Marketing channels, or distribution channels, function as links between production and the ultimate point of consumption. For example, if you are the producer of "X" product, then you might market your product through two wholesalers and through them to various retailers. The wholesalers and retailers are two vertical levels of your distribution channel. The two wholesalers or the various retailers are members of the same or horizontal channels.
Channel conflicts arise when one member of the channel perceives that another member is operating in a manner detrimental to his objectives. Horizontal conflict arises within the same layer of a distribution channel. It is essential for manufacturers to contain horizontal conflicts because these conflicts have a significant potential to damage a product’s goodwill, distribution and sales. This exercise of containing conflicts comes under channel relationship management, which requires careful policy making and continuous oversight through channel information systems.
Horizontal conflicts can occur when a channel partner reduces the price of a product. For example, a larger distributor might significantly reduce the price of a product to lure larger sales volume, on the back of various other products he might already be distributing. Because of its size, the larger distributor might be able to sustain cuts in his profit margins to reduce the cost of his merchandise and increase distribution from his stores. This places the smaller distributors at utter disadvantage because, comparatively, they might not have a large portfolio of products to distribute. They, therefore, can’t compete. Also, because they are smaller, they can’t sustain the hits to their profit margin that a price reduction might cause.
Another example in which horizontal channel conflict arises occurs when distributor territories aren’t clearly defined. A manufacturer might appoint different distributors for a city’s urban and suburban areas. If, however, it is not clear which areas are urban and suburban, either distributor might end up distributing products in the other’s territory. No distributor wants competition on her designated turf, so conflict could arise. Therefore, if your business has distributors working for you in this manner, clarify to each of them the specific areas to which they are entitled.
Variations in distributor operational policies also can result in conflicts. For example, if one of your product’s distributors practices a policy of offering credit sales, the other distributors might feel they're at a disadvantage if your product is not supposed to be offered on credit terms. A horizontal conflict might occur because customers might prefer to buy goods on credit terms and pay later in installments. Setting different product distribution policies gives the channel an advantage as customers might flock to that channel to get what they perceive to be a deal.
