Impact of the internet as a direct sales channel on established distribution channels and the management of channel conflict; an exploratory study in the Taiwanese IT industry

Abstract

The internet has had a profound effect on communication, entertainment, buying, and selling (Webb 2002) and, in particular, as a distribution channel (Van den Poel and Leunis 1999). Increasingly companies in a variety of industries have established their own online direct sales channels instead of merely relying on conventional intermediaries (Coughlan et al 2006). Hence, multi-channel distribution strategies, combining both off- and online channels are being adopted. Frazier (1999:232) argues: “The utilization of multiple channels of distribution is now becoming the rule rather than the exception”. Companies which combine physical and web channels have been referred to as “clicks and mortar,” “bricks and clicks,” “surf and turf,” “cyber-enhanced retailing,” or “hybrid e-commerce,” (Gulati and Garino 2000; Steinfield et al 2002 a b; Agatz et al 2008; Sharma and Mehrotra 2007). Despite the apparent popularity of internet channels, adding an internet channel to the distribution mix creates potentially significant challenges for channel managers (Webb 2002). A major concern is that by going multi-channel, a firm might face ‘channel conflict’ between channel members (Sharma and Mehrotra 2007). As Rosenbloom (2007:7) claims: “Perhaps the most significant obstacle to building successful multi-channel strategies is the emergence of conflict between the different channels used for reaching customers”. The main objective in this study is to explore the impact of the internet as being a distribution channel within the multi-channel system. Three research issues which have seldom been discussed in previous literature are explored in this study. These three questions are: Q1: What are the factors encouraging manufacturers to develop the internet channel, especially manufacturers with a well established distribution channel? Q2: What are the channel design patterns of the multi-channel structure? Q3: How can channel conflict arising from the development of the internet channel be minimized? Interview was utilized as a main data collection method in this research. A total of 25 interviews were conducted and the majority of interviewees are managers in Taiwanese IT companies. The main product lines in their firms included wireless equipment, DRAM module, motherboard, and scanner. In addition, a wide range of documents were examined as a secondary data source and compared with data from the interviews. According to the statements from interviewees, six main factors were identified as encouraging the manufacturer to develop the internet channel. These are: (1) customer information management, (2) retailer management issue, (3) launching a new product, (4) to be a secondary channel, (5) management support, and (6) me-too strategy. Furthermore, it seems that when firms are at the different stages of the product life cycle, managers would design their multi-channel structure into different patterns. In addition, a further two conflict resolution styles, communication and differentiation, were found in the sample of firms studied which have seldom been mentioned in previous research and firms appear to adopt different conflict resolution styles according to stage in the product lifecycle.