Channel Conflicts

Conflict is generated when actions of any channel member come in the way of the system achieving its objectives Three broad categories of channel conflict are:
Goal conflict understanding of objectives by various channel members is different Domain conflict understand responsibilities and authority differently Perception conflict reading of the market place is different and proposed actions vary

Channel Conflict
CONFLICT

GOAL

DOMAIN

PERCEPTION

Channel Conflict
Situation of discord or disagreement between partners in the same channel system has negative connotations and is driven more by feelings than facts Conflict is part of any social system getting disparate entities to work together as in a channel system is also one such social unit If any member feels that another is working in a manner as to affect him, conflict results

Conflicts Result From

Each channel member wanting to pursue his own goals Each wants to retain his independence There are limited resources which all of them want to utilise in achieving their goals Features of conflicts:
Initially latent and does not affect the working Is not normally possible to detect till it becomes disruptive
Four stages.

Four Stages
LATENT

PERCEIVED

FELT

MANIFEST Each stage is progressively more severe than the earlier one

Types of Conflicts
Latent Conflict:
Some amount of discord exists but does not affect the working or delivery of customer service objectives. Disagreement could be on roles, expectations, perceptions, communication.

Perceived Conflict:
Discords become noticeable channel partners are aware of the opposition. Channel members take the situation in their stride and go about their normal business No cause for worry but the opposition has to be recognized

Types of Conflicts
Felt Conflict:
Reaching the stage of worry, concern and alarm. Also known as affective conflict. Parties are trying to outsmart each other. Causes could be economical or personal Needs to be managed effectively and not allowed to escalate.

Manifest Conflict:
Reflects open antagonistic behaviour of channel partners. Confrontation results. Initiatives taken are openly opposed affecting the performance of the channel system. May require outside intervention to resolve

Reasons for Channel Conflict

Roles not defined properly Allocation of scarce resources between members seem unfair to some Differences in perception of the business environment

Reasons for Channel Conflict

Future expectations not likely to materialize Decision domain disagreements who has to decide on what (key account pricing) Channel members do not agree on objectives Misunderstanding or mis-interpretation of routine business communication

Resolving.

Resolving Conflicts
A 4 Stage Process
Understanding nature and intensity

Tracing the source of the conflict

Understand the impact of the conflict

Strategy and plan of action for resolution

Conflict Resolution Styles

Avoidance Aggression Accommodation Compromise Collaboration Least effort and results Maximum effort and Best results

Styles are a combination of assertiveness and co-operation.

Avoidance
Used by weak channel members. Problem is postponed or discussion avoided. Relationships are not of much importance. As there is no serious effort on getting anything done, conflict is avoided.

Aggression
Also known as a competitive or selfish style. It means being concerned about ones own goals without any thought for the others. The dominating channel partner (may be the principal) dictates terms to the others. Long term could be detrimental to the system.

Accommodation
A situation of complete surrender. One party helps the other achieve its goals without being worried about its own goals. Emphasis is on full co-operation and flexibility in approach. May generate matching feelings in the receiver. If not handled properly, can result in exploitation

Compromise
Obviously both sides have to give up something to meet mid way. Can only work with small and not so serious conflicts. Used often in the earlier two stages.

Collaboration
Also known as a problem solving approach Tries to maximize the benefit to both parties while solving the dispute. Most ideal style of conflict resolution a winwin approach Requires a lot of time and effort to succeed. Sensitive information may have to be shared

Channel Policies
Defines how the channel is required to operate. Normally framed by the channel principal to guide the operations of the channel system If not framed properly could prove the starting point of channel conflicts. Some subjects of channel policies could be as seen in the next slide:

Channel Policies
Markets to be covered Customer coverage Pricing Product portfolio to be handled Selection, termination of channel members Ownership of the channel

The Services Sector

Twice the size of the manufacturing sector Services offered are to be in line with customer demand Services have to be presented in an appealing manner to sustain customers. Needs specialized channels which understand the characteristics of service delivery

5 Characteristics of Services
They are intangible can only be felt. No visual features like size, style. They are inseparable from their service providers a 3P cannot deliver They cannot be standardized custom made and delivered Customers are involved to a great degree define the services They are perishable cannot be stored for delivery later. Salvage value of an unsold service is zero.

