Disrupt with Care: Reflections on Channel conflicts

RK

In the last few months, there has been considerable coverage in business newspapers focusing on the online and offline retailer conflicts. Mostly, these raised an existential concern of the offline retail stores and the grocery stores (in FMCG what we refer to as general trade). Clearly, this issue has triggered strong statements; the commerce minister went down heavily on predatory pricing practices of online retailers, the confederation of all India Traders (CAIT) threatened to boycott certain smartphone brands and competition commission of India ordered investigations into the discount policies of online retail platforms such as Amazon and Flipkart. I have been following these developments to figure out the fundamental reason for such conflicts that could potentially harm the interest of all channels involved. I remembered a statement from my boss sometime in 2012 when we were launching a new newspaper brand in Kolkata. He said, “Never disturb the basic market practices” and advised that all our channel management policies must be implemented to meet our channel objectives without hurting the structure and margins. My 25 years of working with the newspaper distribution network across markets taught me exactly the same. Here are some of the events and associated learnings that made us wiser.

  1. Invitation Pricing in Delhi Market: We launched invitation pricing in Delhi and reduced the cover price of The Times of India(TOI) from Rs.2.30 to Rs.1.50. The retailers (vendors as we refer to them in this business) were quick to react in placing their demand – you can lower your cover price but you cannot lower our gross margin of 69 paise per copy. As per the new price, their margin was reduced from 69 paise to 45 paise (30%) and this was not acceptable to the trade. 

The coercive power of the channel established a new trade norm – you can lower your cover price to attract new readers but do not lower our margins. 

  1. Newspaper in Education(NIE)’s direct channel: Many of you might have taken membership of NIE while in school. In its initial phase, the NIE program was targeted to grow brand equity of The Times of India among the students and possibly, their parents. A few years later as the program’s popularity and its reach grew, there were more and more students started receiving a copy of the Times of India, the retailers started complaining that their customers were asking them to stop delivery of the copies as the newspaper was being brought by the kid from the school. In essence, it was potentially an issue of direct channel cannibalizing the business of an intermediary. This remained a point of conflict till the time a special NIE edition was launched which was an abridged version of TOI carrying different content mix. 

A new channel, online or offline is a great idea if you are selling a different product minimizing the cannibalization of the existing brands. 

  1. Going direct to home through prepaid subscriptions: An older way of selling TOI to non-readers was to offer inducements; a switch to TOI through a communication to the retailer. Mostly such readers would receive a small gift after the confirmation from the retailer that the reader has started buying TOI from him. Disrupting this old practice, a pre-paid subscription scheme was launched which ensured advance payments and a confirmed period of readership for 6 months or 12 months. However, implementing this required acceptance of a big shift in business practice. The subscription purchase was a direct transaction between the company and the customer and the retailer was required to just deliver the copies and collect the bill from the company. This change fueled fear in the retailer’s mind and they objected to it. It took some time to convince the retailers that how this strategy will expand the market and bring in more customers for them. We also added a small incentive over and above the regular margins for the prepaid subscription copies. Many years later when we launched a new brand in Kolkata, the pre-launch subscription booking was not only supported by the retailers but they actually participated in the subscription sales drive!

If you disrupt a business practice, get the channel’s confidence by showing them more business and higher margins.

  1. Unbundling and rebundling: Most of the metro editions of TOI has a city specific pullout such as Delhi Times, Bombay Times etc. In Kolkata, TOI has a pull out called Calcutta Times. As an experiment, it was decided to unbundle TOI and Calcutta Times as separate brands with different cover prices. From the perspective of market penetration through low-risk trials, it was expected that many readers who read competitor brands would at least try Calcutta Times and will eventually shift to TOI. However, this also meant that existing TOI readers could drop Calcutta Times resulting in lower margins for the trade. However, more than the margins, the real issue raised by the retailer’s union related to the way we wanted to see them a newspaper as a product. For them, a newspaper is complete with all the pullouts as was the practice for all other brands. The Union looked at this as a potential threat that could disturb the norms related to the product configuration itself! Clearly, the best solution was to make a retreat and re-bundle.

Any marketing strategy which seeks to disrupt the deep-rooted norms of the business must be backed with a solid business case; for the channel first and the company next.

