CHANNEL CONFLICT

1
CHANNEL CONFLICT
2
Channel Conflict

• A channel conflict may be defined as A situation
  in which one channel member perceives another
  channel member(s) to be engaged in behavior that
  prevents it from achieving its goals.
• Conflict is opposition, disagreement or discard
  among the organizations.

3
Channel Conflict

• Conflict is not always undesirable.
• It is needed to have positive effect as loopholes
  in the existing system can be plugged timely and
  performance can be maximized.
• It can keep other channel members on their toes
  knowing that a decline in performance might lead
  to a change in the channel arrangements.

4
Types of conflict

• Each channel member views the conflict, the
  relationship and the tensions differently.
  Following are the types of channel conflicts
• Latent conflict The channel members may be
  unaware about the opposition. They do not fully
  sense the conflict. This is due to the separate
  or un-conflicting goals.
• Perceived conflict The channel members sense
  that some sort of opposition of perceptions, of
  interest, or of intensions exists. It is more
  psychological, i.e. two organizations can
  perceive that they are in disagreement but their
  individual members do not consider it as a very
  serious issue.

5
Types of conflict

• Felt conflicts When channel members not only
  perceive the opposition or disagreement but also
  feel it actually they are felt or affective
  conflicts. This needs to be sorted out at a early
  stage to avoid further consequences.
• Manifest Conflict If felt conflicts are not
  managed in time and properly, they can become
  manifest or overt conflicts and these conflicts
  stop the cooperation and understanding between
  two organizations and block the other from
  achieving its goals.
• Functional Conflict When channel members accept
  that there is opposition and disagreement but
  actually, this opposition will improve their
  relationship, it becomes functional conflict. It
  is common, obvious and sometimes desirable too
  due to the interdependence of channel members on
  each other.

6
Conflicts can also be classified as

• Vertical conflict
• Horizontal conflict
• Inter type conflict
• Multi Channel conflict

7
Vertical conflicts

• Vertical conflicts occur due to the differences
  in goals and objectives, misunderstandings, and
  mainly due to the poor communication
• Lack of role clarity and over dependence on the
  manufacturers. For e.g. Today the large retailers
  dominate the market and dictate the terms. Hence
  there are often conflicts between these giant
  retailers and the manufacturers.

8

• Wholesalers expect manufacturers to maintain the
  product quality and production schedules and
  expect retailers to market the products
  effectively. In turn, retailers and manufacturers
  expect wholesalers to provide coordination
  functional services. If they fail to conform each
  others expectations, channel conflict results.

9
Some common reasons for vertical conflict are

• Dual distribution i.e. manufacturers may bypass
  intermediaries and sell directly to consumers and
  thus they compete with the intermediaries.
• Over saturation, i.e. manufacturers permit too
  many intermediaries in a designated area that can
  restrict, reduce sales opportunities for
  individual dealer and ultimately shrink their
  profits.

10

• Partial treatment, i.e. manufacturers offer
  different services and margins to the different
  channels members even at same level or favor some
  members.
• New channels, i.e. manufacturers develop and use
  innovative channels that create threat to
  establish channel participants.

11

• No or inadequate sales support and training to
  intermediaries from the manufacturers.
• Irregular communication, non co-operation and
  rude behavior with the channel members.

12

• Stipulation of ordering in advance, high stock
  holding and dumping the stock at the
  intermediaries.
• Delays in delivering the products or sometimes
  dispatching the products without confirmed order.
• Refusal to replace or take back the goods damaged
  in transit. Non co-operation in replacement of
  faulty goods, repairing services, and
  installations.

13

• No co-operative advertisements. Manufacturers do
  not share any expenses of advertisements.
• No or inadequate credit offered to the
  intermediaries. Margins / commissions are not
  sufficient and there is no periodic revision of
  commission and other terms

14
Conflicts due to the Intermediaries Actions

• Intermediaries promote and sell more private
  labels than promoting the manufacturers brands.
• Intermediaries encourage customers to switch to
  private labels / competitive products.
• Intermediaries carry competing lines and give
  more showroom space.

15

• No support in the manufacturers promotional
  efforts.
• Intermediaries fail to get the expected /
  promised efforts.
• Intermediaries fail to collect payment from
  market in stipulated time.

16

• Intermediaries deliberately cut the prices to
  harm the manufacturers.
• Intermediaries refuse to service and install
  manufacturers products.
• No appropriate and timely market feedback and
  report to the manufacturers.

17
Horizontal conflicts

• Horizontal conflicts are the conflicts between
  the channel members at the same level, i.e. two
  or more retailers, two or more franchisees etc.
  These conflicts can offer some positive benefits
  to the consumers. Competition or a price war
  between two dealers or retailers can be in favor
  of the consumers.

