W25511

HITEVISION’S CHANNEL CONFLICT MANAGEMENT

Chenxi Li, Jing (Elaine) Chen, Hanlin Wen, and Cheng Xing wrote this case solely to provide material for class discussion. The authors
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Founded in 1990, HiteVision Tech Co. Ltd. (HiteVision) was a leading company in the multimedia
audiovisual (AV) solution industry. HiteVision had achieved remarkable business performance in the
domestic educational multimedia market. In 2015, the company decided to expand by entering the
commercial interactive flat-panel display (IFPD) market. Zheng Wang, the general manager of HiteVision’s
commercial product department, started to distribute the first model of the company’s commercial tablet
through all possible channels. Before long, the company encountered a series of channel conflict issues,
which were resolved in early 2018 using a dual-brand strategy. However, in early 2019, HiteVision was
again faced with new sales channel conflicts. Wang had to find a way to resolve his difficult situation.

NEW MARKET EXPLORATION

Established in 1990, HiteVision Co., Ltd. was devoted to China’s domestic education information
technology industry and was focused on product promotion, system integration, and technology research
and development in the multimedia AV industry (see Exhibit 1). The company started as a distributor for a
Japanese projector brand and gradually established its own factory to produce multimedia equipment and
interactive display equipment for the education industry. However, as HiteVision started to prepare for its
initial public offering (IPO) in 2015, it realized that its existing businesses were far from sufficient to meet
China’s IPO requirements regarding turnover because the domestic educational multimedia market had
gradually become saturated, and competition was intensifying. Therefore, HiteVision urgently needed to
expand its business into new markets.

After in-depth research, HiteVision believed that the commercial IFPD market had promising potential for
growth: the commercial IFPD market had grown more than 30 per cent every year since 2015, and HiteVision
had mastered the core technologies associated with IFPD production while working in the educational IFPD
market. Thus, the company decided to explore the commercial market, appointing Wang—a middle-level
manager who had rich experience in channel distribution—as the general manager of HiteVision’s
commercial product department and putting him in charge of commercial IFPD product planning and sales.

Once he received the appointment, Wang determined a product strategy for exploring the commercial IFPD
market. In order to seize market opportunities, the company had to redesign and produce a product
specifically for the commercial market, and it had no time. Therefore, HiteVision sought instead to upgrade
its existing educational products, and it launched its first commercial model in early 2018.

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Wang decided to develop the commercial market channel in two ways: by utilizing existing channels (see
Exhibit 2) and by developing new channel resources.

In terms of utilizing existing channels, Wang believed that HiteVision’s well-established engineering
projector channels might help in exploring the new market. Wang believed that customers in this
commercial channel also needed commercial IFPDs, so he encouraged the engineering projector
distributors to sell commercial IFPDs while maintaining their original business of selling engineering
projectors. Wang successfully persuaded 30 engineering projector distributors to sign commercial IFPD
agent agreements with HiteVision’s regional branches. According to these agent agreements, the
engineering projector distributors were required to purchase a large number of commercial IFPDs from
HiteVision on a regular basis and to establish the next level of distribution channels to complete product
sales of the commercial IFPDs on their own.

In terms of developing new channels, Wang aimed to sign new channel distributors in several industries that had
potential demand for commercial IFPDs, such as conference room integration, government, medical services,
and finance, thereby expanding and improving the existing channel distribution system (see Exhibit 3).

At the same time, Wang was also actively looking for opportunities with suitable external distribution
systems, hoping to explore the commercial IFPD market with the help of external resources. In March 2018,
HiteVision signed a contract with Lamoro Corp., 1 the largest company in the Chinese PC distribution
system, which became the national distributor of HiteVision’s commercial IFPDs. HiteVision hoped to
effectively promote the sale of its commercial IFPDs by using Lamoro’s existing PC distribution channels
before establishing its own.

CHANNEL CONFLICTS

The commercial IFPD channel system quickly encountered a series of unexpected major conflicts, which
jeopardized its development. First, the engineering projector channel encountered a dead end. Early in
March 2018, one of the distributors’ general managers, Mr. Zhao, complained to Wang that the distributor
lacked the funds to purchase the commercial IFPDs in bulk. Wang initially thought the problem was isolated
to a few distributors, but he soon found that the problem was much more serious than he had anticipated.
In April, more engineering projector distributors opted to avoid purchasing the commercial IFPDs from
HiteVision.