 

 

 

 

 

26 thoughts on “Disrupt with Care: Reflections on Channel conflicts

  1. Gautam Puri

    Channel conflicts should be seen as an opportunity to focus on the key aspect of Sales: Customers. Different channels can have a healthy competition through Exclusive products, product giveaways and bundles/kits but all the stakeholders have to work together to keep the prices stable and the customer happy

  2. Karthikeya Ramesh

    Sir,

    Based on this article, and your earlier article on invitation pricing, can we conclude that distributor interests sometimes run contrary to customer interests, and a salesperson’s primary task is to find the overlap?

  3. The article is very insightful with real-life stories. It emphasises the importance of retailer and how the intrtoduction of new channels or schemes can affect their margins. It also focuses on the cannibalization of one product or service with the introduction of new channels. Indeed a good read.

  4. Anshul Nalin

    Sir,
    Your experiences provide in depth learning and insights into Channel Management. Would love to know how the shift of customer to a tabloid reading (e-paper) has impacted your retailers and how are they reacting to it ?

  5. Shubham Kuchhal

    Sir, thanks for sharing this article with us. It encapsulates various channel conflict mitigation strategies which are quite effective. The broader theme that comes out from many of these strategies is to take your trade stakeholders in confidence and find the intersection of customer’s interest and trade partners interest.

    I have a question to ask: Given that the geography is Kolkata (which has a communist past) how difficult was it for you to motivate your retail partners to work and contribute positively (also you mentioned there were retailer unions too)?

  6. Mayank Grover

    Sir,
    This article is really Insightful and brought back the school memories where we as a children used to decide which newspaper to subscribe (Times of India, Hindustan Times, Tribune ) based on the offers provided. Initially, TOI/Hindustan times newspaper which we used to get from the school used to have good amount of pages and content which prompted the parents to stop buying the newspaper from the vendors but it changed after the new edition newspaper. Now, as the world has become Digital, all the news have been available on Social Media Handles, do you think it is cannibalizing the sale of physical newspaper or it is helping to increase the reach?

  7. Nikhil Aggarwal

    Sir, this is a wonderful article which clearly articulates various strategies to mitigate channel conflicts. It reinforces the fact that any business decision should keep into consideration the interests of the channel partners for sustained business growth. Thanks for this article.
    Sir, I want to ask a question- As switching cost from one newspaper to other is low and each vendor deals with multiple newspaper brands, how difficult it was to keep the customers and vendors loyal to your brand?

  8. Sir,
    Thank you for sharing such an insightful article inspired by real-life situations.
    The article gives a great reflection on how we can bring a balance between our business and the interests of various stakeholders involved. Each decision made had a positive and negative impact, and this article clearly showed how important it is to analyze both sides so as to keep our business profitable. Also, prime importance was given to the feedback from customers and retailers, and decisions were modified or completely reversed based on the same. This tells me that it is necessary to satisfy our stakeholders and make them feel valued for our business for long-term benefits. Also, each channel conflict was seen as an opportunity to bring in new changes to expand the business.

  9. Nishant Sharma

    Real-life learnings are always great and how we these learnings to different sectors is crucial. While we may be comfortable disturbing the norms back then, today IT companies such as Flipkart, OYO, Ola, etc. are thriving on changing the norms of business altogether. We should never stop experimenting, you’ll learn a line from being successful at it and a book from failing at it.

  10. Vasu Soni

    Sir,
    The article is really great and provides insights into the various strategies to resolve the channel conflicts and can be treated as an example of which factors should be considered to avert the channel conflict. If it still arises, then we should look for a solution considering all stakeholders.

  11. Amit Shukla

    Sir, this was a really insightful article and channel conflict is one of the biggest underlying problems a business faces.

    1. Mridul Toshniwal

      Sir,
      This article was very insightful. It is very inspiring for anyone who reads it.

  12. Siddhant Purohit

    Sir, if a business is benefiting more from a new channel which might affect and create conflict among other existing channels, then what should be the course of action in that particular situation?

  13. Vidit

    Sir, thank you for sharing this article.
    I am just wondering about the phrase, “Never disturb the basic market practices.” I wanted to ask that sometimes, doesn’t it become relevant to disrupt the conventional channel structure with evolving consumer preferences or, say, with time?

