “used to be”. If there are two things we Americans are good at they are embracing change and fighting change. In the auto parts world we emulate both. There were a few imaginative companies who built a model around the internet as early as the AOL and Yahoo days. A couple of the strongest can be seen even today as leaders in internet sales of auto parts. A quick look at just two current internet auto parts stores shows that www.rockauto.com and www.autopartswarehouse.com are averaging 50,000 and 80,000 hits per day! Couple that with the statistic that over 60% of auto parts sold online are sold by E-bay, and you start seeing the staggering implications of scale.

This new E-economy business model hangs on a vast distribution network tied together through internet connections linking all of the old players in new and different agreements. Most of the players don’t want to admit to the fact that they are supplying this behemoth, but they are unable to turn down the added volume it produces. It really is a very impressive system where three and four step processes are done in a virtual marketplace and HTML agreements disperse profit percentages automatically based on coded algorithms. It all works great most of the time. There are still some opportunities for fine tuning the process where links are removed from the supply chain and the savings passed along to the end user.

If you asked your average mechanic if he would allow his customer to buy their own parts over the internet and install them, he would probably say no. If you did the same at a dealership you would be laughed out of the place. I suggest that we are living in a changed world and our cozy distribution silos that we built for the past need to be torn down. Increasingly the three, four and five step process of getting parts from the manufacturer to installed on a customers car are too time consuming and costly. How many housewives take that $1500 A/C job quote home and do a price comparison on Google. Ask the car dealers about how well they can protect margin on automotive sales now that the underlying cost information is laid bare for everyone to see on the internet. Information empowers people to be more intelligent in their decisions. I believe those distribution partners and repair facilities that are willing to support this new type of customer will be the ones able to thrive in this new economy. From what I can tell, the trend is towards an increase of 10%-30% on labor charges. That way both parties to the transaction feel they have benefitted.

In the distribution world we constantly bicker amongst our partners about who has the right to sell to whom. The dealership doesn’t want the distributor to sell to his wholesale customer. The retail store doesn’t want OE in his garage customers shop unless it was channeled through their store. The warehouse distributor doesn’t want his manufacturer going direct to their national fleet accounts. In the real world out there all of our customers are looking past us to the internet and who can get them what they want the quickest and at the lowest price. This new market is not going to go away. The customer now has the part they need in their hand… who wants to get paid to put it on their car?