18
Reasons behind horizontal conflicts

• Price-off by one dealer / retailer can attract
  more customers of other retailers.
• Aggressive advertising and pricing by one dealer
  can affect business of other dealers.

19
Reasons behind horizontal conflicts

• Extra service offered by one dealer / retailer
  can attract customers of others.
• Crossing the assigned territory and selling in
  other dealers / retailers / franchises area.
• Unethical practices or malpractices of one dealer
  or retailer can affect other and spoil the brand
  image.

20
Inter Type conflict

• Inter type conflict occurs when, the
  Intermediaries dealing in a particular product
  starts trading outside their normal product
  range. For example, now the supermarkets such as
  Foodworld also sell vegetables and fruits and
  thus compete with small retailers selling these
  products. Large retailers often offer a large
  variety and thus they compete with small but
  specialized retailers. This concept is called as
  Scrambled Merchandising where the retailers
  keep the merchandise lines that are outside their
  normal product range.

21
Multi-channel Conflict

• Multi-channel conflict occurs when the
  manufacturer uses a dual distribution strategy,
  i.e. the manufacturer uses two or more channel
  arrangements to reach to the same market.
• Manufacturers can sell directly through their
  exclusive showroom or outlets. This act can
  affect the business of other channels selling
  manufacturers brands.

22
Multi-channel Conflict

• Manufacturers can bypass the wholesalers and sell
  directly to the large retailers. Conflict becomes
  more intense in this case as the large retailers
  can enjoy more customers and so the profit due to
  offering more variety and still economical
  prices, which is possible due to a volume
  purchase.

23
Resolving Channel Conflicts

• Conflict is a natural phenomenon, which cannot
  be eliminated. In channel management, it is a
  inevitable as many individuals, institutions are
  involved and they are interdependent. Certain
  conflicts are constructive too.
• The conflicts can be reduced and managed better
  to reduce the friction in the channel management.
  Various techniques can be used to resolve the
  conflicts. It is important to find out the root
  cause behind the conflict so that appropriate
  technique can be used to resolve the conflicts
  and lasting effect is possible.

24
Some techniques are as follows

• Channel leadership Many channel conflicts can
  be resolved through the effective channel
  leadership. Channel leader is able to reduce
  conflicts because he possesses the channel power.
  Channel power is the ability of one channel
  member to influence another members marketing
  decisions and goal achievement. It enables the
  leader to influence overall channel performance.
  The channel leader controls resources on which
  other members depend. Channel power can increase
  conflict and reduce cooperation if one channel
  member uses coercion to influence others.
  Manufacturers, wholesalers or even retailers can
  become the channel leaders. For example,
  producers like IBM, Ford can act as channel
  leaders because of their economic power.

25

• Adoption of Super ordinate goals The channel
  members come to an agreement on the fundamental
  goal they are jointly seeking, whether it is
  survival, market share, high quality or customer
  satisfaction.
• Exchange of persons between two or more channel
  levels This helps in better understanding. It
  can reduce the misunderstanding and conflicts can
  be reduced substantially through this
  communication. Each will grow to appreciate the
  others point of view and carry more understanding
  when returning to their position.

26

• Co-Opt It is an effort by one organization to
  win the support of the leaders of another
  organization by including them in advisory
  councils, board of directors so that they feel
  that their opinions are being heard. Co-optetion
  can reduce conflict provided both the parties
  compromise some or the other issues in order to
  win the support of the other side.

27

• Joint membership in and between trade
  associations Such associations bring all
  participants under one roof for more exposure to
  the public and to improve relations with each
  other by understanding their problems.
• Diplomacy Diplomacy takes pace when each side
  sends a person or a group to meet with their
  counterpart from the other side to resolve the
  conflict. It makes sense to assign diplomats to
  work more or less continuously with each other to
  avoid the conflicts.

28

• Third-Party Mechanisms When conflict is
  chronic, and the above mentioned techniques are
  ineffective, both the parties may have to resort
  to third parties, which are not involved or not
  the part of the existing channel.
• Arbitration In this method, the two parties
  agree to present their arguments to a third party
  and accept arbitration decisions.

29

• Mediation Mediation implies resorting to a
  neutral third party who brings skills in
  conciliating the interests of the two parties.
  Mediation is the process whereby a third party
  attempts to secure settlement of a dispute by
  persuading the parties either to continue their
  negotiations or to consider procedural
  recommendations that mediator may make. Mediator
  has a fresh view of the situation and may
  perceive opportunities that insiders cannot.
  Effective mediation succeeds in clarifying facts
  and issues. Mediators help the parties to set up
  their own decisions whereas in arbitration it can
  be compulsory.