Guide 07 · B2B and channel
Channel conflict in loyalty programs
Channel conflict happens when a loyalty program rewards one route to market at the expense of another: a brand's own store against its retailers, corporate locations against franchisees, or one partner against another chasing the same customer. Avoid it by deciding up front which purchases earn, who funds the points and who gets credit for the sale, and by writing those rules down before members and partners find the gaps.
Most businesses sell through more than one route: their own stores, a website, retailers, distributors, franchisees or partners. A loyalty program sits across all of them, and every rule about who earns, who pays and who gets credit favors one route over another. When those rules are left vague, the program sets channels against each other. This guide covers where that conflict comes from and how to design around it.
Define the conflict
What is channel conflict in a loyalty program?
Channel conflict is friction between routes to market when one gains at another’s expense. In a loyalty program it shows up in three ways: members are rewarded more for buying in one channel than another; the cost of rewards lands on a channel that did not earn the revenue; or the people who sell in one channel lose credit for sales that close in another.
Members rarely see the conflict. They follow the best reward. The people who notice are the store managers, franchisees, retailers and partners whose results change, and their reaction, from quietly discouraging enrollment to refusing to stock a product, can undo the program.
Where it shows up
Where does channel conflict show up?
| Situation | How the program causes conflict | Typical fix |
|---|---|---|
| Brand sells direct and through retailers | Points only on direct purchases pull customers away from retailers | Reward purchases in every channel via registration or receipts |
| Owned and franchised locations | Points earned at one location are redeemed at another that bears the cost | Central fund with reimbursement at an agreed rate |
| Online and stores | Store staff lose credit when their customers order online | Credit stores for linked online sales |
| Several partners selling to one customer | Partners undercut each other to win the same deal | Deal registration and clear rules on who is credited |
| Direct sales team and partners | Vendor reps compete with partners on large accounts | Rules on which accounts are direct and which are partner-led |
| Earning at outside merchants | The program rewards spending at a competitor | Earn only where the partner fee covers the cost |
Brands and retailers
Should a brand reward purchases made through its retailers?
Usually, yes. A consumer brand that also sells online is tempted to reward only direct purchases, because those are the ones it can see and the margin is higher. Retailers notice when the brand’s app pushes their own customers to the brand’s website. They respond by giving the brand less shelf space, less promotion or worse placement.
The alternative is to reward purchases wherever they happen. Members can register products with a serial number, upload a receipt through receipt scanning, or link a retailer’s loyalty account. The brand still learns who its customers are, and retailers keep the sale. Some brands go further and share insight or traffic with retailers, for example by sending members to a nearby stockist to collect a reward. Decide which approach you will take before launch, and explain it to retail partners before members discover it.
Franchise and owned
How do you run one program across owned and franchised locations?
Agree who pays for what. Members expect to earn and redeem anywhere the brand appears, but franchisees run separate businesses. If a member earns at a busy corporate store and redeems at a small franchise, the franchise gives away product for revenue it never saw.
The usual answer is a central program fund. Each location pays in when its customers earn, often as a percentage of member sales, and locations are reimbursed when members redeem with them, at an agreed rate. Owner reimbursement rules, and the terms of franchise participation in the program, should be written into the franchise agreement or a program addendum, with a regular settlement report each location can check.
Partners and deals
How do you stop partners competing for the same deal?
In B2B and channel programs, conflict comes from partners chasing the same customer, or from the vendor’s own sales team competing with partners. Deal registration is the common fix: the first partner to register a qualified opportunity receives protected pricing or incentives for it, and other partners and the direct team know to stay out. Set clear rules for what counts as a qualified deal, how long protection lasts and how disputes are settled.
Treat partners consistently. When partners resell your products in competition with each other, the FTC explains that the Robinson-Patman Act requires promotional allowances and services to be offered to competing customers in a proportionately equal manner, with a reasonable way for each type of customer to take part. Incentives offered privately to favored partners create both legal risk and resentment.
Competing channels
Should your program reward purchases in a competing channel?
For a program that owns its own stores or products, rarely. Rewarding spend at a competitor gives up the margin on that sale and still leaves you owing the points. In a hypothetical case, a household moves $1,000 of spending to an outside merchant that pays the program a 15% fee, $150. The program issues points that will cost $100 to redeem, so it keeps $50. But if that spending would otherwise have been made in the brand’s own stores at a 25% gross margin, the business has given up $250 to gain $50.
A coalition program or a card program with no stores of its own does the same arithmetic without the lost-margin line, which is why those programs can reward spending almost anywhere. If you own stores, reward outside merchants only where they complement rather than compete with you, and where the fee covers the cost of the points.
Spot and fix it
How do you spot and fix channel conflict?
- Map every channel a member can earn or redeem in, and who funds each side.
- Compare earn and redemption by channel. A channel that redeems far more than it earns is carrying another channel’s costs.
- Ask the people in each channel. Store managers, franchisees and partners will tell you where the program works against them.
- Check credit rules. Make sure the people who influence a sale are credited for it, whichever channel it closes in.
- Write the rules down in partner agreements and program terms, and review them whenever you add a channel.
More answers
Frequently asked questions
What is channel conflict?
Channel conflict is friction between the different routes a business uses to sell: its own stores or website, retailers, distributors, franchisees and other partners. It arises when one route gains at another's expense, for example through better prices, rewards or access to customers.
Can a manufacturer run a loyalty program without upsetting its retailers?
Yes, if the program rewards purchases wherever they happen, through product registration or receipt scanning, and if retailers see a benefit such as extra traffic or shared customer insight. A program that only rewards direct purchases is the most likely to cause conflict.
Who pays when a member earns at one franchise and redeems at another?
The program rules decide. A common approach is that the location where points are earned pays into a central fund, and the location where they are redeemed is reimbursed at an agreed rate. Without such a rule, high-redemption locations carry costs they did not create.
How does deal registration reduce channel conflict?
Deal registration lets a partner claim an opportunity early. The first partner to register a qualified deal gets protected pricing or incentives for it, so partners do not undercut each other on the same customer and the vendor's direct sales team knows to stay out.
Should store staff get credit for online sales to their customers?
Many retailers give stores credit for online orders linked to their area or to a member they served, so staff do not discourage customers from ordering online. The exact rule depends on how store targets and pay are set.
Is it ever right to reward purchases at a competitor?
For a program that owns stores, rarely, because it gives up its own margin and still owes the points. A coalition or card program with no store of its own is different: it can profit as long as the partner fee covers the cost of the points.