This paper investigates dynamic differentiation strategies under inventory risks when manufacturers open a direct channel to compete with their partner retailer. Differentiation is often employed in conflicting channels, but effectiveness becomes unclear when inventory risks are present. Accordingly, we propose that given the inventory risks and cost under demand variability, various coordinated strategies can be achieved through product repositioning with proper pricing. We find that forbearance strategy should be proposed to the manufacturer, to focus on potential market demand if the product in a direct channel is cheaper than and inferior to the product in an indirect channel. The direct channel should adopt assistance strategy if the product in a direct channel is more expensive than and inferior to the product in an indirect channel. For products with high demand variability (e.g., luxury goods) and high selling cost, a high price should also be set for low-positioned products. Moreover, the differentiation should be high for direct and retail channels.