To increase the distributors’ confidence in the commercial IFPD market, Wang held monthly distributor
meetings in 2018, inviting most commercial product distributors to participate. At these meetings, Wang
analyzed the market, citing reliable commercial IFPD market development forecasts from a number of data
analytical organizations to illustrate the potential of this market in the hope that the distributors could
understand HiteVision’s plans, strategies, and visions. He also called for monthly sharing of successful
sales cases among the commercial IFPD distributors network, hoping that the distributors would learn from
each other and adjust accordingly for better performance. Although most of the distributors were reluctant
to share their successful experiences and were unhappy about being forced to share, Wang managed to
collect and share some successful cases, which turned out to be quite useful for other distributors.

However, this approach of sharing successful cases was unsuccessful for the engineering projector
distributors. These distributors were uninterested in HiteVision’s vision of the commercial IFPD business
and strongly opposed HiteVision’s detailed requirements for distribution of the commercial IFPDs. Due to

1
Lamoro Corp. was a pseudonym, used to disguise the name of the real company.

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the need for extensive customization of traditional engineering projectors, the channel distributors needed
to purchase their projectors in bulk but could only recover project costs over an extended period. Therefore,
a large amount of the distributors’ funds were occupied by their projector projects, which left them with no
remaining funds to also buy the commercial IFPDs, as mandated by HiteVision.

The engineering projector distributors also thought commercial IFPDs might sell well in many areas outside
the engineering domain—such as in commercial enterprises, government, and medical services—yet their
customers in engineering fields were not potential commercial IFPD buyers. Moreover, they felt that the
commercial IFPD market was not large enough to interest them in developing the market and selling
HiteVision’s IFPDs, especially since they had no experience in selling IFPDs at all. Considering all of these
factors, the engineering projector distributors found that the commercial IFPDs could not help them
maximize profits within their existing channels. Instead, they needed to devote their resources to
establishing new sales channels, and this involved high operating costs and was not in line with their
commercial interests. HiteVision therefore not only failed to achieve its goal of developing a new market
with the help of its existing engineering projector distributors, but it also wasted resources on unsuitable
channels, causing considerable losses.

HiteVision’s misfortunes were not limited to conflicts with its engineering projector distributors. Because
there were few significant differences between HiteVision’s 2018 commercial IFPD and the educational
model upon which it was based, many educational channel distributors sold the educational model to
commercial customers. Since the educational products could also be sold to commercial customers, the
educational channel distributors believed that their target market also included commercial customers.
Moreover, because the educational channel distributors had established a considerable scale of sales in the
educational market, they could purchase the educational IFPDs from HiteVision at a much lower price than
the commercial channel distributors could purchase commercial IFPDs. As a result, many educational
channel distributors sold HiteVision’s educational IFPDs directly on the commercial market at a much
lower price than the commercial model, undercutting their commercial counterparts and interfering with
the business of the commercial IFPD distributors.

At first, Wang invited the conflicting parties to mediate, hoping that the distributors could reach an
agreement among themselves that would stop the educational IFPD distributors from selling their products
to commercial IFPD clients. However, Wang soon found that mediation was ineffective. Although the
mediation process itself was incredibly time consuming, the eventual mediation agreement was never
enforced, and educational distributors who had undercut commercial distributors with the educational
model continued to do so. Wang then arbitrated the conflicts in HiteVision’s name, in accordance with the
penalty clause in the agency agreement, fining the educational IFPD distributors who had sold their
products on the commercial market and compensating the affected commercial distributors with the money
from the fines. This arbitration did not have the desired effect of eliminating the undercutting of commercial
distributors, however, as the offending educational distributors simply moved their operations underground.
After finding that the educational IFPD distributors’ undercutting behaviour could not be resolved, many
commercial IFPD distributors stopped co-operating with HiteVision and opted to co-operate with
HiteVision’s competitors instead.

Most surprisingly, the agreement with the national distributor, Lamoro, also encountered serious problems:
Lamoro breached the contract after only six months by refusing to purchase the contractually agreed ¥5
million2 worth of IFPDs each month, citing an overstock of IFPDs due to poor sales.

