Situation

Conflict between channels is a perennial issue that every sales group faces,¹ and one that is increasingly relevant to high-tech companies. These businesses have traditionally sold their hardware, software, and networking products through a combination of distributors, resellers, and retailers. In recent years, however, sales through direct channels have grown as fast as, and in some cases faster than, those through traditional stores or resellers. Strong online sales by Dell and others have inspired many high-tech vendors, including one particular hardware maker, to invest in Internet sales channels.

Complication

Pursuing a direct-sales channel can alienate a company's sales partners, who see the shift as a threat to their revenues. For the hardware maker, a negative reaction from an important retail partner was enough to delay—and almost derail—the company's ambition to sell its products over the Web. Indeed, this retailer threatened to develop its own competing brand of products if the manufacturer pursued direct sales too aggressively. Such a move on the retailer's part would have hurt the manufacturer's revenues before the direct channel could compensate for them.

Resolution

The manufacturer looked for creative ways to maintain its profitable relationships without abandoning its direct-sales effort. It evaluated the relative...