There are two basic problems confronting the cooperating firms making up a trade channel. One is that of getting the job done and the other is that of dividing the returns among the several participants.
Channel conflict is a broad term that marketers use to describe a situation in which one or more channel members are unhappy about the state of the mutual relationship. Usually they are unhappy because they believe they are not being treated “fairly”—meaning they are not being adequately rewarded, respected, or appreciated for their efforts and investments in the relationship. A series of actions and reactions can escalate the conflict.
Downstream resellers typically complain that they are not earning enough because (1) supplier prices are too high; (2) suppliers make insufficient investments in consumer pull; (3) suppliers' products are slow-selling; or (4) they are faced with too many, too aggressive, or free-riding competitors. Furthermore, resellers can be dissatisfied with manufacturers' inability or unwillingness to finance inventories, supply timely and complete shipments, and support their omni-channel logistics.
At the other end of the chain, upstream suppliers may be irritated that resellers: (1) raise resale prices too high to generate adequate sales volume, or reduce them so much that it hurts the brand's image; (2) refuse to stock the full line, delist some products, or refuse to carry new ...