2
¥ = RMB = Chinese yuan renminbi; ¥1 = US$0.1456 on January 1, 2019.

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However, Wang believed the overstock was caused by Lamoro’s unwillingness to adapt HiteVision’s
recommended selling strategy for the commercial IFPDs. Before co-operating with HiteVision, Lamoro
had mainly distributed laptop computers produced by a well-known brand. Because the brand was widely
recognized, users’ needs were clear, and the products had already been widely adopted by customers,
Lamoro’s strategy of doing almost nothing and letting the product’s reputation bring customers to it was
sufficient. Lamoro needed only to act as a financing platform and provide centralized warehousing services
for the next level of distributors, who could complete the remaining sales tasks by themselves.

At the beginning of the co-operation, Wang recognized that this distribution approach would not be suitable
for a newly emerging blue ocean market, like that for the commercial IFPDs. Users were unfamiliar with
these products, and as such, the entire distribution system would need to take responsibility for cultivating
the market. Therefore, Wang proposed that Lamoro should adopt an “active promotional” business strategy
in distributing the commercial IFPDs—that is, Lamoro would need to provide not only funding and
warehousing services for the next-level distributors but also a set of sales processes that would educate both
next-level distributors and consumers about the commercial IFPDs.

During their negotiations, Wang repeatedly reminded Lamoro that the IFPD was different from Lamoro’s
usual stock and suggested that Lamoro appoint specific sales staff to demonstrate to their clients how to use
the IFPDs. During meetings with Lamoro, Wang suggested demonstration policies and procedures for the
IFPDs that would encourage distributors and retailers to prompt buyers to gain first-hand experience by
trying the products. Nevertheless, Lamoro ignored Wang’s advice; its salespeople were accustomed to their
existing sales model and believed that selling commercial IFPDs would be no different from selling a well-
known brand of laptop computers. Lamoro overlooked the resources and efforts needed to promote the
commercial IFPD and had limited motivation to strive for success in the infant IFPD market compared with
the very important laptop market. As a result, by the time Lamoro realized that its sales model was not
suitable for HiteVision’s IFPDs, it had already accumulated too much inventory.

MULTIBRAND STRATEGY

At the end of 2018, HiteVision executives discussed the difficulties they had encountered in the commercial
IFPD market. The president pointed out that the appearance and functions of the commercial IFPD were too
similar to those of the company’s educational IFPD. The commercial IFPD was not attractive to commercial
clients, and it shared the same brand name as the educational IFPD, which cost less. Undercutting by
educational distributors was not surprising under these circumstances. The president suggested that HiteVision
sell its commercial IFPD models under another brand to prevent such undercutting.

Wang proposed that HiteVision could use the brand name Newline to sell its commercial products, while
keeping the HiteVision brand for its educational products. The proposal was approved and the company started
using a dual-brand strategy in 2019. HiteVision had acquired the US brand Newline in 2012. Conveniently,
the 2019 Newline commercial IFPD model was clearly different from the educational IFPDs in terms of
appearance, user interface, and function. It also provided exclusive functions, such as wireless connectivity
for commercial users. Once released, the 2019 model was well received and countless orders were placed.
HiteVision was thus able to achieve differentiation between its commercial and educational products.

To further separate the sales channels of its educational and commercial product lines, the company devised
a policy that allowed distributors to be agents for only one brand—HiteVision or Newline—and prohibited
them from selling products from both production lines. Distributors in the educational market therefore
opted to sell IFPDs produced under the HiteVision name, whereas distributors who wished to enter the
commercial IFPD market chose to sell Newline IFPDs.

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Wang also adjusted HiteVision’s channel structure (see Exhibit 4) and established an e-business department
to supervise online sales and network pricing systems in order to manage the increasing demand for online
businesses.

With the release of the new brand, new products, and new channel policies, HiteVision separated its
educational and commercial channels from each other, effectively resolving many of the problems
encountered during the unsuccessful release of HiteVision’s 2018 commercial IFPD. The new channel
policy allowed channel distributors the freedom to choose whether to focus on the existing market or to
develop new markets. Thanks to the new channel policy, HiteVision’s engineering projector distributors
could continue distributing projectors without also carrying HiteVision’s IFPD products. Most of the
engineering projector distributors chose not to contract with Newline to distribute commercial IFPDs and
instead focused on their engineering projector business. Conflicts between the engineering projector
distributors and HiteVision were thus fundamentally resolved. Most of the distributors agreed to continue
to co-operate with HiteVision.