  14. Kartik Laddha

    Indeed an Insightful reading sir. My takeaway from this reading is that any business is as strong as its channel, and also different offerings to different channels is a way to reduce channel conflicts. Would love to read more about channel management.

  15. Vaibhav Kumar

    A very insightful article about channel conflict with real-life examples. The word ‘conflict’ often has negative connotations, but it can arise some really interesting new ideas and results. When TOI came up with NIE, retailers started complaining, and finally, TOI launched a special NIE edition with different content mix. The article also helped to understand the importance of getting channel’s confidence before any change in distribution.

  16. Thank you for making us introspect on the much-needed discussion of Channel conflict.
    Sir, at this age and time when we all demand a zero delay reporting of the news wrapped into a capsule, how do industry leaders like TOI still manage to entice their readers through its print media offerings

  17. Akash Chakraborty

    I believe that disruption is a healthy behaviour and the disruptive discounts by companies like flipkart has forced offline retailers to reinvent the brick and mortar store experience and blend in with omni channel models. This provides scope for innovation. Any business without disruption will become stagnant as there will be no coercion or incentive in providing customers with something new

  18. Amit Bansal

    Sir,
    Through the article it’s clearly evident that not only the customer’s interest but you have to also consider the channel partners during developing and introducing product in the market and have to take into their apprehensions as well whether its related to margins, introducing new schemes like of prepaid subscription etc. But from above it seems companies are primarily focusing on customers and keeping the problems of channel partners as secondary. Is it difficult in initial phase or some other reasons are there?

  19. Rishabh Pandey

    Sir, if we do stick to the last point of not letting the deep-rooted practices get disrupted without a business case, how do we support an idea that might lure the customers but as we have seen might enrage the channel partners.
    is it always about the margins and profits when optimizing a channel or did you ever experience channel partners being satisfied by fulfilling non-materialistic demands?

  20. Sonaal Arora

    Sir channel conflict is one of the most sensitive topics especially with the incoming of modern trade and e-commerce. This article seamlessly gives us insights from the ground level.

  21. Apurv Mehrotra

    Sir, a very interesting read indeed. Reflects on issues which are not known to a person having little knowledge about the industry. Would like to know your view about how the issues faced by the newspaper industry during the pandemic and how did they cope with it? Also, I went through a recent article which mentioned that there was a fall in the newspaper advertisements during the pandemic which would have resulted in lower revenue, so how did this effect the distributor margins and how the companies handled their relationship with these stakeholders during these difficult times?

  22. Ahana Chatterjee

    The article is very insightful as it talks about various channel conflict issues and it gives us a brief overview of Channel Management. Based on it, we came to know that the marketing strategy of a business can be changed like the cover price can be lowered, a new channel can be established, etc but for that they must take the trade partner into confidence and also it must be backed by a solid business case which can show how the strategy can be profitable for the stakeholder as well as serve the customer needs.

  23. Abhishek Sahadevan

    The article is very revealing because it discusses various problems of channel conflicts and gives a short overview of channel management. On the basis of this we became aware that a company’s marketing strategy could be modified such as the cover price can be reduced, a new channel can be established, etc., but for this, they had the business partner to trust and also a strong business case had to be supported which showed how the strategy could benefit the stakeholder as well as customer requirements. Also you shed some light on the real life scenario as in the case of Kolkata times which helped us understand the content in depth.

  24. Vishal Mashru

    Sir,
    This was a really good read. the instances that you mentioned will help us not only in sales domain but also in the marketing campaigns wherein we will keep these points in mind while thinking about giving incentives to the users. one question that i had was, how did TOI breach the local language newspaper’s fortresses, given the amount of local news that the regional newspapers cover and provide, what were the tricks of trade used by TOI to give them a tough run.

  25. Karan Tyagi

    Really insightful article, Sir. Surely, disrupting the already existing marketing practices would throw everything in disarray but at the same time if you deem it necessary to adapt and evolve with environmental dynamics a backup plan and certainly a well-thought-out one would go a long way in experimenting and changing the strategy whenever needed.

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