Channels Used
Shorter channels than for products Some channels used are:
Direct from service provider to user Agents or brokers to bring buyer and seller together Franchisees or contractors Electronic channels

High degree of customization is provided

Key Learnings
Channel management is done by: use of power bases, identifying and resolving channel conflicts and co-ordination Channel conflicts could occur due to: goal conflicts, domain conflicts and perception conflicts Channel conflicts pass thru the 4 stages of latent, perceived, felt and manifest. Conflicts are avoided with the use of power bases of rewards, coercion, expertise, legitimacy and reference. There are 5 styles of conflict resolution: avoidance, aggression, accommodation, compromise and collaboration

Key Learnings
Channel conflicts are resolved by joint membership of associations, exchanging personnel or arbitration Channel management involves the four steps of planning, organisation structure, control of the channels and measuring performance for continuous improvement Services are distinguished by 5 characteristics of being intangible, inseparable from service providers, cannot be standardised, customers are involved in service delivery and are perishable. Distribution channels should take these into account.

ASSESSING MARKETING CHANNEL

PERFORMANCE

Performance
In marketing channels stakeholders are the channel members themselves as well as customers or consumers they serve. Performance has both efficiency and effectiveness characteristic It measures total channel profitability as well as target segments satisfaction with the level of service outputs supplied to them Two tools the SPM and EVA help channel members to appraise the health and viability of current or prospective channel members as well as permitting channel members to examine sources of problems in financial performance

Performance Measures in Marketing Channels

Performance Measures

Effectiveness

Equity

Efficiency

Delivery

Stimulation

Productivity

Profitability

Channel Member Performance

Sales performance Financial performance Reseller competence Reseller compliance Reseller adaptation Reseller growth Customer satisfaction

CAPITAL MANAGEMENT

MARGIN MANAGEMENT

Asset Turnover (Net Sales/Total Assets)

Profit Margin (Net profits/Net sales)

Equals
Return on Assets (Net profit/Total assets)

STRATEGIC PROFIT MODEL

X
Leverage Ratio (Total assets/Net Worth)

FINANCIAL MANAGEMENT

Equals Return on Investment (Net Profits/Net Worth) HIGH YIELD MANAGEMENT

Key Causes of Channel Conflicts

Role Incongruities Resource Scarcities Perceptual Differences Expectational Differences

Domain Disagreements
Goal Incompatibilities Communication Difficulties

Conflicts in Distribution Channels

Conflict is ubiquitous in distribution channels Roots of conflict can be traced to interdependence, and asymmetry of power inherent in distribution channels Traditionally, conflicts are denounced because they can: Lead to hostility and bitterness that can hurt the entire supply chain

Destroy the very expectations of mutually beneficial exchange relationships based on trust
And most importantly, lead to poor performance

Functional Conflicts in Distribution Channels

The functional view of conflict focuses on its performance enhancing effects

Disagreements clear the air and reduce tensions

Conflicts ultimately improve efficiency and performance by identifying sources of tension and reducing complacency Differences of opinion lead to creative and better business ideas and solutions Resolved conflicts relationships ultimately strengthen the quality of channel

Empirical Link Between Conflict and Efficiency

Efficiency

C1

C2

Conflict Level

Managing Conflict
Detection, preferably ex ante, or early by Channel Audits Advisory Councils Resolution of Conflicts by Councils and Committees Joint Goal Setting Arbitration Role Clarity

Effective Communications

Introduction to Alternative Distribution Strategies

Logistical Perspective Intensive, Selective, and Exclusive distribution

Strategic Perspective TCA: Focus on transaction costs Agency Theory: Focus of efficient contracts and aligning incentive structures Relationalism: Focus on trust and alliances/partnering

Is There a Dark Side to Long Term Alliances?

Recent research suggests that long term alliances have led to some unintended consequences.

Specifically, high levels of interaction, familiarity and experience implicit in long term relationships can:
Foster a What have you done for me lately mindset Make objective evaluations difficult Generate doubts of being take advantage of Spread a culture of complacency

Empirical Evidence on Relationship Oriented Strategies

Correlation Between Key Variables and Performance over Time

0.8 0.7 0.6 0.5 0.4 0.3

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