The problem of educational channel distributors undercutting their commercial counterparts had also been
largely eliminated following the differentiation of HiteVision’s commercial and educational brands and the
release of the 2019 model. The new commercial IFPDs had many features that had been implemented with
commercial customers in mind, such as wireless screen transmission and conference content one-click
sharing. These features were standard in the entire line of Newline IFPDs but were not available on
HiteVision’s educational models. In addition, HiteVision provided a better service system for commercial
(Newline) customers; this included free on-site installation and training as well as 24-hour quick-response
repair services. The differentiation of features between the commercial and educational product lines was
thus broadened, creating an incentive for commercial customers to purchase Newline products rather than
opting for the cheaper HiteVision educational models.

HiteVision ended its co-operation with Lamoro at the end of 2018 due to incompatibilities between
Lamoro’s sales method and HiteVision’s products. According to their agreement, HiteVision repurchased
the remaining 2018 commercial IFPDs in Lamoro’s inventory and sold them at a reduced price.

NEW CHANNEL CONFLICTS

The dual-brand strategy had helped HiteVision solve many of its existing problems in channel management.
The commercial IFPD business was finally set on the right track. However, in early 2019, Wang was facing new
challenges. The most severe problem was related to the replacement of old commercial IFPD models. In order
to implement the dual-brand strategy quickly, HiteVision had cleared its inventory of the old models, which it
had stopped producing as soon as it could. However, many customers of HiteVision’s distributors had still
contracted for the old models, and this caused a difficult situation for the distributors: either these contracts would
have to be voided due to a lack of stock or the distributors would be forced to take a reduced profit by offering
these customers the new, more expensive 2019 model as a substitute for the old model. HiteVision was thus
faced with the difficult task of determining how to account for these outstanding contracts.

In addition, the newly established e-business department had also unexpectedly complicated Wang’s strategy.
The department set prices on well-known Chinese online trading platforms TMall and JD.com that were too
low, leading customers to cancel their orders with distributors and purchase online instead. HiteVision’s e-
business department had originally been established to assist the development of offline channels, but it had
developed into a stumbling block that prevented these offline distributors from doing business.

How could Wang resolve both of these distribution and channel conflicts, with the goal of further expanding
HiteVision’s sales across different sales channels?

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EXHIBIT 1: BACKGROUND INFORMATION ON HITEVISION CO. LTD.

HiteVision Co. Ltd. (HiteVision) was one the biggest manufacturers of interactive displays in the industry.
By the end of 2020, HiteVision had 36 subsidiaries and over 2,800 employees globally, and its annual
revenue was ¥3.99 billion (approximately US$619.3 million).

HiteVision had its own capability in industrial design, hardware and software research and development,
mass production, and distribution of its product lines, which ranged from interactive flat-panel displays
and interactive whiteboards to education applications.

HiteVision provided a series of hardware products, software products, and solution packages for both
educational and commercial usage. Representative products or services included hardware products,
software products, and other technology solutions.

Hardware products included the items shown below:

Software products included mainly educational software such as the aixuebanban, which was designed
for teaching administrative management skills.

Other technology solutions integrated strengths in both hardware and software development. HiteVision
offered various solutions in both educational and commercial contexts, such as webcasting software
and smart conferencing tools.

Note: ¥ = RMB = Chinese yuan renminbi.

Source: Company documents.

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EXHIBIT 2: HITEVISION CO. LTD. CHANNEL STRUCTURE AT THE END OF 2017

Note: HiteVision = HiteVision Co. Ltd.

Source: Created by the case authors.

EXHIBIT 3: HITEVISION CO. LTD. CHANNEL STRUCTURE AT THE BEGINNING OF 2018

Note: HiteVision = HiteVision Co. Ltd.

Source: Created by the case authors.

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EXHIBIT 4: HITEVISION CO. LTD. CHANNEL STRUCTURE AT THE BEGINNING OF 2019

Note: HiteVision = HiteVision Co. Ltd.

Source: Created by the case authors.

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2024.